Options, understandings and tacticsAlan – We open here a forum for discussing options. It might be helpful to open the discussion with a copy of the paragraphs that I wrote 4/24 about options. I don’t know how to cut-and-paste that material.
Before I opened this discussion forum, I noticed a question about choosing a stock that might perform well as an option. I’ve already briefly addressed the subject…and would appreciate knowing about the thinking of others.
I have years of experience, but could not pass myself off as an ”expert.” I prefer that this discussion forum be a gathering of investors with an interest in options…with all of those with greater experience contributing things that they have learned. Our goal is to benefit one another.
This is a discussion topic or guest posting submitted by a Stock Gumshoe reader. The content has not been edited or reviewed by Stock Gumshoe, and any opinions expressed are those of the author alone.
$RLYP. For biotechlong or anyone with knowledge on this subject. Would there be any advantage to buying back the Jan calls for a profit now and selling them again if the stock rebounds?
Thanks for any help I’m new to covered calls
$Love (#Love) Delivers – Southwest Airlines LUV – NYSE By Bottarelli Research
Published Thursday, April 21, 2016
Today’s tip is straightforward enough: Southwest Airlines LUV – NYSE has risen 41% since February in anticipation of a strong quarterly report today. And indeed,it delivered upside surprises on both quarterly revenue, which grew 7.50% year-over-year, and quarterly earnings, which picked up an astounding 182.10%.
However, everyone was obviously expecting this “surprise.” So now that they have it, it’s time to sell the news.
LUV
Bottarelli Research Tip: Looking to LUV’s technical chart, we see a typical retracement from this position at the top Bollinger Band of -33.8% over the next 15.5 weeks. If LUV were to follow through with another full cycle, it would drop to $32.77 by the middle of August. While that’s certainly technically feasible, it’s a lot to ask of a stock that’s hitting on all eight cylinders. Let’s set a conservative target at the recent support node at $45.46.
Profit No Matter Which Direction Stocks Move: If you’re ready to start trading the market’s daily ups and downs, then it’s time to enroll in our new “Rapid-Fire” program. Using this trading strategy, you can profit no matter if the market moves higher or lower. Click here to see our recent performance, and how you can receive our next alert today.
#Always best2U-Ben
$MTU -Possibly the Most Unusual Trade of the Year
Mitsubishi UFJ Financial (MTU – NYSE) By Bottarelli Research
Published Friday, April 22, 2016
On Monday, we told you to keep an eye on Kraton Performance Polymers KRA – NYSE when a trader bought 37 times the daily volume of calls traded. Since then, KRA has rallied every day and is 7.3% higher.
Today we witnessed an even-more outlandishly large trade hit the tape in Mitsubishi UFJ Financial MTU – NYSE when a trader bought 20,000 MTU June 5 calls for $0.55 each.
MTU
Bottarelli Research Translation: Never heard of MTU? You’re not alone, but as we learned earlier this week with KRA, you don’t need extensive knowledge about a stock to make money off it.
At $0.55 per contract, this trader outlaid $1.1 million — a lot of cash, but the real story is the relative size. MTU trades just 30 total options per day on average. That means today’s single transaction accounts for 667 times the daily average. To put it another way, entering today MTU had 1,294 total options in open interest. After today, you need to multiply that number by 15 as a result of this trade.
With a break-even price at expiration of $5.55, MTU has to increase 4.7% for our trader to walk away a winner. With earnings approaching in a few weeks, be sure to watch for something unexpected in MTU as this is one of the most unusual trades we’ve ever seen.
The One Problem with Trading Powerful, High-Beta Stocks: Often times, playing an expensive, fast-moving stock requires a tremendous amount of premium to enter a single trade. But our new “Rapid-Fire” strategy shows you exactly how to play these fast movers for a fraction of the cost. That way, you can profit no matter if the market moves higher or lower, all while risking a small amount for a sizable return. Click here to see our recent performance, and how you can receive our next alert.
