Puts On The Rampage - Bears Are Out In Force

S

Sbelmont

Just take a look at the top ten. Only one call in the bunch!

Top Ten Most Active Options & Strikes
Posted on 7/15/2008
at www.TheOptionsInsider.com

Top Ten Most Active Options & Strikes (WB, XLF, AIG, LEH, PG, SPY, QQQQ)

1. Wachovia Corporation (WB) 30 Puts: 303,507 contracts

2. Wachovia Corporation (WB) 25 Puts: 194,425 contracts

3. American International Group (AIG) 50 Puts: 183,010 contracts

4. American International Group (AIG) 45 Puts: 177,014 contracts

5. Lehman Brothers Holdings (LEH) 40 Puts: 164,805 contracts

6. QQQQ 44 Puts: 163,008 contracts

7. Procter & Gamble (PG) 60 Calls: 152,084 contracts

8. SPY 122 Puts: 143,301 contracts

9. Lehman Brothers Holdings (LEH) 30 Puts: 128,912 contracts

10. Financial Select SPDR (XLF) 18 Calls: 120,171 contracts

On the flip side, there was some serious call love in PG today...
 
You also might want to think about the whole thing going down with the curbs on shorting financials. Most traders are probably looking for a way to short without getting hit by the new regulations.
 
The Financials have been beaten to a pulp i dont think you'll find many institutions or professionals getting short at at yesterdays levels. Since options volume and OI are very decieving in that you dont know whether they trades are, buy to open, buy to close, sell to open or sell to close and you wont ever know what they do in the underlying vs the options its not a good idea to read a whole lot into it.

As i said I suspect lots of hedge funds and institutions are buying puts and stock for synthetic calls. volatility is getting smoked today which is a big reason hedge funds and institutions dont buy natural calls and get long via synthetic calls.
 
Quote from xflat2186:

Since options volume and OI are very decieving in that you dont know whether they trades are, buy to open, buy to close, sell to open or sell to close and you wont ever know what they do in the underlying vs the options its not a good idea to read a whole lot into it.
More...

This is an excellent point about a very widely-held misconception. There seems to be a general assumption out there that all option volume is buyers lifting offers. Of course that's ridiculous. It's like saying "volume was high in IBM today, so IBM must have gone up."
 
Both are long vega and influenced by volatility getting killed (like today)

Quote from xflat2186:


As i said I suspect lots of hedge funds and institutions are buying puts and stock for synthetic calls. volatility is getting smoked today which is a big reason hedge funds and institutions dont buy natural calls and get long via synthetic calls.
More...
 
Thats true but volatility skew plays a big roll and unless you're long the deep call corrisponding to the OTM put which is commonly used in a synthetic call the impact on volatility falling will be a lot greater on the natural atm or otm call. Not to mention the dimishing impact of falling vega as the underlying moves further away from your long put.

For example look at the out of the money calls in something like the SPX today, virtually all the calls have significantly underperformed their delta and delta range today as the otm calls get hit a lot harder then the otm puts in the volatility crush.

Another benefit of the synthetic is you make your money on the underlying as it moves up which is NOT subject to vol skew and vol crush.
 
Understanding order flow is not an exact science, because there is a lot that can go on and much of the info is useless, but what if you see a spread order of 12,000 contracts in XYZ stock, would that get your attention.?

For example, look at WFC yesterday with a massive 12,000 August strangle. here's the trade

http://whatstrading.com/2008/07/15/wells-fargo-and-company-wfc-2187-139/

Look what happened to the stock today.

I know there are a lot of skeptics out there, but there are ways to get good info from options order flow. Most people don't have the tools and resources (exchange floor contacts, knowing if its on the bid or offer, open interest changes, etc), but some do--especially the guys handling the trades.

Good luck.
 
Quote from TYtrader:

Understanding order flow is not an exact science, because there is a lot that can go on and much of the info is useless, but what if you see a spread order of 12,000 contracts in XYZ stock, would that get your attention.?

For example, look at WFC yesterday with a massive 12,000 August strangle. here's the trade

http://whatstrading.com/2008/07/15/wells-fargo-and-company-wfc-2187-139/

Look what happened to the stock today.

I know there are a lot of skeptics out there, but there are ways to get good info from options order flow. Most people don't have the tools and resources (exchange floor contacts, knowing if its on the bid or offer, open interest changes, etc), but some do--especially the guys handling the trades.

Good luck.
More...

Much, much, much more interesting to me than volume is looking at the implied volatilities. Far more than volume, IV is what tells you where the buying and selling is.

Look at the just-out-of-the-money July 25 calls over the past week:

Tuesday July 8 - 64%
July 9 - 68%
July 10 - 74%
July 11 - 82%
July 14 - 117%
July 15 - 130%

Think somebody might have known something?

So volume schmolume. It's IV that tells the story.
 
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