Articles from the Experts

Option Block 408: Juicy Apple Puts

Trading Block: Earnings today after the bell:  AIG, Groupon, King Digital Media (Candy Crush). Earnings before the bell today: Avon, McGraw Hill, Kellogg Co. Insuring against Apple blow-up just got a lot more expensive. Tesla shares fall after earnings, despite musk apple comparison. Oil prices rally from sharp losses.

Odd Block: Call buyers in Domtar Corp (UFS), call buyers on fire in FireEye Inc (FEYE), and put spreads trade in Morgan Stanley (MS)

Xpress Block: Alex discusses the OX Help Desk.

Mail Block: Listener questions and comments

• Question from Nick Snow - Hello Mark and other guests. I was wondering if you have ever put together a quick review of other people or newsletters in the industry. For years I have come to options insider because it doesn't spam me, it does not ask for my credit card, and above all I find the information on all shows greatly beneficial. There seem to be so many hacks out there ready to take others money, I think it is time you rate a bunch of other professionals with a simple "Put or Call" rating meaning that company or person is worthless to listen to or actually useful. So of course the options insider would get a call rating from me since it is about the only premium I would be willing to purchase. Thanks again look forward to listening into the future.
• Question from Tom A Bomb - Distinguished Gentlemen, This is a follow-on to a question I posted a few weeks ago regarding a back-of-the-envelope method to price vertical spreads. Last time, I got a vote of at least 50% crap, and I am really shooting to get the crap content down to around 25%. The panel identified that skew and vol estimates were the weak spots in my method. I am somewhat disappointed on the skew aspect. I do not think there is any quick way to incorporate skew into a calculation on a napkin. So, bummer there… But on to my real question: Some of the panel members speculated I might be getting my vol estimates from delta. Not true. I am not using implied either. In large part, the point of my method is to remove any short-term noise to arrive at a “stable” or “normal” estimate. To that end, I will usually match my input vol figure to realized vol of over a comparable period. For example: I want to buy a XYZ 95-100 vert call spread that is 100 days from expiration. 100-day realized vol is currently around 15%. I use that 15% vol input and calculate there is a 30% chance that XYZ will finish above $100 at expiration. Therefore, $5 (width between strikes) x 30% would put the mid-price of the spread around $1.50… Now, I totally understand that historical performance is not an indicator of future yada-yada-yada. The main goal here is to avoid buying when, historically speaking, prices are pumped; or selling when prices are depressed. So, there is my volatility angle. Admittedly, I’m still beat on the skew angle. I will get back to you on that I suppose. Gentlemen, estimates on the crap content...? (Sorry Longo I know this is a long question – tried 3 times to make is shorter! Please cover this on the Option Block again, if you can! Thanks!)

Around the Block: Earnings before the bell today: Avon, McGraw Hill, Kellogg Co.Earnings tomorrow: Time Inc.

Option Block 406: Selling Nonsense Apple Puts

Trading Block: Earnings today after the bell: Twitter, Amazon, LinkedIn, Activision. Traders silenced: CME to close most futures trading pits. Open-outcry trading stood no chance, says futures 'father' Melamed.

Odd Block: Upside calls trade in Youku Tudou Inc. (YOKU), put sellers in Apple Inc. (AAPL), and puts trade in Oasis Petroleum Inc. (OAS)

Xpress Block: A recap of Idea Hub, Trade and Probability Calculator and All-in-One Trade Ticket.

Mail Block: Listener questions and comments

Question from Mark Brant - @Options (14,922 AGNC Mar 22 calls went up in 1 giant block marked buy-write with 360800 shares going up marked derivative.) Where did it "go up" and where was it "marked"? Where are you seeing these trades? Thx!

Around the Block: Earnings - Before the bell today: ISE, Sprint, Keurig Green Mountain. On Friday, February 6:  CBOE

Option Block 402: Yield Hunters Out In Force

Trading Block: A sea of green across the board today. After the bell today:  Starbucks - Time to get your Starbucks (stock) again? - ATM straddle approx. $1.70

Odd Block: Calls trade in W&T Offshore, Inc. (WTI), Put buyers in Nielsen Holdings NV (NLSN), and Calls trade in KB Home (KBH)

Xpress Block: Alex discusses the FX markets and also the covered write tool in the Idea Hub

Mail Block: Questions from our listeners.

Question from Tom A Bomb - Fine-hatted Gentlemen, A question for the Option Block regarding verticals:  First, you all rock. Best show on the network! Thank you OX.  I have been trading high-leverage verticals for a while now and I am looking for a quick way to price em. I place emphasis on quick. I.e. Without running a model on the individual legs.  I have taken (rightly or wrongly) to using the probability of a finish beyond the short strike multiplied by the width of the spread.  For example, XYZ has a 30% chance of finishing above $50 by expiration. I am long a 45/50 call spread. So, at 30% times 5, I would expect the mid-price to be around $1.5 for the spread.  On balance, this method seems to under-price positive delta, and often significantly over-price negative delta.  Is this method complete crap? Any suggestions?

Around the Block: Lots of earnings around the corner. 

Option Block 376: Rebar and Rapeseed - the Stealth Titans

Trading Block: Another selloff - pulling ever farther away from the 2000 level. VIX Cash moving into the high teens. OCC announced today that total cleared contract volume in September reached 371,034,038 contracts. It’s time for the global futures and options guessing game!

Odd Block: Calls trade in RF Micro Devices (RFMD), puts roll in SPDR S&P Oil and Gas Exploration ETF (XOP), and calls roll down in Toll Brothers Inc. (TOL)

Mail Block: Listener questions and comments

• Question from DCruz - Hello All-Stars. You said on the show last week that you guys never exercise you long options except for a few very rare occasions. I would imagine that is the same for most options traders. That make me wonder whether they should just make all options European. Does that not more accurately reflect the reality of the market? And can you ask Tosaw if he can share his tale of pain with Cisco - it might be a good learning experience for the rest of us.
• Question from Anon - On several of your programs you mention that it is important to understand the VIX Cash level at a given SPX level. Can you please explain this further? As an example, what are the implications of a 12 VIX at 1800 VS a 9 VIX at 1800? Likewise, how does a 15 VIX at 1800 compare?  

Around The Block: Non-farms coming out tomorrow - could be a resounding "meh."