Call Out Your Potential Option Trade and Let's Discuss it

jeffalvinson said:
Let's keep track of this option's price activity until the large block of O.I. disappears.
Today 4/25/2016 data (the 1st day after the open volume event) on the LUV May 47.5C:
Prior Close: 1.04 / Open: 1.40 / High: 1.55 / Low: 1.10 / Today's Close: 1.12
Open Volume: 310 / Open Interest: 15,161
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Below is todays quotes for LUV and the May20 47.50 calls.

Screenshot-1_zpse9vxoj8x.png



:)
 
Nice quote boxes OG!
Did you notice in the Quote boxes that the stock went up (intraday) only +.40 ( < +1% ) higher than it previous closing price of 47.25, but the option went up (intraday) +.51 (+49%) higher than its previous closing price of 1.04.
Something unusual is going on here and so far, I like it!

Jeff
 
I want to short as many Dec 2018 SPX 100 puts for $0.20 as I can without getting margin called, because they're 100% guaranteed to expire worthless. Why would anyone ever buy them? You can't hedge against nuclear armageddon.
 
rmorse said:
When I traded as a market maker, my job was to provide depth and liquidity. I sold when those order bought. I would buy when they sell. I took the other side and hedged with the hope that I was being paid for my risk. It is possible because of my hedge, for us both to make money.
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My I ask how did you hedge as a MM? And how did you make money if you were forced to take the other side no matter how the underlying or volatility moved?

Thanks.
 
Ever since market making has been automated, I set up my trades to auto hedge with the underlying. The hard part right now is not that you you take the other side when vol moves. Those trades tend to be good. The problem now is that someone will always be faster than you and their system will see that stock prices has moved a fraction of a second before you can change your quotes and you get picked off a lot when equity prices jump or fall quickly. The biggest issue is that there are too many option exchanges so you get too little of the order flow at the exchange you trade at. Also, a great deal of the spreads and large orders are crossed. It is no long a good model for local traders.

Back before automated dissemination of quotes, when many options were single listed,it was a great business with a lot of edge, just much less volume.
 
jeffalvinson said:
Ok, I will start off first, here's mine for today.
Here's some option data that makes you wonder, does someone knows something about LUV?
Does Unusual Option Volume Translate into a Trade Opportunity?
Date 04/22/2016: Company: Southwest Airlines (SUV)
Option Symbol: LUV LUV160520C00047500
Option: May 47.5 Call closed at $1.04, Expires May 20 2016,
Volume: 18,285 / Open Interest: 1,044
First Question: There was only 1,044 contracts in O.I. (Open Interest) and suddenly
18,285 contracts are bought on a single day! Why?
That unusual volume is not a significant event unless we can answer the following questions:
1: Did the "majority" of the unusual volume (18,285) move into O.I. the next day?
Yes, the next business day was Date 04/25/2016: May 47.5C closed at $1.12.
Open Interest: 15,161 (Prior day's O.I. 1,044)
the Volume was bought and Held.
2: Was this just call spread sold?
No, Volume and O.I. in all the strikes above and below the May 47.5C strikes did not have any significant volume or O.I
3: Maybe it was a straddle or strange?
No, Volume and O.I. in all the strikes above and below the May 47.5P strikes did not have any significant volume or O.I.
4: Was this volume driven by an good earning's report or a news event?
No, earnings isn't until July 21, 2016, that's 2 months after the May 47.5C expires.
Also, I cannot find any significant potential news events.

Conclusion: There's the strong possibility that a company insider has knowledge about an upcoming event and was willing to bet approx. $1.5m that the stock has a strong move upward when the news pops before expiration (5/20).

Any thoughts on this, comments, or even a current trade idea of your own?

Jeff
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So I looked at the block prints for this transaction and I think it was a 1x2 4/22/16 44.5C vs 2 May16 47.5C. Looking at the initiation of that 4/22/16 Trade (done on 4/8) it looks like the guy bot the April and sold it on 4/22. So my guess is that he's rolling his gains to continue to be long this stock. He may not necessarily be buying a specific event but perhaps he's protecting his downside while still maintaining delta in the name. Stock has had a strong run and it's possible he's afraid of it turning.

Vols kinda cheap by historical standards which would indicate it's a stock replacement rather than a speculative bet.

How you position around that, I am not sure.
 
rmorse said:
Ever since market making has been automated, I set up my trades to auto hedge with the underlying.
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Thanks for your reply. By the way I found some write-up that said often MM hedged with a future contract. Is that true?

I know I can and should hedge when my trade becomes profitable for protection. Realistically, can a retail guy like me hedge at the start and what benefit if any?

Thanks again.
 
ironchef said:
By the way I found some write-up that said often MM hedged with a future contract. Is that true?
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It is my expectation that equity market makers hedge with that equity, but Cash settled index options are hedged with the related future. Eg SPX is hedged with ES.
 
Unusual Option Volume yesterday (4/25/2016) on a stock that trades low option volume:
DDD (3D System Corp) June 18 Put (exp. June 17) Symbol DDD160617P00018000
Volume: 3,259 / Open Interest: 544 / Closed at 2.02 on 4/25/2016
Today (4/26/2016) the majority of the Volume moved into O.I. 3,195, so it was held.
Checked the usual screens for Spreads, Straddles & Strangles, news events and earnings.
DDD passes the screening tests.
I noticed this morning the stock has been downgraded the day after the put volume spiked yesterday (and was held in O.I. this morning). Interesting.

Jeff
 
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