Featured

A Random Walk In The Park On A Monday Morning. A Caution. Monday Mornings Are Often Not An Option Players Best Friend

Let's start with this. It's now 10:26 a.m. A bet on Caterpillar rebounding by the end of the week. There are no takers. Why have to watch the screen for the next four days in agony waiting for a rebound which if happens is just a "break even trade"? But Wait. I made a mistake. The market is actually now down 668 points. What else can we look at? Interactive Brokers. These kind of stocks always do poorly on days with the threat of margin calls. Yet there is something interesting about the printout I am about to show. It is that these options are "one-month-out" Calls. These longer term options trade differently than short term options. (these options trade in one month intervals). If the stock we are following stops it's freefall the value of the options will nudge up ten, fifteen or twenty percent. A seven dollar option Call might creep back up to $8.00 or $9.00 at which time it could be sold. In contrast with a five day option a slight reversal in ...
Post a Comment

Trying To Make Sense Out Of John Deere.

Last week Deere dipped on a lousy earning's report but rebounded. I wasted part of last Friday watching the stock going up, to timid too play it for the upside and yet smart enough not to try and play it to the downside. Deere afterall is 68.58% owned by institutional investors who pay big bucks to get the best and the lastest insider's reports. They were told the stock should go up. Here is a five day chart as of February 18th around 11:00 a.m. which is now two trading days after last Friday's big rally. The stock continues to go up.
. How lousy was it? It was really bad. Caterpillar also recently had a really bad (not just poor) earning's report. The economy is on the verge of a recession. Farmers are not buying tractors. Read this.
Scary stuff right? Sales down 30% year over year. "A shaky backdrop for consumers". Shaky is not an inspiring word for an executive of the company to be using. With new tariffs on the way and steel prices on the verge of costing more (they are a big user of steel to build things) their near term future looks bleak. Last Friday I watched the stock jumped up in price as the "one-day-expiry" Put options got beat up and the one day Call options jumped to the moon. This is difficult to read but it shows $.01 Call options jumping in price to $1.31 and then even higher. (I checked with the Yahoo site and the $.01 readout my brokerage company was reporting was a mistake. They seem to have a habit of reporting the wrong lows of the day.) Then on Friday at 1:06 p.m. yet another report came out. You can read it below. It talks about good times ahead. Who do you believe? Some writers have a knack assessing the mood of the day and write what people want to hear.
This report might seem to be positive but commodity prices are still down and farmers might hope just to break even in 2025 and part of this hope comes from the government bailing them out. You you think that is going to happen? Now this at 12.18 p.m. on Tuesday. When will this upward movement come to an end? It's up almost $14.00 dollars on the day at this point in time. Yet wait, the stock is getting very close to the $500.00 level. That's now where it sems have a predisposition to go. Start pouring the champagne.
So here we are now at 1:57 p.m.
A dip in the chart after 1:00 p.m. in the afternoon. Here now are two things I want to point out. First look a how the Puts instantly became defensive in their pricings. Look at the wide spreads between the "bids" and the "asks" on all three of these series of Puts. If you want to get out on a dip be prepared to get a haircut. A spread for example of $1.20 on the "bid" and "ask" on the $492.50 series of "Puts".
Why is this? Well option makers know that if a stock like this drops two or three dollars it could very quickly drop four or six dollars. Also note the volume of trading that is suddenly coming into these Puts. Now look at how Deere closed out the day. It did reach the $500.00 mark.
Here now is its five day chart.
Here is how these three series of Puts closed out the day.
Deere closed the day at $501.56 and the number of open Put contracts has increased substantially. I think this stock has now gotten ahead of itself. Going into the Wednesday, February 19th premarket it's pricing is off a touch.
Would now be the time to be looking at it's Puts? Look at this. The 500 series of Puts going into Wednesday morning cost $400.00 and the the open interest number was 80. Trader's in general are hesitate to fall into this potential trap.
In contrast, look at the open interest numbers in the Calls, 686.
Wednesdays can be the day of option reversals for options that expire at the end of the week. The bottom line is that it's best just to stay away and do nothing or buy a 495 (s) Put (s) for next week and hope that the stock drops $20.00. But what do I know? It might still want to go higher. There are easlier options to play. I blogged repeatedly in the last 30 days about buying Walmart Calls for one day upward moves given that the striking prices are set up in one dollar increments. That gig may now be over. Keep reading these blogs, there will always be more new opportunities to discover.*** A Feb 20th update. Timing is eveything. Yesterday was a strong trading day to the upside and today a swing to the downside. I was off one day in my timing.
** Here now is how the 500 series of Puts closed the week.

Comments

Post a Comment

Popular posts from this blog

Living on Kraft Dinner?

Image
What does the word disconnect mean? As a verb it means "to sever or interrupt the connection of or between; detach". Option trading - one day options - is a disconnect from the world. What happens to slightly "out-of-the-money" Call options on Costco when the stock shoot up thirty dollars on the day? I will show you what happened on Friday to Costco Calls and the options on a few other stocks I frequently watch. What a disconnect from the real world. But before that a look at how the indexes traded. 1) Costco. It's five day chart and a look at how three of it's option series moved upwards in one day. You may not know how to read these printouts but try to read the highs and lows on these option pricings. One printout shows an "at-the-money" option which means you are buying a contract on the stock, good for one day only at a locked in price equal to (or very close to) what the stock is currently trading at. The other two contracts shown are ...
Read more

The Little Engine That Could

Image
Walmart again. It's all I seem to blog about. Here is it's five day chart. The stock keeps going up and the option series are set up in one dollar spreads. Even a fifty cent move on the stock moves the needle on these Calls. Look at how this series of Calls was trading yesterday at 3:00 p.m.. Now here is this same series of Calls just before noon today. Thirty days of upward action like this punctuated by the off day of decline. Now notice the higher volume of trading in the series of Calls with the higher striking price. These are the ones's with more leverage. At the same time look at the five day chart on Costco. The two stocks sometimes trade in tandem. Humpty dumpty sat on a wall .... a had a great fall. Someday soon a fall might happen but what a great ride it has been.
Read more

A Fireside Chat - One Year Options and Thirty Day Options. Which is Better?

Image
Some say to think small, not big. Trying to play Disney options is thinking big. It is a stock slighty out of favor. If we start with it's a three year chart, we will see it is down by about 50% over that period of time. Now it's one year chart. If the stock can break 110 in early 2024 the sky is the limit. It does have a lot of moving parts so anything could happen. Look at these Calls options one year out. One year in options buys a lot of time.They look reasonable. If the stock ever inched up to the $105.00 price level in the three or four months these options would jump up in price by about 50%. Even more if they had really good news. Yet it's the "what-if" aspect of the equation that castes such a trade in doubt. "What if" stories just don't cut it. There are to many variables in play. Then again, why are we even thinking of long-term Call options after a December's rally? Let's switch gears. If consumers are out spending for X-mas...
Read more