$DAL nada – Delta’s Tray Tables are in Their Upright and Locked Position
Delta Air Lines (DAL – NYSE) By Bottarelli Research Published Monday, April 25, 2016
Airline stocks had been market darlings for much of the spring recovery. That was up until last week when the entire sector got smoked off some bad earnings reports and lower-than-expected PRASM (Passenger Revenue per Available Seat Mile) numbers.
Now as we enter a new week, airlines are lower once again but a deep-pocketed trader is buying the dip using Delta Air Lines DAL – NYSE. Earlier today this customer bought 5,000 DAL September 50 calls for $1.19 each. DAL
Bottarelli Research Translation: At $1.19 per contract this trader outlaid $595,000 in pure option premium. With a break-even price at expiration of $51.19, DAL has to increase 16.5% for this trade to become profitable. Considering how volatile airline stocks have been, 16.5% isn’t that much given five months. DAL has established support around $42.50, and if this level holds it could serve as a springboard for the stock to climb higher. If DAL can break through the all-time highs of $52.50 from the fall of 2015, this trader’s profits will soar.
We Get Asked This Question All The Time: “Why should I belong to your paid service?” Instead of answering, we’ll let our members do the talking. The letter below contains 31 recent subscriber testimonials that were submitted in 2016. Read just the first few straight from the mouths of current members, and you’ll understand the value we provide. bl
$AAPL – AAPL’s Disappointment is the Time to Bite Apple (AAPL – NASDAQ)
By Bottarelli Research Published Wednesday, April 27, 2016
Apple AAPL – NASDAQ released earnings after the close yesterday, and while all of Wall Street had low expectations, the numbers posted still disappointed. Shares of AAPL traded lower seven of eight days leading up to this announcement, and today marked the steepest tally as the stock tanked 6.8%. All told, AAPL has now sold off 14.6% from its recovery highs of just a few weeks ago.
The outlook may look bleak for AAPL, but it’s times like this that often make for the best buying opportunities. When there’s blood in the streets, buy property, right? That’s exactly what a sharp trader is doing as evidenced earlier today by the purchase of 23,000 AAPL July 105/115 bull call spreads for $1.08 apiece.
Bottarelli Research Translation: AAPL trades so many options per day (515,000 total on average) that it can be hard for one order to stand out, but a 20,000 lot call spread qualifies as unusual. This customer outlaid $2.48 million in pure option premium. With a break-even price at expiration of $106.08, AAPL has to increase 8.5% for this trade to be a winner.
Given the timeline, 8.5% doesn’t seem like much, especially considering how far shares have fallen recently. This spread maximizes its value if AAPL reaches $115 (+17.6%). At that level, each of these spreads would be worth $10, good for profits exceeding $20 million.
In my view the market is presently saturated and unless $appl comes through with some unique breakthrough technology improvement why would someone trade in their current Iphone, Iwatch or computer? They no longer have the visionary Steve Jobs
at the helm to spur this, so I would be most hesitant to make a bet like that. Still it is a difference of opinion that creates a horse race. Do your DD.
$TRIP nada- Calls, puts, straddles, strangles — we often see traders buying all sorts of options leading into an earnings announcement, looking for a big score. That’s why it’s so interesting when you see the opposite, as happened earlier today with TripAdvisor TRIP – NASDAQ. One customer sold to open 5,000 TRIP May 64 straddles for $8.00 apiece. TRIP
Bottarelli Research Translation: Just as a refresher, selling a straddle means you’re selling both calls and puts on a 1-to-1 basis. This trader sold 5,000 May 64 calls and 5,000 May 64 puts. It’s a bet on volatility, not direction. TripAdvisor announces earnings on Wednesday afternoon, and this customer doesn’t think the stock is going to react nearly as much as the market is indicating.
5,000 straddles at $8.00 a pop means our customer is collecting $4 million in premium. Now, there’s virtually no chance for him to keep all $4 million as TRIP simply isn’t likely to close right at $64 on expiration. The break-even prices for this trade are if TRIP trades below $56 (-14%) or above $72 (+11%). Inside these poles he’s guaranteed to make money, however beyond the outskirts he’ll lose $500k for every $1 move in TRIP.
