Call Spreads and Straddle Opportunities

November 29th, 2016

99.9% of the December options for ArcelorMittal (NYSE:MT) traded in only two contracts during Monday's session. The $7 and $8 Call options traded $38 million in notional value or $1.9 million in option premium spent.

Only 10 other contracts traded in the entire December series; the $7 puts trading 10 lots.

There are no up coming earnings for MT, not until February 21st, 2017.

Also in yesterday's trade, WebMD (NASDAQ:WBMD) saw 11,500 straddles trade across the $65 strike in the December series. Only 221 other contracts traded through the remainder of the option series. Earnings for WBMD also not until the 21st Feb, 2017.

Market Close 28th November:

OptionMarket PriceVolumeOpen Interest
MT Dec'16 $7 Calls 0.64 22,937 30,112
MT Dec'16 $8 Calls 0.16 27,713 2,607
WBMD Dec'16 $65 Calls 0.03 11,500 4,993
WBMD Dec'16 $65 Puts 11.53 11,500 4,892

Option Scanner Results 28th November, 2016Souce: Option Scanner Pro

Stocks End 4 Day Bull Run

November 29th, 2016

ProductPriceChangeChange %
S&P 500 2,201.72 -11.62 -0.53%
DOW 30 19,097.90 -54..24 -0.28%
NASDAQ 5,368.81 -30.11 -0.56%
Crude Oil 46.96 -0.12 -0.25%
VIX 13.15 +0.81 +6.56%

After a strong November where, despite concerns regarding the US election and equities making all time highs, the US stock market has pull back on its' most recent 4 day up steak post the Thanksgiving holiday.

The Volatility Index is up 6% on concerns we are to see some increased price swings this week with the release of some key economic data; Crude Oil Inventories, Nonfarm Payrolls, US Hourly Earnings and the US Unemployment Rate to name a few.

QCOM Call Option Alert

November 28th, 2016

$1.15 billion in notional value traded across just 4 strikes of QCOM in a shortened Friday session in the US. The total premium was $310 million.

In total, the calls out traded the puts by 6,575%; calls making up 221,536 in volume compared to 3,369 on the puts.

The options with all the volume are in-the-money so there seems significant interest in this stock at this point. Earnings aren't released until the 25th January, so might be worth keeping your eyes on this one.

Market Close 25th November:

OptionMarket PriceVolumeOpen Interest
QCOM Jan'17 $50 Calls 17.88 63,955 12,552
QCOM Jan'17 $52.50 Calls 15.79 18,691 5,447
QCOM Jan'17 $55 Calls 13.06 108,238 29,166
QCOM Jan'17 $57.50 Calls 10.48 24,508 6,939

Option Scanner Results 25th November, 2016Souce: Option Scanner Pro

Zero Wins and Three Losses for November

I didn't do much during November...just wasn't motivated to look for any opportunities so the only ones I had on I just let ride out and wasn't too interested in anything new.

Not a big loss, only -$246.

TradeOpenCloseDaysP&LTotal
DDD Long Put20-Sep-1627-Oct-1637-491987.8
JCP Long Call Spread23-Sep-1627-Oct-1634-471940.8
CNP Long Call26-Sep-1627-Oct-1631-1501790.8

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A Long Shot with BLMN Puts

Huge volume going through the $15 January put options for $BLMN shares during Friday's session.

Option Chain for 21st October

With 3 months to go the puts are only trading at 0.50. I bought 5 at the offer at 0.55. Seems a long shot, I know, looking at the chart but there's plenty of time here and the company has earnings out on October 28th.

A Rough Month for October

I closed out 4 positions Friday as the October options expired. Well, I didn't really do anything; just let the positions I had expire. 3 of those 4 were losers. I lost -$385 in total.

The only winner was the Iron Butterfly on BAC. I was pretty confident about that one; the range of the break evens was narrow and implied volatility was low. They are the same thing I suppose...low volatility will imply lower prices and a tighter risk profile for the spread. Here is a chart of how that played out;

BAC Chart at Option Expiration

You can find the charts of the other trades for October here.

