Sunday, March 18, 2012

Options Updates, Commentary and Tips from Option Alpha

Option Alpha - News, Commentary and Education

Updates, Commentary and Tips

Investment Vehicles Part 2: Daily Driver

The daily driver is the most robust of the investment vehicles. Typically this vehicle is extremely boring and not an attractive choice to most novice traders. Even though this vehicle is not the most exciting or fun way of investing, it is the type of vehicle that will create the passive income. Passive meaning it ...
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Trade Alert – March 16th

Today we are opening the new position as follows: Trade: Sell DIA April 115 Puts Premium: $15 (0.15) Credit or better per contract Underlying Price: $132.41 Max Return: 1.30% Break-Even Price: $114.85 Time Until Expiration: 34 Days Probability of Loss: 4.00% Trade Explanation: For the Naked portfolio we are entering our 2nd trade for the April portfolio. A little more conservative but ...
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How Large Index Options Can Help Reduce Your Commission Costs

This isn’t a trick or secret tip by any means – but maybe you just haven’t though about commissions like this before. You see, all of us have done the searching online for the “best” commissions. I know I still look around now and then to make sure I’m getting the best deal I can ...

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Entry & Exit Basics for Options Trading

Options trading involves opening and closing positions all the time right. And since the markets can turn on a dime, there are many times when exiting a position quickly becomes necessary. But before you can even be comfortable getting in and out of orders you have to know what tools you have at your disposal. ...
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Trade Alert – March 6th

Today we are opening the new position as follows: Trade: Sell IWM April 64 Puts Premium: $20 (0.20) Credit or better per contract Underlying Price: $80.34 Max Return: 3.12% Break-Even Price: $63.80 Time Until Expiration: 45 Days Probability of Loss: 5.45% Trade Explanation: For the Naked portfolio we are entering our 1st trade for the April portfolio. If you didn’t catch the video ...
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10 Reasons Why Options Trading Liquidity Should Be A Top Priority

If you truly want to make more money trading options then you need to start thinking now about the options you trade now. Liquidity should be combined with other metrics as you perform your market research but some traders overlook its advantages. In this post I wanted to share some of reasons why an option liquidity ...
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How To Set Up Stock Charts: 8 Smart Tips

You’ve decided that you want to really do all this trading stuff. Now you have to set up your stock charts so that it’s easy and simple to analyze the markets. A little time up front correctly setting up your charts now will save you time and money down the road. The key is to ...
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Trade Alert – February 27th

Today we are opening the new position as follows: Trade: Sell RUT April 910 CALL AND Buy RUT April 920 CALL Premium: $60 (0.60) Net Credit or better per contract Underlying Price: $826 Max Return: 6.38% Break-Even Price: $910.60 Time Until Expiration: 57 Days Probability of Loss: 6.86% Trade Explanation: For the Credit Spread portfolio we are adding our 1st trade for ...
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12 Can’t Fail Steps On How To Place Your First Option Trade Tomorrow

Placing your first option trade is not as hard as it may seem. You’ll never learn until you do it so let’s walk through placing your first trade step by step right now. At the end of this quick tutorial, add your comments and let me know if you think this was helpful in getting ...
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A Disciplined Approach To Trading Options

Many traders lose simply out of ignorance – as bad as this sounds it’s completely true. Honestly I throw myself into this category as well somethings when I see something I know I should trade on and I don’t. You see most investors base their trades on hunches, news, or tips from friends which we ...
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Options and Market News and Analysis from Schaeffers Research

Daily Options and Market News and Analysis

Daily Market News and Analysis

Last-Minute Traders Bolster Excel Maritime Carriers' Call Volume

Shares of Excel Maritime Carriers Ltd. (EXM - 2.03) have rallied today, after the company reported stronger-than-expected fourth-quarter revenue, and announced that it has inked an agreement to defer loan payments of up to %24100 million through 2016...(Read More)
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Speculators Sell Back-Month Calls on Best Buy

Best Buy Co., Inc. (BBY - 25.59) has seen an upswing in call activity today, as roughly 18,000 of these options have changed hands, reflecting 10 times the equity's expected intraday volume...(Read More)
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Map Pharmaceuticals' Poor Price Action Entices Bearish Bettors

Bearish options players showed an unusual interest in MAP Pharmaceuticals Inc...(Read More)
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Bearish Bettors May Be Hitting the Exits on Autodesk

Autodesk, Inc. (ADSK - 41.00) saw an uptick in put activity on Thursday, as nearly 2,200 of these options changed hands, which was double the equity's average daily volume...(Read More)
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Bearish Options Activity Abounds on Ctrip.com

China-based Ctrip.com International, Ltd. (CTRP - 23.42) was started at "underweight" at Barclays Thursday morning, which may have given bears further incentive to target the stock ahead of options expiration today...(Read More)
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Speculators Scoop Up Out-of-the-Money Calls on Travelzoo