You might be thinking the risk-to-reward proposition seems favorable. After all, how often do stocks swing more than 10% on earnings? Well, TRIP’s last four earnings moves were 12.3%, 13.4%, 2.2%, and 22.5%. If TRIP follows suit and gains in the neighborhood of 12%, this trade will lose a minimal amount, whereas a 22% pop would send TRIP to $79 and the losses to $3.5 million. However if the move is just 2%, this trader will hit the jackpot. Due to the unusual size of this trade, look for TRIP’s move Wednesday to be smaller than expected.
Made 40% on this trade in 3 minutes, all done on the iPhone app. No sitting in front of your computer. Thanks so much! Member Chip P.
Buy $ESPR @ $13.57
Write $ESPR 19 May $13 Call at $1.39
10% profit in two weeks if shares get called away
$12.18 cost basis (<52 week low) if options expire
This is a trade around a core position. I do no plan on holding the trading shares after 19May
Buy $RLYP @ $14.05
Write $RLYP 19 May $14 Call at $1.41
10% profit in two weeks if shares get called away
$12.64 cost basis if options expire
Replacing shares sold at ~$23 (lucky). I really don't trust the price action on this one. Might trade out of it after I sleep on it.
$ESPR, RLYP long long, Thankey kmRacr 🙂 The devil’z in the detailz…Ben 🙂
Shoot – My math is bad. $ESPR has only about a 6% upside and $RLYP 9.6%
Here is my follow up on the topic of “options” and “short selling discussion” with things I have learned over the years. While not a “novice to options” I am certainly not an expert either. Please know me a “C+” option-player and short-seller and consider C+ a low ranking for such difficult and important games.
http://www.stockgumshoe.com/2016/05/microblog-nobodys-folder/comment-page-1/#comment-4810734
Desire to improve skills was my primary reason to suggest discussions of options and shorting. Besides, I strongly believe, we all need to know a little about options and a little about shorting even if we never use them! For surely others players use them with stocks we may own! Good examples are the heavily shorted OPK and RLYP. I own both.
Below is a partial list of why I use options and sometimes short stocks. The list is personal, incomplete, not original, not just copy/posted here, list is from memory, it can and NEEDS to be improved, is offered to start discussions and is for your CCCC: Consideration, Correction, Criticism, and perhaps Compliment!…
Is NVDA Overdue for a Rewind? NVIDIA (NVDA – NASDAQ): http://www.bottarelliresearch.com/trades/2016/05/26/nvda-overdue-rewind
MU long – Micron is Starting to Heat Up http://www.bottarelliresearch.com/trades/2016/05/31/micron-starting-heat-up
In my frail experience now is not to sell premium. I have had best results selling premium only when IV is higher. In this low IV environment I use calendars, debt and some credit spreads, to take advantage possibly coming IV expansion. IV tend to be mean averting, but it may take time. In low IV environment forces premium sellers take directional assumption and hope to be right. Staying mainly in cash atm waiting higher IV.
In my frail experience now is not time to sell premium. I have had best results selling premium only when IV is higher. In this low IV environment I use calendars, debt and some credit spreads, to take advantage possibly coming IV expansion. IV tend to be mean averting, but it may take time. In low IV environment forces premium sellers take directional assumption and hope to be right. Staying mainly in cash atm waiting higher IV.
I tried a buy write on $RDUS last fall and bailed out for a small loss when things turned negative. I am at it again. I think the stock should be fairly well de-risked at this level with the FDA acceptance for filing of their NDA for abaloparatide.
Buy $RDUS @ $36.97
Sell $RDUS Oct $40 Call @ $6.50
$GLD Fed p/r & i rate : http://www.bottarelliresearch.com/trades/2016/06/03/gold-trust-etf-activity-fed-rates Gr8wkend2ALL! – Jammin’
$CTL – Bears Expecting CTL to Disappoint Again http://www.bottarelliresearch.com/trades/2016/06/08/bears-expecting-ctl-disappoint-again
Any of These Acquisitions Could Happen Overnight Any of These Acquisitions Could Happen Overnight
This is urgent…
All five of our sharp paper tip-offs are receiving significant takeover chatter.
