At Option Pit Mentoring we are certainly not technicians. In fact I do not think tech analysis is worth very much at all. Option Mentoring Students that follow tech too much, tend not to make money trading options for income in my opinion. However, I do believe in market psychology and the lemming affect. This is why I was not surprised when a trader mentioned to me how much bullish action there has been in C not just today but over the last few days as the market has fallen off. Take a quick look at a price chart of CitiGroup:
What do you traders notice? Every time C has gotten into the mid three dollar range it makes a nice bounce up to about 4.10-4.50 range. Earlier in the year the stock made it so high that it broke 5 dollars on a few days. As a long term hold I do not hate this stock. As a short term hold I think there are some real odds that we get a pop here based solely on market psychology and people looking at tech.
Option traders are agreeing with me, there were a very large number of net deltas bought today, and the ratio of call to puts stands at about 2.3 to 1. Today it continued that trend, trading at 2.3 to 1. My guess, this is caused by traders buying options with the expectation that Citigroup is going to follow its pattern of rallying past 4.00 in short order.
The last time it took about 2 weeks for C to make its move. This could be why the October 4 dollar calls were traded so heavily, .09 is a low price to pay on a stock that makes swing moves pretty quickly and efficiently. The stock moves to 4.15 in two or three weeks these calls will be worth five or 6 times the value they were bought for, if not more. I don’t know if this stock will rally, but if I was a trader that followed paper and believed in pattern trading, I could make a pretty strong argument that buying the October .09 calls are a smart trade.
I know this is out of character of this blog to point toward certain trades, but it seemed interesting enough to bring up. Don’t forget to sign up for the AM Pit Report it is free and we go through trades. Right now we I am working a live EEM Butterfly and allowing the class to see how I am making adjustments. Register if you have interest.
Follow us on twitter @optionpit
graphs and charts from livevolpro
