Posts Tagged ‘options trading’
We talked about “Expiration Week Earnings Plays” in this week’s webinar (you can access an archived version from this link or peruse our webinar archive page). During the session, we highlighted what the option market was projecting about the expected move in companies such as JPMorgan Chase (JPM) and Google (GOOG).
At the time of the webinar (after Tuesday’s close), at-the-money straddles were indicating a 3.2% move in JPM and a 4.4% move in Google through today’s expiration. Remember a straddle is the simultaneous purchase (or sale) of the call and put with the same strikes (and same expiration). Adding the at-the-money call and put prices together is a reasonable reflection of the option market’s expected move for the underlying through the next expiration date at any given time. (more…)
Tags: Earnings, GOOG, Google, Long Straddle, Options Strategies, options trading, short straddle
Posted in blog, What's Hot | No Comments »
Wednesday, June 15th, 2011
Now that the new OptionsHouse trading platform has been out for a few months, we’d like to spend some time talking about some of the new features.
And what better place to focus on than the place where the magic happens: the order ticket.
There are three new features that we believe will make it easier for customers to get the information they need to place the right trades at the right time.
Spread Market Bar
If you trade spreads, it’s important to know what the market is for each individual leg, but it’s even more important to know what the bid and the ask are for your spread as a whole.
That’s what the new spread market bar is for. (more…)
Tags: Online Options Broker, Online Trading Platform, options trading, OptionsHouse
Posted in blog, Trading on OptionsHouse | 1 Comment »
This week marks the final days that Citibank will be trading below $5 per share (or even $20 per share) for some time! This is not due to the business getting remarkably better and the prospects for the shares becoming suddenly bullish.
Rather, the company will be going through what is known as a reverse split of their shares. The previously announced 10-for-1 reverse split will take place this weekend with the shares trading ex-this split Monday morning. What this means for the typical investor is if they held 1,000 shares of C stock, on Monday morning they will have only a 100-share position.
Investors are not economically disadvantaged as the stock’s trading price will likely be around $45.20, up from the current $4.52 due to the fact that the company is the same size but there are 1/10th the number of shares outstanding. (more…)
Tags: Citi, Citigroup, Non-Standard Deliverables, options trading, Reverse Stock Split, Stock Split
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Well, March was an eventful month. We had the world’s third-biggest economy suffer a massive earthquake and tsunami followed by an ongoing nuclear emergency. If that was not enough, the massive unrest in the Middle East has continued to spread. NATO is bombing the Libyan Army currently.
Finally, the problem children of Europe are seeing the CDS on their debt spike to new highs. We got an initial sell-off, but since Japan has seemed to stabilize, the SPDR S&P 500 ETF (SPY) is now higher than it was on March 11 – the day of the earthquake, and within spitting distance of its February highs. Likewise, after a quick spike in the CBOE Market Volatility Index (VIX), we are now back to a VIX reading around 18. (more…)
Tags: Advanced Options Strategies, CBOE Market Volatility Index, Collars, Diversification, Hedging, Iron Condor, Options Strategies, options trading, Protective Puts, Stock Replacement, VIX
Posted in Advanced Trading, blog | No Comments »
Many traders think of calendar spreads (or time spreads) as “theta plays,” or strategies benefiting from the passage of time. This idea is an oversimplification at best. Time spreads are complex option trading strategies involving several independent influences on an option’s price including time, implied volatility, and direction.
While these spreads have a lot going on, the ultimate success or failure of time spreads is a function of the relationship of the underlying stock price to the strike price at the expiration of the short-term option. Time spreads are trading strategies that can offer an interesting alternative to a more traditional directional play. Let’s look at an example of one of these relatively advanced option trading strategies. Note that the tickers used are for the purpose of illustration only and do not constitute trading recommendations. Prices are hypothetical. (more…)
Tags: Advanced Option Strategies, Calendar Spread, options trading, Time Spread
Posted in blog, Education | No Comments »
Wednesday, March 2nd, 2011
The broad market took it on the chin yesterday, losing around 1.5%, and Alcoa (AA) was among the worst-performing names in the Dow, shedding more than 3% of its value. The aluminum company’s CEO said Tuesday that while U.S. industrial demand for the metal is improving, he doesn’t feel “the current environment is such that [Alcoa] want[s] to bring capacity back” to pre-recession levels.
