An Option Traders Delight

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It was another wild week for option traders highlighted by GMCR's enormous 50% move lower on Thursday.  As an option trader you want stocks making big moves, not trading flat.

Aside from the spectacular GMCR puts option trades I wrote about Thursday and Wednesday, there were plenty of other strong moves today.

On Thursday NFLX sat firmly above $80 a share, its $77.50 weekly puts traded to a low of $.20.  NFLX proceeded to fall hitting a low today of $72 an almost $10 move.  Those $.20 puts hit $5.10 today.  $200 into $5,100 has you gotten in at the low and sold at the high.  I took a dabble on the other side on Thursday and went long the calls, which were up a little  I sold out later for a solid loss as NFLX continued to slide.

How about RIG?  I played RIG to the upside for earnings on Wednesday night.  Thursday morning my $50 calls I bought at $.97 are up to $2.30.  I ended up selling at $2.24 about 3 minutes into the trading day.  That was a great trade, but had I held my calls I would have been very disappointed, which is why it is important to lock in profits.  That reversal I wrote about lasted about half a trading day.   After the pop to $52 and change you could have bought the $49 puts for pennies a low of $.02 and they hit $1.36 today.  That's $100 into $6,800.

 

Crude Oil took it on the chin today, but the same could not be said for put holders.  The $38 strike closed at $.04 yesterday and today hit a high of $1.04.  Thats $80 into $2,080.

LNKD had a great move off earnings last night, but option traders are a pretty smart bunch.  Most of the calls strikes that you would expect to see big gains when a stock moves 8%, were already trading like LNKD was going to make a 10% move higher.  Consequently call buyers of out of the money strikes, who were betting on a big LNKD move ended up getting burned.

FSLR had the same type of day, as the option premiums were high, as traders expected a big move.  Option holders at the open of trade saw the value of their weekly out of the money calls and puts dwindle to almost nothing.  The $18 puts dropped to $.04.  Later in the day those same puts traded for $1.04.  All was not lost for FSLR option traders, the big trade was during the session and not front running the earnings announcement.

AAPL this was the second week in a row I unsuccessfully tried to time a bounce for AAPL.  AAPL closed at its lows and frankly, there was no bounce.  Just a frustratingly slow death for anyone holding calls today.  PUT holders, on the other hand, had every reason to rejoice.  The $570 strike went as low as $.50 today and closed at $4.75.

Volatility is creeping back into the market again, which means solid gains for option traders.

Known to most as Uranium Pinto Beans, Jason has more than 15 years under his belt of trading stocks, options and currencies. His expertise primarily lies in chart analysis, and he has a strong eye for undervalued stock. Because he’s got the ability to identify great risk/reward trades he usually enjoys taking the path less traveled and reaping the benefits from the adventure.

He is a co-founder of Option Millionaires, and he is best known for his weekly webinars with Scott, as well as his high level training webinars and charts found in the forums.

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