When evaluating a trade, some investors look at the volume in the underlying stock as well as open interest, the bid/ask spread, and option volume in order to ascertain if liquidity is adequate. Some stocks tend to have more robust options volume than others, but “heavier” options volume does not necessarily mean the stock is of higher quality. Sometimes, we come across a stock that has seen notably heavy volume at one strike compared to another.
Wednesday, in Citrix Systems (NASDAQ: CTXS), the June 50 calls saw about 14,000 contracts hit the tape by noon central time. With open interest of just 3,200, this volume likely traded to open and appeared to be initiated by buyers. Volume at this one strike was six times more than all of the volume across all other call and put strikes combined.
At first glance, one might think this is a reason to get into a trade. After all, if someone was confident enough to buy 14,000 of the June 50 calls, the stock must be going higher. This assumption can be dangerous, because there is of course no way of knowing for sure which way a stock will move … or when. (more…)
