Not Bullish Call Action but a Div Play

Every quarter around this time, I get a call from at least one or two option mentoring students asking about all the call volume.  "Mark, have you seen all of the call volume going up in the ETF's?"  Then they send me a scan that looks like this:


LivevolX (R)

At that point, I call the client and point out where all the volume is coming from.  Take a look at the call volume in SPY today:


LivevolX (R)

That is when they realize that all of the ETF's go exdividend tomorrow.  The bullish call volume you traders are seeing is not bullish call volume at all.  It's simply a divident play in the major ETF's.  Traders are hoping that lazy retail traders and institutions forget to exercise some calls in a few of these ETF's in large enough volume to cover the commission cost of these trades.

It is generally easy to differentiate a Div play from normal volume, as Div plays will have two characteristics:

1.  They will be on high delta calls, typically 95 or more

2.  The volume will exceed the open interest by about 3 fold

You can read in full detail the mechanics of this trade here.

The Trade:

Dig into where volume is coming from before trading it.  Volume numbers are nice but can easily be misread if traders are not careful.

This is the type of training you will learn in our gold course.  If you needed help following this trade, you should be in that course.  Register here, or call us (888) for more info.

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