Trading Education
Options 101: Determinants of Call Option Prices
Call buying is a basic 101 options strategy that, on the surface, is easy to understand. Most people recognize that, if you buy a call option, you want the underlying instrument to move up! The amount a call option will increase in value for every point move in the underlying is measured by delta. If [...]
June 2012 Pin Candidates
Pinning is a unique term to the options market and refers to the idea that the price of an underlying instrument (stock, futures, ETF, etc) often moves towards the strike price of an options contract heading into the expiration. Pin risk can create problems for options players because they don’t know if the contract will [...]
iShares MSCI Australia Index (EWA) $21.23 -1.21%
A vertical put spread is plain vanilla strategy that can be initiated as a hedge or to make an outright bearish bet on the underlying stock, ETF, index, or futures contract. An example surfaced today in the iShares Australia Fund (EWA) and I’ll highlight the trade as an example of this 101 strategy. — sometimes [...]
Smart Money Sample — Short Strangle
You’ve probably heard the exaggerated statistics like 80 to 90 percent of options expire worthless. The truth is most options are closed out prior to the expiration through offsetting transactions. Some are exercised (assigned) and some do indeed expire worthless. But the fact that options expire worthless isn’t necessarily a bad thing. In fact, some [...]
Unbalanced Fly
A bearish spread was initiated in the iShares South Korea Fund (EWY) after President Lee Myung Bak over the weekend put North Korea on notice that his government is ready for swift and powerful retaliation to any military provacation from the North. Tensions between the North and the South have been escalating since Kim Jong [...]
Straddles 101 — XLF Case Study
A bold trade is being initiated in the SPDR Financials (XLF) today. Shares are up 6 cents to $14.03 and have rallied 5 percent since Monday. One player in the options market seems to be anticipating additional volatility in the banks and brokers. 20,000 July 14 straddles were bought on the ETF for $1.09 per [...]
A Closer Look at the LULU Spread
I’ve had several questions about the spread trade in Lulumon Athletica (LULU), which surfaced just before the stock was slammed on earnings news. Shares are off $6.17 to $63.85 following this morning’s profit report. A few hours before the closing bell Wednesday, an investor bought 8,700 June 67.5 puts on the stock for $1.81 and [...]
Where Do Options Trade?
Nine options exchanges list puts and calls today and the list is still growing. The table breaks down the options volume for each exchange for trading on June 5, 2012. The International Securities Exchange [ISE] and the Chicago Board Options Exchange [CBOE] are the two largest and, on a typical day, account for nearly two-thirds [...]
Pfizer Inc (PFE) $15.07 -0.99%
Pfizer (PFE) was down 22 cents to $15 midday Tuesday and the top trade in the name was a block of 6750 Dec 15 calls on the $1.39 bid. Looks tied to 675K shares at $14.99 and part of a buy-write. Remember that a buy-write is the same as a “covered call” and one of [...]
