options mentoring

Why Did GRPN Options Over Price Today's Move?

Submitted by msebastian on Mon, 08/13/2012 - 6:41pm

Many of my option mentoring students were wondering about the move priced into GRPN options today. The stock 7.5 dollar stock, into its earnings had an incredibly high volatility, almost all of it priced into August options that expire tomorrow. We can clearly see the vol pump in GRPN Aug in this cut out from Option Vision (a new analytic tool we will be using here at Option Pit with some regularity).

Paying the Price for PCLN

Submitted by msebastian on Wed, 08/08/2012 - 4:50pm

'It Can't Move That Much"

Famous last words from many of my option mentoring students, when they are dabbling in selling premium into earnings. Well, those option traders are typically given a tough education about options in short order. We saw this happen in tall order in PCLN options. Take a look at the closing price of the weekly straddle:

Livevol (R) www.livevol.com

Breaking Down a CHK trade from Bloomberg's Lunch Money

Submitted by msebastian on Mon, 08/06/2012 - 4:21pm

Our COO was on Bloomberg's Lunch Money today discussing trading and options order flow on Chesapeake Energy. You can watch the Video:

One of the things we have been trying to do, along with Mark's Bloomberg appearences, has been to try and explain the Why of the trade, in hopes it will educate potential option traders about options. Here is an explanation of the trade itself.

Think You Missed the Boat on AAPL and GOOG Options?

Submitted by msebastian on Tue, 07/31/2012 - 3:53pm

Think again! One of the things I am constantly working on with my options mentoring students is the understanding of when to buy and sell volatility. Early in their options education, they often will point toward things like "option vols are cheap' or "the VIX is high." This is a great start; however, it is not the whole banana. One of the real keys of understanding options is not only knowing when option prices are cheap or expensive but, also, when to sell cheap or expensive options.

VIX Down, IV UP, OTM Skew Sold

Submitted by msebastian on Fri, 07/27/2012 - 5:18pm

Many times early in ones options education traders will not quite know how to interpret the VIX and volatility. For instance, on a day like today, with the VIX down, many of my option mentoring students would think that volatility was down; it was not, in SPX options. Yes, VIX futures did sell off a touch, but the IV of SPX options themselves actually increased. We can tell this by looking at strike volatility rather than using a weighted index.

If we look at an OTM put, an OTM call, and the ATM call one can actually see the movement of IV today...up (each zig is a date):

1325:

1385:

SPX About Ready to Bounce?

Submitted by msebastian on Tue, 07/24/2012 - 3:15pm

One of the things I teach my option mentoring students to do is to watch for when traders are buying/ selling premium. It's one of the greatest tools a trader can gain during his or her option education. While everyone is probably out there panicking about the deterioration in the Euro, how bad the US economy is, and AAPL earnings, I am wondering whether today might be at or near a short term bottom. Here is why: Premium is being sold today.

Notice the level of the VIX; while the market is now almost 10 points lower than it was at its worst yesterday, VIX itself has yet to touch a new high on the week (as I write this).

Our COO Explains the Difference Between VIX and VXX

Submitted by msebastian on Mon, 07/23/2012 - 1:12pm

Watch the Video Here

msebastian's blog

GOOG Earnings Over Reaction

Submitted by msebastian on Fri, 07/20/2012 - 8:53pm

Google taught my options mentoring students a nice lesson on getting long premium into earnings; it usually pays to play the day before earnings, not the day of. Because the ATM straddle that was purchased on Wednesday was a huge winner, while the ATM straddle purchased yesterday was a loser. Thankfully, most students actually had on the long calendar we looked at during the pit report, so they all came out ahead.

Typically, after earnings, we will see implied volatility come out of a stock's options. This is because what was once unknown is now known. When there is less uncertainty, there is less volatility. And on Google’s move today, we can clearly see that volatility fell:

Like CORN? Take a Look at SOYB

Submitted by msebastian on Wed, 07/18/2012 - 6:53pm

At this point what has happened to corn in the midwest is somewhat common knowledge and is finally starting to be noticed by those on the east cost. Traders, once the east cost figures out that corn futures are near all time highs and that there is a big suply squeeze, that means the move in corn is almost over.

While the New Yorkers were worrying about europe, smart Option Pit readers were short puts or long calls, or heck long the the physical in either corn futures or in the ETF CORN. If you missed it, take a look at the chart:

Livevol (r) www.livevol.com

VIX About to Dive?

Submitted by msebastian on Mon, 07/16/2012 - 5:11pm

One of the things my options mentoring students often fail to grasp is that volatility is all relative. While it is true that the VIX is below its long term mean of around 20%, that does not mean that the VIX is low. If the market begins to settle into a low volatility period (as I think it could be), the VIX at 17 could be sky high. Just ask a trader 6 in the past whether the VIX of 17 is high or not, his answer would be sky high.

Livevol (r) www.livevolpro.com