$150 into $1,050

I closed out 5 positions just after market opened Friday as it was the September expiry. The biggest winner was $LOW, which made 700% return on capital spent. Of course, they don't all turn out like that but I was happy with that win.

GT also made a decent gain with $450 with a $120 spend.

LOW Chart for the 16th September

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$EGO 12:1 Ratio of Calls to Puts

Eldorado Gold's call options are taking some huge interest from the market; there are 93k in open contracts across the October series vs 7.5k in interest for the puts.

The volume going through Tuesday's session was all call options - no puts traded at all. With 79k outstanding on the $4 strike alone, I thought it a good bet to also get on, so I bought 10 contracts @ 0.20.

Option Chain for 13th September

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$40mil Bet on $GFI

63k calls traded through the $6 October calls on $GFI Monday. About 10k in open interest across the entire expiration, so this is a pretty large bet someone is making. I bought 10 contracts at 0.17...turns out that price is pretty bad as the stock sold off from the open. I probably could have bought in lower if I'd paid attention to the pre-open....

gfi Chart for the 13th September

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The Most Important Option Greek

Call and Put Delta vs Changes in the Underlying Price

The Delta of an option does more than approximate the price move compared to the underlying; it also describes your directional bias, serves as a proxy position for the underlying instrument and estimates the probability that the option will expire in-the-money.

Delta isn't static though; it changes constantly with other pricing factors and it's important to know what they are.

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July 15th Trading Summary

12 positions in total and ended up with a small profit of $47. I closed out WLL way too early and missed out on an extra $315 in profits. However, I covered by VIAV assignment with some calls that made back the loss on the premium from the bought calls, so was happy with that result.

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June 17th Trading Summary

What started out well for 2 out 4 of these trades ended up all being losers. CYH almost tripled in value and ANF over double the initial investment early on. However, both of those positions took turns for the worse and I closed out all 4 positions at a loss of $335.

My trade management and exit strategies definitely need some consideration. So far, I've simply been betting on a move and waiting until expiration. Some of these trades really start out well but I hang on too long and exit them at a loss.

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16% Return for May Expiration

In total I made $169 in profits using around $1,000 in risk capital for the trades closed out on the May expiration.

I took positions in 12 stocks for 14 trades in total, as I made two adjustment trades in MRO and ETE. VALE was the biggest winner with a gain of $360 and the biggest loser was EMC, losing $160.

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$LC CEO Dumped

$LC Stock Tanks 35%

Massive volumes went through the $8 puts in the weeks leading up to Lending Clubs dismissal.

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Make Time Decay work for you

Time Decay Graph - shows the erosion of value accelerates past the 30 days mark

As options approach their expiration date, their value can erode quickly. If you're long out of the money options then this effect can be quite dramatic; you can lose money even when the market moves in the right direction.

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HRB Move an Inside Job?

HRB Stock tanked on Wednesday the 27th after the company reported a disappointing tax season. Outlook remains bleak for the stock and their next report is due out in June.

However, it appears someone knew of the pending downward move in the stock.

Option scanning tools showed that the $23 put option had significant volume trade the day before the stock plummeted. 19k options traded through one strike, which saw the puts outnumber the calls traded by 5 to 1. The next day, HRB drops 13.56%.

The Puts rose 386%

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Using the Delta to Hedge Options

Delta measures the theoretical change to the value of an option as the underlying changes. This means the option's value is tied to the underlying by the amount of "delta" the option theoretically has. Traders can then offset the risk of the opiton by trading an appropriate amount of shares in the underlying security

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Pricing Options with the Binomial Model

The Binomial Model is the model of choice for American styled options - that is, those options where you can exercise any time up until the expiration date. Even though Black and Scholes was the original option pricing model, the Binomial Model is probably more widely used than B&S.

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Option Pricing

There's lots of programs out there that will charge you a monthly fee for a calculator that prices up option contracts. Not here!

I've put together a little something in Microsoft Excel that just does this, plus prices up all of the Option Greeks.

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Option Combinations

Browse our comprehensive dictionary of option combination strategies. Learn how option combinations give you the ultimate flexibility with your investment decisions.

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Scan thousands of stocks and ETFs for profitable option opportunities in minutes. Option Scanner Pro will tell you where the huge option volume action is taking place.

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