Traders today have taken an interest in call options on Travelzoo Inc. (TZOO - 23.30), with volume ramping up to seven times the expected level...(Read More)
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April-Dated Calls Active on Akamai Technologies

Call volume has skyrocketed today on Akamai Technologies, Inc. (AKAM - 37.31), with roughly 10,000 contracts changing hands so far...(Read More)
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Call Spread Player Counts on Continued Gains for AvalonBay Communities

Call volume accelerated on AvalonBay Communities, Inc. (AVB - 137.46) yesterday, as 1,656 contracts changed hands -- nearly quadrupling the stock's typical daily activity...(Read More)


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Option Bears Bet on More Downside for Struggling Supervalu

Put players targeted Supervalu (SVU - 6.16) on Wednesday, with bearishly oriented option volume accelerating to roughly four times the expected level...(Read More)
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Positive Data from E*Trade Financial Lures Bulls to the Table

Bullish options players have taken a shine to E*Trade Financial Corporation (ETFC - 10.29) today, after the investment firm reported an increase in February trading volumes and asset levels, as well as a decline in delinquent loans...(Read More)
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Ahead of Earnings, Perfect World is Flooded with Call Activity

Shares of Perfect World Co., Ltd. (PWRD - 12.81) have rallied today, after the online gaming guru announced that its widely anticipated Blacklight Retribution game will be released in North America and Europe on April 3...(Read More)
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Call Players Dismiss AK Steel's Price-Target Cut

AK Steel Holding Corporation (AKS - 7.34) was slapped with a price-target cut to %248 from %249 at Citigroup early this morning, but that hasn't stopped call players from ambushing the stock today...(Read More)
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Bulls Zero In on Rackspace Hosting in the Options Pits

Bullish bettors converged on Rackspace Hosting, Inc. (RAX - 54.98) yesterday, as north of 9,500 calls were exchanged, more than doubling the equity's average daily volume...(Read More)
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GameStop Finds an Audience with Back-Month Put Players

GameStop Corp. (GME - 23.42) found itself on the bearish radar yesterday, as more than 5,200 puts changed hands, which was more than triple the equity's average daily volume...(Read More)

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Positive Price Action Lures Bulls to State Street

Shares of State Street Corporation (STT - 44.44) rallied on Tuesday, taking part in a broad-based advance on Wall Street...(Read More)
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Illumina's Technical Prowess Doesn't Dissuade Bears

Illumina, Inc. (ILMN - 50.32) has been the focus of some bearish attention today, as more than 8,000 puts have been exchanged so far, which is more than three times the norm...(Read More)
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Bearish Bettors Take Flight with US Airways Puts

Following in the footsteps of sector peer JetBlue Airways Corporation (JBLU), US Airways Group, Inc...(Read More)
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Front-Month Call Volume Balloons on NII Holdings

Bullish bettors converged on NII Holdings (NIHD - 16.57) -- parent company to Nextel Communications -- on Monday, as nearly 6,000 calls were exchanged, which was more than double the equity's average daily volume...(Read More)
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CME Group Sees a Barrage of Bearish Options Activity

CME Group Inc. (CME - 271.59) was deluged with bearish options activity yesterday, as close to 5,800 puts changed hands, more than tripling the equity's average daily volume...(Read More)
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Put Players Show an Unusual Interest in JetBlue Airways

JetBlue Airways Corporation (JBLU - 4.95) released its preliminary February traffic results on Monday -- which showed a 17.4% increase, on a year-over-year basis -- but the news did little to dissuade bears from swooping down upon the stock...(Read More)
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Back-Month Call Activity Flourishes on Riverbed Technology

Call players have descended upon Riverbed Technology, Inc. (RVBD - 26.79) in droves today, as roughly 14,000 of these options have been exchanged, reflecting five times the equity's expected intraday volume...(Read More)
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Speculators Shop for Tiffany & Co. Calls

Tiffany & Co. (TIF - 69.32) lashed back at Swatch Group SA today, filing a %24590-million countersuit against the Swiss watchmaker -- three months after the latter sued the fine jewelry retailer for %244.2 billion worth of lost profits during their failed strategic alliance...(Read More)
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Bullish Brokerage Notes Boost Zions Bancorporation's Call Volume

Zions Bancorporation (ZION - 18.70) received some bullish analyst attention on Thursday, as the equity was started at "buy" at Roth Capital, and raised to "overweight" from "neutral" at J.P...(Read More)
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Aruba Networks Sees an Influx of Bullish Attention in the Options Pits

Bullish traders took a shine to Aruba Networks (ARUN - 22.82) on Friday, on the heels of Thursday's upgrade to "outperform" from "market perform" at William Blair...(Read More)
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Bullish Options Players Zero In on Starwood Hotels & Resorts