Here’s the latest…
Tip-Off #1: This stock quietly continues to set new highs every day, and sharp paper just bought 2,000 more June calls. This means something big could happen this month.
Tip-Off #2: Daily takeover speculation has triggered a series of major price spikes, all while the CEO keeps downplaying the rumors. This is typical behavior just before a major acquisition is finalized. Plus, sharp paper just bought another 6,000 June calls, which also means something big could happen this month.
Tip-Off #3: This stock just popped 11% in one day, all on heavy volume. Once again, this is very indicative of a pending takeover or acquisition. Sharp paper just bought another 800 August calls, which suggests something is in the works.
Tip-Off #4: Each day brings more and more chatter that this company plans on putting itself up for sale. Sharp paper just bought 5,000 more July calls, which means a sale could be agreed upon next month.
Tip-Off #5: This company could be directly linked to [Tip-Off #4], and possibly even involved in a similar deal. Any takeover news in this sector could cause this stock to blast off.
This news has started to push each stock higher, but the true blastoff will occur the second any of this news is confirmed.
But by then, it’ll be too late. Act now and the gains can be life-changing.
This is why it’s now or never. We urge you to get in now, since any of these stocks could explode overnight. Don’t say we didn’t warn you.
Click here to get immediate access to our top sharp paper trades. Get Our Top 5 Tip-Offs
(The Tease: http://www.bottarelliresearch.com/invitations/professional-sharp-paper )
Sincerely, Bryan Bottarell Editor, Bottarelli Research
ben Be careful here. Some readers might think you are promoting and endorsing ripoff news letter.
Read the link. Wow, the guy will make a cool half a million if he gets his subscribers per year. Kinda reminds me of some of the biotech CEO’s….you win, they win, you lose, they win….
🙂 🙂 🙂
5 4 Tuesday – Benzinga’s news desk monitors options activity to notice unusual patterns. These large volume (and often out of the money) trades were initially published intraday in Benzinga Professional . These trades were placed during Monday’s regular session.
International Paper Co (NYSE: IP) Jul16 41.0 Puts: 2250 @ Above Ask! $0.90: 2353 traded vs 242 OI: Earnings 8/3 $41.97 Ref
Lifelock Inc (NYSE: LOCK) Jul16 15.0 Puts Sweep: 1900 @ ASK $1.00: 1900 traded vs 75 OI: Earnings 8/3 $14.55 Ref
Smith & Wesson Holding Corp (NASDAQ: SWHC) Jun16 21.0 Puts: 4438 @ ASK $0.40: 4890 traded vs 1917 OI: Earnings 6/16 After Close $22.97 Ref
Hess Corp. (NYSE: HES) Jun16 56.5 Puts Sweep: 1000 @ ASK $0.66: 1001 traded vs 5001 OI: Earnings 8/3 $57.89 Ref
Sarepta Therapeutics Inc (NASDAQ: SRPT) Jul16 10.0 Puts: 5000 @ ASK $0.70: 5095 traded vs 599 OI: Earnings 8/4 $19.29 Ref
The Kroger Co (NYSE: KR) Jul16 35.0 Puts Sweep: 579 @ ASK $0.90: 6841 traded vs 12k OI: Earnings 6/16 Before Open $36.19 Ref
Fastenal Company (NASDAQ: FAST) Jan17 57.5 Puts Sweep: 959 @ ASK $15.50: 1000 traded vs 0 OI: Earnings 7/12 $43.89 Ref
© 2016 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
ben I am curious . What do you make of this ? Was this just one person expecting a downturn in the market soon or is this more than one person? What is your thinking on this? Should we prepare for a drop from unknown cause or is this truly an abberration?
