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How To Avoid Time Value Traps With Last Week Options.

This blog is not going to be an exhausting study of this topic. I just want to show you a few charts found in recent blogs and comment on which ones seem to skirt the issue of "time-value-concerns' and which ones don't. 1) Avoid Thursday at the close Call options. In this case Thursday is the second last day of the above chart. If you guess the wrong direction on the close it's going to be game over on Friday when the options expire. Thursday at the close on options that expire the next day are the biggest time value traps you can buy into. If the stock moves in the wrong direction it's game over. 2) Ford on a Monday going into Tuesday. On this chart April 13th is a Monday and Tuesday is the 14th. Can you see Ford closing strong on the close of the 13th? It would make sense to get in on the stong closing because these Calls would still have four trading days to recover if Tuesdays opening was not all that spectacular. 3) This time it's Caterpillar and it...
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Caterpillar - It's First Quarter Earnings Report And Traders Are Staying Away. A Read Which Might Be A Good Reference Point Going Forward.

Boeing rallied yesterday on the release of it's earnings report only then to tank. Caterpillar is tanking this morning in the premarkets. Let's begin with it's 5 day and 30 day chart.
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The world needs to be rebuilt and Caterpillar is there to help. It's growing, it's got a good reputation, it's not laying off employees and it's doing just fine. If it misses a beat on it's earnings report so what? Life goes on. Then there are those pesky analyst who are known to offer a convoluted spin on things. If you like Caterpillar just buy it on the dips and put it away. So the markets will be opening on the commentary by the companies C.E.O of "sales about flat". Phrasing it that way is a recipe for short term disaster.
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The two printouts above show some of the early morning action in one Put series and in One Call series. What happened the next day? A slight rebound with next to no traders trying to capitalize on a rebound. What does this tell us? It tells us option traders in general stay away from trading the "release of earning reports" on Caterpillar.
Now the one week out Call options.
Low open interest, a low volume of trading and relatively big pricings considering the these are only slightly "in-the-money" Calls which might take a few seeks to gain value. The bottom line is that this stock really got beat up and going forward it's going to be again upward journey. It helps that they are buying back their own shares. ** Now a look at how Caterpillar traded at the close on Monday April 29th.
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The volume of Calls traded is very light. That's suprising.

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