Starwood Hotels & Resorts Worldwide, Inc. (HOT - 55.23) saw a rise in bullish options activity on Friday, as more than 9,900 calls changed hands, reflecting five times the equity's average daily volume...(Read More)
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Options Analysis and Commentary from CondorOptions

Have You Tried Binary Options Yet? Condor Options Analysis and Commentary Blog


The Cost of Hedging Equity Exposure Is Higher Than It Looks

BofA interest rate strategists Ralph Axel and Ruslan Bikbov suggest that now would be a good time to buy tail risk hedges. (hat tip Joe Weisenthal) 6-month options on 10-year swap futures are as inexpensive now, they claim, as they’ve been in decades, excluding one period in 2006.

6M IV on 10Y Swap Futures, bp. Source: BofA Merrill Lynch Global Research
So far, so good. If rates are your key concern, this looks like a decent time to…
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A Quantitative Look at Volatility Skew

Implied volatility (IV) skew is one of the most important and interesting aspects of listed options. IV skew typically refers to the differences in the implied volatilities of options in the same expiration cycle with different strike prices. There have been many attempts in the academic literature to model the behavior of changes in skew, but the interpretation of skew information by traders is still done largely on a qualitative and ad hoc basis.
In “Quantifiable Implied Volatility Skew,”
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Citi and the Stress Counterfactual

Based on my understanding of the Fed stress test results, here’s an argument for why you should buy shares of Citigroup.
  1. Ceteris paribus, you should buy (short) shares of any bank that will have (will not have) adequate Tier 1 capital under the Fed’s stress scenario.
  2. If Citi revises its proposed capital actions after Q1 2012, it will have adequate Tier 1 capital under the Fed’s stress scenario.
  3. Citi is revising its proposed capital actions after Q1 2012.
  4. Therefore,

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This Week in VIX Scaremongering

The halt in TVIX share issuance and the fact that, on some days, VIX-based ETF/ETN rebalancing accounts for 90% of VIX futures volume has caused some pretty wild speculation. I’ve been too busy this week to write a proper rebuttal, but here are some points that will help you steer clear of all the needless hand-wringing:
  • The rolling of contracts in VXX and similar products is in no way “entirely game-able,” for the same reason that the term

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Is TVIX Distorting the VIX Futures Market?

VelocityShares Daily 2X VIX Short-term ETN (TVIX), an increasingly popular volatility product, is an exchange traded note (ETN) provided by Credit Suisse that seeks to provide two times the daily return of the S&P Short Term VIX Futures Index (SPVXSTR), the same index tracked by the popular iPath S&P 500 VIX Short-Term Futures ETN (VXX). SPVXSTR maintains positions in first and second month VIX futures in a ratio weighted to provide constant exposure at a one-month horizon.
TVIX
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The Problem with Volatility Skew, and Why You Should Care

The jargon of options trading sometimes turns people off, and maybe “volatility skew” is one of the biggest hurdles. So I’m going to explain the concept in a straightforward way, and then explain why volatility skew is something you should care very much about.
Volatility skew usually refers to the difference between the implied volatilities of options at different strike prices in the same expiration cycle. For the majority of stocks and indexes, options with high strike prices have low…
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Q4 2011 Condor Options Performance Review

The Condor Options newsletter portfolio returned 28% in the final quarter of this 2011, compared with 10% for the S&P 500. For the full year, the iron condor strategy beat the index by 4.39 percentage points, returning 2.59% compared with -1.80% for the index.
In the last quarter of the year, we made a major change to the strategy, expanding the scope of option selling trades to include a full suite of underlyings with exposure to U.S. and international stocks,…
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What’s Your Volatility Thesis for 2012?

Here’s one for all you volatility traders. You have to take a position in some combination of the following contracts (and only the following contracts), and hold it for all of 2012. The position will be closed out on the last day of December.
What’s your take? For this hypothetical, we’re limited to only those…
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Storytelling and Technical Analysis

Humans can’t not tell stories: that’s the result of decades of research in cognitive science, psychology, neuroscience, and philosophy into our tendency to string together disparate events into coherent narratives. If you’re philosophically inclined, you know that David Hume got it right centuries ago: when we identify causation, what we are really doing is composing fictions to help us make sense of the buzzing world around us. But it would be a mistake to confuse our convenient fictions with the…
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Combining Trend Following and Option Selling Strategies

Historically, two of the most successful approaches to trading have been trend following and option selling. Trend following and momentum investing are strategies known to just about everybody, and option selling (i.e. collecting the volatility risk premium), while not quite as famous, is hardly a closely-held secret.
Usually, these two approaches are treated as strangers. Momentum/trend traders are conceptually long volatility in that they are willing to accept small, frequent losses from choppy markets in order to reap gains…
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