GDX- Puts for a quickie: http://www.bottarelliresearch.com/trades/2016/06/16/gdx-put-trader-impeccably-shorts-golds-rush
Sharing post: Author: Ex CBOE Market Marker
Comment:
So I have no idea how I got sucked into watching the video but I did. I owned a seat on the CBOE and traded many hundreds of thousands or even a millions of option contracts over the years as a market marker and for my own account. In short the “system” is selling naked PUT options which is the EXACT SAME THING as doing a covered call. So if you buy stock and sell the call option this is the inverse of it. Does that make sense? As a poster above stated it takes capital that your brokerage company will require that you have on hand should the sh*t hit the fan and it has the same capital risk as the covered call.
When I was on the floor there were professionals that just sold options and over time they always blew up and lost it all. They would somehow get a new stake, come back and the eventually blow up again. We all knew who they were and knew they would lose it all again at some point. As a professional I tended to be short contract too but I was there every day in the pit and always covered very quickly when things went the wrong way.
As a public customer the deck is stacked against you. There is a spread and you typically sell the bid and buy the offer. There is no free lunch and for the premiums you will collect you will assume the associated risk. The risk is whatever the strike price is to the stock going to zero. Is selling calls then it’s theoretically unlimited. The market is also very efficient now unlike many years ago with not much deviation or guys like me move the price by trading and trading.
There is a saying.. It’s a good buy!… good bye house, good bye car…. and on and on.
Stay away from these scam artists. Sell the PUTS if you can stomach the risk but just understand you are really just doing covered calls. http://www.stockgumshoe.com/2016/02/microblog-what-is-this-twist-on-this-remarkable-claim/comment-page-1/#comment-4852825
Thank you CBOE MM – Ben
If this guy was indeed a floor trader he certainly is confused as to the meaning of the language he is using and the assumptions he is drawing. Perhaps when traders stood on the floor of the Chicago exchange with handfuls of orders actual trades may have been a little different. He is assuming that you must trade at the bid or ask price to buy/sell a put. With computerized trading a very large number of trades are in the midpoint area between the two. I have had many trades fill by entering a limit order near the midpoint, giving my counterpoint a slight advantage over me. IE if bid/ask is $1/$2 I put in an order of $1.40 when selling and it often fills.
Unlimited risk in puts is a misnomer. buying /selling puts is nothing more than forward contracting to lock in a definite price on a date certain,,, crucial when trading cattle or pork bellies or corn. A buyer buys the option to sell a ton of corn for say $200 in September, He might be the grower or the grain elevator that is about to buy from the grower right.now. I might be the buyer for Kellog and agree to sell an option to do that if he pays me $10 now. We agree and are both happy as we now know what our cost or price will be in September. We have some security by erecting a fence or hedge around that particular trade. In Sept the actual price of corn may be $50 or $400…. that means nothing to us as we have a locked in price. Where you get in trouble is selling something you do not have as then you must pay market price to deliver, in this instance the seller might have to buy $400 corn and deliver it to the me the buyer who sold him the option to deliver to me who sold him the assurance that I would buy. But that is only an option .
He does not have to sell the corn to me at all.
If I find that corn Is $50 I may be reluctant to buy at $200 but I must as the option I sold is a binding contract to buy so I would actually lose $150. on the deal. Obviously the most I could lose would be $200, the price I must pay even if corn dropped to $0.00. That is no different than the risk I would have assumed if I bought and took delivery of the corn at the time of original trade, right now. I would still have a ton of corn that is worth whatever the price is then. Oh we forgot the $10.00 so the corn via option is actually only$190.00, I am $10.00 better off than if i bought corn June 21 @ $200.
Buying/selling calls is similar in an upside down and backward way. Selling a naked call really does have unlimited risk in theory as in theory an item may have unlimited price.
If you sell a covered call the maximum you can lose is handing over your stock at the agreed upon price,, that also is a binding contract. The buyer of a call does not have to buy the stock,, he merely bought the option or right to do so.
Hope this helps.
Thank you Frank…Your instruction is much appreciated. – Ben