Some traders seem to have viewed pullback as a buying opportunity. Two large blocks traded on in-the-money, intermediate-term calls during Tuesday’s session. (more…)
Tags: AA, Alcoa, Long Call, options trading
Posted in blog, What's Hot | No Comments »
Tuesday, February 15th, 2011
Yum! Brands (NYSE:YUM) is looking to shed two of its less-iconic brands (Long John Silver’s and A&W) but a long-term investor seems to be adding to his or her own bearish position by scooping up LEAP ratio put spreads. The January 2013 40 and 45 puts were active on Monday and it was the second time since late January we have noticed unusually large volume at these strikes.
Yesterday, as the stock was moving modestly higher to an eventual close of $50.30, an investor apparently sold 3,600 of the January 2013 40 puts, as they traded on the bid price of $3.00 apiece. At the same time, a block of 2,000 of the January 45 puts traded on the ask price of $5.00 each, suggesting they were initiated on the buy side. This spread likely traded with stock, but probably only to aid in its execution.
What is especially interesting about this trade is not even the long-term nature of the play or the 1.8 ratio at which it traded, but the fact that the same strikes saw similar action on January 27. On this day, it looks as though 8,000 of the 40 puts sold for $3.70 each while 5,000 of the 45 puts were bought for $5.90 each. If it is the same investor, they may just be adding to this position with a similar trade fewer than three weeks later. (more…)
Tags: LEAPS, options trading, Options Volume, Ratio Put Spread, YUM, Yum Brands
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Monday, February 14th, 2011
Chart Source: Bloomberg
When a stock price plummets, many sage old traders may warn, “Don’t try to catch a falling knife!” This adage refers to a rookie trader’s mistake of buying a falling stock and hoping easy money can be made before flipping out of it when it (again, hopefully) bounces.
Many portfolios have been crushed owning weakened shares and waiting for a stock bounce that never comes.
The same warning may be appropriate when looking at volatility. We have been weathering continued uncertain economic and sovereign debt outlook in Europe, inflation fears and interest-rate increases in China, continued high unemployment domestically, and most recently, the geo-political upheaval in the Middle East, which the U.S. stock market has largely shrugged off. (more…)
Tags: CBOE Market Volatility Index, Historical Volatility, options trading, Realized Volatility, VIX
Posted in Advanced Trading, blog, Trading on OptionsHouse | No Comments »
Thursday, January 27th, 2011
Delta is a numerical value that describes an option in several interesting and useful ways, such as how much the option’s price should move for a $1 move in the underlying stock, how much the option is almost exactly like its stock, and what the probability is of the option being in-the-money by expiration.
A short definition of delta would be the sensitivity of an option’s price to changes in the underlying price. A shorter definition would be the speed of the option. If an option has a delta of 0.500, you can think of this as 50% and it means that if the underlying stock moves $1 (higher or lower), the option price will move only 50 cents (again, higher or lower).
Delta is calculated within an option pricing model by a function that compares the option strike price to the underlying stock price and accounts for probability and the passage of time. That mouthful sounds complicated, but if you know a little about options already, you can break this down step-by-step. First, comparing the option strike price to the underlying stock tells you about its value. Since an option gives you the right to be long or short the stock, its value is comprised of intrinsic value (the real worth it has if it is in-the-money) + time value (the worth it has due to future possible price movement). (more…)
Tags: Delta, Greeks, Moneyness, Option Pricing, options trading
Posted in blog, Trading on OptionsHouse | 1 Comment »
Wednesday, January 12th, 2011
Duke Energy (NYSE:DUK) lost some ground Tuesday following an analyst downgrade. RBC Capital cut its rating on the shares to “sector perform” from “outperform” and kept its 12-month price target at $19. The stock is currently trading around $17.50, so this target still allows for modest upside over the next year.
Over the past 12 months, DUK is little changed, up 3%. The stock was flagged on the OptionsHouse Hot List on Tuesday, however, and it appears as though at least one investor expects the shares to break free of this sideways trend and head higher. They evidently expressed this outlook by selling puts and simultaneously buying calls (otherwise known as a synthetic long stock strategy). (more…)
Tags: DUK, Duke Energy, options trading, Options Volume, Synthetic Long Stock
Posted in blog, What's Hot | No Comments »
