In the world of investing, suitability is generally associated with a brokerage firm’s responsibility to ensure that clients are making good decisions and investing within their needs and objectives. For example, if a broker recommends that Aunt Mildred buy 1,000 shares of Google (GOOG), the broker must have reason to believe that investing in shares of the Internet company matches her long-term goals, needs, and objectives. If 85-year old Aunt Mildred only has $250,000 in her account and the shares are bought on margin, chances are the investment advice is not suitable given Mildred’s needs and resources.

In today’s electronic world, the task of determining suitability falls increasingly on the shoulders of the individual investor. Cleary, even an online brokerage firm has a responsibility to ensure their customers are making sound investment decisions. Suitability is generally determined when the account is opened and the firm assesses the individual’s experience, knowledge, and financial resources.

From that point forward, the investor also has a responsibility to determine what level of risk they are willing to take and whether specific strategies fall within their risk tolerance. For example, buying calls is a popular way to trade the market, but placing a large percentage of one’s portfolio in call options can result in substantial losses should the market turn south. For example, if an investor holds 50 percent of their porfolio in call options, are they willing to risk losing 50 percent of their account if the market crashes?

In order to determine what options strategies are suitable for his or her trading account, it makes sense to spend some time outlining goals and objectives and then create a trading plan. For example, one of my long-term objectivs is to build wealth through stock and options strategies that generate capital appreciation and income. I never want to place more than 50% at risk (50+% cash at all times) and use a diverse set of strategies including buy-writes, vertical spreads (bullish and bearish), butterflies, and condors. These trades are generally open 3 weeks to 6 months (sometimes longer for buy writes) and are based on options order flow analysis.

My approach to the market is suitable for me, as it fits my risk tolerance, long-term goals, and my objectives, but is not suitable for everyone. One investor might prefer to keep 90 percent in cash and speculate in options with 10 percent of their portfolio, another might have 80 percent in stocks and use a combination of collars and buy-writes to create income off those stocks, or another might have 50 percent in bonds, 20 percent in stocks and 20 percent in options strategies. There is not one right answer. Instead, the key to long-term success, and to significanly lower stress, is to develop a trading plan that includes strategies suitable for your long-term goals and objectives.

New York Times (NYT) is down 3 pennies to $6.73 and 6,100 puts traded Tuesday. The put volume represents 13X (1,344 percent) the expected and compares to 100 call options. Top trade of the day is a block of 1,705 July 7.5 calls for $1.45 on the ISE, where sentiment data indicate an opening customer put buyers. It appears to be an opening customer purchase of 3000 contracts. Implied volatility is up to 80 from 76 after a Miama Herald article titled “Twitter Poses a Risk to Newspapers” made the rounds Tuesday morning (Link to Story.) Not long after, OptionMonster wrote on Twitter that NYT, along with GCI, WPO, PSO, and SSP, is on their “newspaper watch list.”

Yingli Green Energy (YGE) is up $1.76 to $11.11 after Lazard analysts upgraded the stock to Buy from Hold and Collins Stewart analysts raised their price target to $11. In the options market, volume is running 2X the normal, with 20K calls and 2400 puts traded. June 7.5 and 10 calls are the most actives. Some investors are likely closing positions, as YGE June calls were the subject of increasing buying interest on April 29 (when shares traded for $6.65) and May 11 (when YGE traded near $8.70.) Implied volatility is about 105, up from multi-month lows of 96 late Friday.

Cemex (CX) is up 42 cents to $9.91 and almost 50K June 9 puts traded, or almost 5X the existing open interest. Most of the volume is due to one trade, where an investor bought 45K contracts for an average of 47.5 cents against a position in 1.45 million CX shares for $9.85. No news on the Mexican cement maker today, but this trade appears to be a bet on heightened volatility in shares, with profits possible if the stock makes a big move higher or lower. The worst-case scenario? Shares close at $9 at the June expiration (24 days). Implied volatility is up to 75, from about 69 late Friday.

Interest in NetApp (NTAP) continues. Shares are up $1.17 to $19.63 after Collins Stewart analysts upgraded the stock to Hold from Sell after seeing signs of stability in the storage spending environment. The firm says that, although NTAP is only likely to grow as fast as the industry, ongoing takeout speculation will provide a valuation backstop. Indeed, traders have been bullish on NetApp over the past week and open interest in NTAP calls has increased to about 190K, or about 72 percent since May 18 (110K). Another 25K calls and 22K puts traded today, or about 3X (338 percent) the expected. Implied volatility steady at 45.

Penn National Gaming (PENN) shares up $2.10 or 7.3% to $30.60 and option volume is 3x the adv. The notable trade, and accounting for 90% of today’s volume, was in a put spread. The October $20/$25 put spread traded 1,900 times. Prior open interest in those two strikes were 65 and 212 contracts. So this is an opening position. What is interesting: this spread appears to have been a purchase costing a $1.21 net debit, which is a possible form of married put to have downside protection against long stock.

Double-dip Recession Looms. Read More.

The major averages slumped at the open Tuesday after crude oil prices traded below $60 a barrel and North Korea tested short-range missiles for a second day.

However, a stronger-than-expected reading on consumer confidence overshadowed geopolitical worries and falling commodity prices. The index, released 30 minutes into the trading session, jumped to 54.9 in May, up from 40.8 the month before and much better than economist estimates of 42.6.

The Dow Jones Industrial Average saw a dramatic move on the news; moved up more than 200 points off the lows of the day and is up 160 to 8,437 midday. The CBOE Volatility Index (.VIX) slipped back towards 30 and is down 2 to 30.63.

Trading volume is picking up from Friday’s slow pace, with approximately 2.3 million puts and 2.8 million calls traded in the first two hours, a ratio of .8.

GM June 1 call is the most actively traded equity options contract. Shares are down 14 cents to $1.29 and the biggest loser in the Dow amid ongoing concerns about a possible bankruptcy. GM meets with UAW today to discuss possible job cuts (Link to story). More than 35K June 1 calls traded, with a mix of buyers and sellers taking positions in the contract.

Put volume picked up in the SPDR Retail Trust (XRT), even as the fund rallied on better-than-expected consumer confidence data. XRT gained $1.05 to $27.21 and 69K puts traded, compared to 2,475 calls.

Bearish trading is also picking up in Computer Sciences (CSC), Hatteras (HTS), and NII Holings (NIHD). Bullish trading is being seen in Pfizer (PFE), AgFeed (FEED), and KB Homes (KBH).

US Natural Gas Fund (UNG) is down 8 cents to $13.62, but some players expect the fund to heat up before the October expiration. More than 18K October 14 calls have traded today, compared to open interest of 6,798. Natural gas is down .026 to $3.489.

Micron Techology (MU) Jan 2010 calls at the $5 strike are active, with more than 30K traded. Looks like sellers pocketing $1, possibly buy-writes. Looks like the same play as the one discussed in detail here last week.