What's the purpose of buying 1000s of Calls of a stock at $.60?

[JesseJamesFinn1]

Over the last three trading days buyers are have been purchasing a large amount of calls for a stock that's only $.61. Their buying the Oct-April $1, $2s so why not buy the physical stock when its this cheap? Is there a way to game the system by churning between accounts? One trader buy's 2000 calls at the offer and than his buddy buy's those back by routing but still where is the cost benefit? The October $1s are $.05 with 41,000 in open interest. Maybe someone with a deeper experience buying options with sub $3 stocks might enlighten us why a huge amount of calls are bought instead of buying the physical stock. They hit the offer, few contracts were traded at the bid on the January $1-$2 and April $1-2s.


I am not impressed with recommendations after seeing NVAX get upgraded by Guggenheim and other analysts claiming that stock was going to $25 hit $1.10 in After-Hours on Thursday.

 

[Turveyd]

Speculation play, its throw away money, $5 plus I dunno these days $7 comms per 100 ?

If it runs to $5, then they get to sell there $12 gamble per 100 for $400.

Likely wont run like that ofcourse, big upgrade so expect pump and dump.

 

[Robert Morse]

Over the last three trading days buyers are have been purchasing a large amount of calls for a stock that's only $.61. Their buying the Oct-April $1, $2s so why not buy the physical stock when its this cheap? Is there a way to game the system by churning between accounts? One trader buy's 2000 calls at the offer and than his buddy buy's those back by routing but still where is the cost benefit? The October $1s are $.05 with 41,000 in open interest. Maybe someone with a deeper experience buying options with sub $3 stocks might enlighten us why a huge amount of calls are bought instead of buying the physical stock. They hit the offer, few contracts were traded at the bid on the January $1-$2 and April $1-2s.


I am not impressed with recommendations after seeing NVAX get upgraded by Guggenheim and other analysts claiming that stock was going to $25 hit $1.10 in After-Hours on Thursday.

There are an endless number of reasons to speculate on. The more you try and look for a rational reasons why a trade happens, the more distracted you will get, since you will never know for sure.

-They are short stock and want a hedge
-Short a higher strike and want to hedge
-Buying the call to close
-Speculating to open
-Part of a spread vs another call
-Part of a paired trade with stock

 

[CyJackX]

Why buy options instead of stock?

Liquidity might be different for one than the other.
If the stock is cheap, the option should still be cheaper. Known max risk.

 

[JackRab]

Which stock is this? What's the price history of the stock? What other strikes are available?

Like @Robert Morse say, could be anything.

- hedge for short stock position... hmm, I highly doubt that, since it's not much of a hedge that far OTM
- short a higher strike... maybe
- buy back short position... highly likely, especially is the stock has been trading a lot higher before...
- speculate open... maybe, but that's a very speculative one since 100 to 300% OTM.

I doubt it's a spread with another call or paired with stock, since there's no gamma/delta.

I would bet the obvious that's a buyback...

 

[JesseJamesFinn1]

Which stock is this? What's the price history of the stock? What other strikes are available?

Like @Robert Morse say, could be anything.

- hedge for short stock position... hmm, I highly doubt that, since it's not much of a hedge that far OTM
- short a higher strike... maybe
- buy back short position... highly likely, especially is the stock has been trading a lot higher before...
- speculate open... maybe, but that's a very speculative one since 100 to 300% OTM.

I doubt it's a spread with another call or paired with stock, since there's no gamma/delta.

I would bet the obvious that's a buyback...

Hi Jack,


I look for huge volume spikes over several days, that's how I caught some good movers like HWAY and LITE, OCLR heading up.


The Strikes this penny stock with options are going off at are.


October $1.00, $1.50 and $2.00 on dates out further in time 1000s of contracts. The reason I am asking is I don't understand what the purpose of buying options for $.30 are when a stock is priced at $.61 MSTX


Honestly I do better chasing stock options like CC, EXEL, LITE, ALRM it went up to $33 and fell down to $25, I dumped above $31 because it was fading plus my cost-basis started at $22.50 Calls rolling up. In no way am I telling anyone to buy this little possible Pump-and-Dump, for educational purposes why buy so many Calls when you can pay up for the physical stock?


I think ALRM has bottomed out but rumors that Apple is stealing their business or entering it just started to travel in the Street.

 

[newwurldmn]

Hi Jack,


I look for huge volume spikes over several days, that's how I caught some good movers like HWAY and LITE, OCLR heading up.


The Strikes this penny stock with options are going off at are.


October $1.00, $1.50 and $2.00 on dates out further in time 1000s of contracts. The reason I am asking is I don't understand what the purpose of buying options for $.30 are when a stock is priced at $.61 MSTX

It's speculating on drug trial data. Either it's a hedge against a short, or it's speculating long.

You pay 20 cents vs 60 cents and the outcome is either $5 (I made this up) or zero.

 

[JackRab]

...October $1.00, $1.50 and $2.00 on dates out further in time 1000s of contracts. The reason I am asking is I don't understand what the purpose of buying options for $.30 are when a stock is priced at $.61 MSTX...

That does seem quite steep indeed... but like @newwurldmn said, it's highly speculative.

Look at it this way, if you buy the stock, you can lose 61 cents... if you buy the call, you can lose only 30 cents... Capital wise, you can buy 2x the amount in options compared to the stock, which will make a big dent when you're looking at the stock going to $5.

That said, what's the ATM (0.60) strike trading at?

EDIT.
just had a look, only 1, 2, 3 etc strikes available. Last traded Oct 1.00 call was 15 cents. And Nov 2 call 100 lots at 5 cents...
Look, that Nov 2 call is basically unhedgable with the stock... only with the other options, which there aren't a lot of and those that are there have wide strike gaps. If you look at the time stamp of that Nov 2 call it was traded first, so it probably made the seller lift offers in the other options later in the day?
Which what delta do you give it? So it's whatever someone gives for it...

 

[Robert Morse]

That said, what's the ATM (0.60) strike trading at?

From Lightspeed Trader EOD 9/19/2016

 

[JackRab]

@Robert Morse , yeah I just looked that up myself... I thought to myself "well that's a bit lazy, to ask and not look for myself"

There's nothing to trade in there really... it's all a gamble. Even buying a calendar wouldn't make you anything... and selling would mean you could be left with a short you can't buy back. This MSTX is a market makers hell. I'm even daring to say the 5 cent spread in bid/ask is low.