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Options In Focus: IBD 100 Options
Posted in finance | Thursday, July 26th, 2007 | Trackback
Wednesday was likely a busy one for many option traders that focus on IBD 100 stocks. With volatile price swings, earnings and increased premiums across-the-board, there were plenty of reasons for considering adjustments and perhaps opening fresh positions as well. In the following, we’ll recap a couple of the more extreme regions of that particular universe.
In front of this evening’s earnings release, Apple () saw a surge in options activity and in its risk premiums. On the day, total volume swelled to more than 600,000 contracts versus its typically brisk 200,000. Further, a Put / Call ratio in conjunction with existing high and firmer implieds during Wednesday’s session suggest bullish bets were being wagered in front of the report.
ATM implieds for August were near 55% with the 140 / 135 Strangle fetching 13 points or $1300 a contract. Hence, on an expiration basis traders would need shares of AAPL either above 153 or below 122 in order to profit. In the after-hours session, the stock is moving to the plus side near $143 in volatile trade. However, with an expected decline in the implieds, the “juice” or Vega component of nearly 0.30 per contract will mean a stronger move is still necessary if any profits in Thursday’s session are going to materialize. If we anticipate a drop in the premiums to the 40% area, the stand alone ‘vol crush’ for the Strangle will be approaching 4.50 points of the 13 point initial debit.
While trading in Apple’s options was impressive, Wednesday’s most unusual activity in percentage terms was Buffalo Wings (). The restaurant operator isn’t scheduled to release its earnings until July 30, but it appears some bullish positioning is taking place in front of the report. While signs of distribution have crept into the picture; the latest being today’s technical attempt at breaking one-month price supports, option traders were most active in the OTM August 45 Calls. Front month implieds spiked by five percentage points to 67% during the session.
No doubt, general market conditions are in part responsible for the increased pump in implieds. But, with more than 2,000 contracts changing hands, existing Open Interest of just 1,407 and daily average volume of just 1,240; demand for protective strategies in lieu of stock look to be more than sufficient evidence. Also active and accounting for nearly as much volume, the OTM September 32.50 Puts look like a ‘cheapy’ bet. While the implieds are theoretically rich, for a 0.60 closing price and three sessions remaining until the report, the logic of using them as the basis for a starter position can be appreciated in conjunction with risk management.
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