The Option Block

Option Block 411: Futures Traders vs. Stock Traders

Trading Block: Earnings today include: (Before the Bell) Kohl’s, 3d Systems Corp, SeaWorld Entertainment, LifeTime Fitness, Marriott Vacations Worldwide, Magellan Health, Anheuser-Busch InBev, Sears, Avago Technologies. After the bell: Gap, JC Penney, Weight Watchers, Crocs, Herbalife. Oil edges higher towards $62, ample supplies still weigh. Apple rains on stock market parade.

Odd Block: Puts trade in Exelixis, Inc (EXEL), puts trade in SPDR S&P Metals and Mining ETF (XME), and all sellers in iShares MSCI Japan ETF (EWJ)

Xpress Block: The Schwab mobile app hits 1 million downloads. Also, its tax season!

Mail Block: Listener questions and comments

• Question from Brian Collamer - Hi Mark, back in October I sent this question and I see you ran with it in a couple of other shows: You mentioned that when selling options the fastest theta decay occurs in the 45-30 day range. I thought that was only true for ATM options? Do OTM options decay the fastest at 60-70 days and then kind of flatten out? In each show you had asked where I had seen/heard this. LiveVol blog and forum. What do you think? Thanks for the great content! PS: Futures Roundtable needs to be twice a month IMHO.
• Question from Thomas: Is there an active spread market for options on crude futures? Also do you feel that futures traders make better options traders than stock traders?

Around the Block: More earnings: Friday, February 27: Goodrich Petroleum, Isis Pharmaceuticals

Option Block 409: Talking PCLN, Crude and Pairs Trading

Trading Block: There is still no real agreement among Fed officials on rate hike timing. Oil cuts loss as supply hike not as large as anticipated. Earnings today: before the bell: Wal-Mart, Priceline Group Inc., T-Mobile; after the bell: Intuit

Odd Block: Calls roll in (BWP), calls and puts trading in Microsoft Corp (MSFT), and calls trade in Boston Properties, Inc. (BXP)

Xpress Block: Alex discusses OX and Schwab mobile trading

Mail Block: Listener questions and comments.

• Comment from Martin - Thank you that you share this precious information on your show for free. A great job. Well done. Martin from Germany.
• Comment from Kevin Duggan - Hi Mark, Love your shows! Not to be an ingrate for all the great, free info and entertainment but, could you put out your podcast the same day you record it? It is always strange hearing you talk about Thursday’s market after Fridays close. It is not a big deal, more of a first-world problem really, but posting sooner would significantly bump up your cool factor. Thanks.
• Question from John D. - Hi, Love your show. You guys do a great job. Keep up the good work. My question...If I am looking at a pair trade (e.g. long Facebook, short Twitter), obviously I can do it by buying/shorting the stocks. I was trying to figure out if there is any way to effective do the same thing with options what the advantages might be, if any. I thought of doing a synthetic long/short, but did not see any advantage since I will be naked short an option for both names... but maybe margin treatment is different? Long call on one and log put on the other does not seem to make sense since I am pretty much guaranteed to lose the premium on both those positions. Is there another or better way to structure this type of trade using options? Thanks, John D

Around the Block: Earnings coming up down the road.

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 407: Cracking Down on Insider Trading

Trading Block: A light day on the market. Oil rallies for third day after OPEC sees greater crude demand. Oil rose for a third straight session on Monday as OPEC forecast greater demand for crude this year than previously thought and projected less supply from countries outside the group. Does Germany owe Greece war reparations? Toys for boys push Hasbro earnings above Wall Street expectations. SEC probes Blackberry options trading ahead of Reuters report about Samsung talks.

Odd Block: Early put closer in Fidelity National Financial Inc. (FNF), quick call sale in LinnCo LLC (LNCO), and put trader in SPDR S&P Biotech ETF (XBI)

Xpress Block: An in depth look at the Trade and Volatility Calculator and other tools from OX.

Strategy Block: Uncle Mike talks the virtues of patience, how to be wrong in the right way and factoring in losses.

Around The Block: Earnings!

• Tuesday, February 10: Omnicon, Starwood Hotels & Resorts Worldwide, Molson Coors Brewing, MillerCoors, Dean Foods
• Wednesday, February 11: Tesla, Thomson Reuters, Whole Foods Market, Nvidia Corp, AOL Inc, Time Warner, Metlife, Cisco
• Thursday, February 12: AIG, Groupon, Avon, McGraw Hill, Kellogg Co.
• Friday, February 13: 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 405: Neither Rain nor Snow

Trading Block: Chicago digs out from under the snow. Patriots win! Sorry investors.

Shake Shack shares are getting pummeled. Apple taps bond markets for $5bn. Oil advances on US slowdown hopes.

Odd Block: Call spreads in iShares MSCI Brazil Index (EWZ), 3-way in Danaher Corp (DHR), and time spreads trade in Chimerix Inc. (CMRX)

Xpress Block: New 2015 OX ads - featuring The Walk Limit, The Trading Probably Calculator, and Idea Hub.

Strategy Block: Uncle Mike Tosaw and his current SPY trading strategy

Around the Block: Earnings after the bell tomorrow (February 3): Disney; on Wednesday (February 4): GM & Merck; on Thursday (February 5): Sprint & Twitter

Option Block 404: Earnings Palooza: GOOG, AAPL, AMZN, BABA, F, and More

Trading Block: Apple crushes it on earnings - Uncle Mike, did this change your bearish sentiment from the last show? Earnings this morning: Ford and Alibaba. Earnings today after the bell: Amazon and Google.

Odd Block: Put spreads trade in Assured Guaranty LTD. (AGO), puts roll in Newfield Exploration Co. (NFX), and calls trade in American Eagle Outfitters (AEO)

Xpress Block: A ton of volume in AAPL, AMZN and BABA - not much time for anything after B.

Mail Block: Listener questions and comments

• Question from Ernatine14 - If vol was not high enough to be sold in Apple, then is it low enough to be bought in Google? Is it priced this way for a reason or is the options market clearly wrong?
• Question from Rohan - Do you think it’s viable for an active retail trader to become a professional retail trader using primarily the freely available tools from OX and other retail brokers? How viable is that in the current environment? Would I always be at a disadvantage from the pros picking me off? Is this just a pipe dream? How much would you say the average pro trader needs to make to be viable? Thanks again for all the great programs you guys have put out for free. Congratulations for making it all the way to 400, and thanks to OX for making the whole dance happen.

Around the Block: Updates on Google and Amazon.

Option Block 403: Frozen Dolls and Apple Puts

Trading Block: Not much movement in the market today. Greek elections had little to no effect. Earnings after the bell today: MSFT. Mattel: Barbie being crushed by Frozen, CEO stepping down.

Odd Block: Puts seller trade in United States Oil Fund LP (USO), put blocks trade in NextEra Energy Inc. (NEE), possible OTM put sellers in Micron Technology (MU)

Xpress Block: Alex discusses the walk limit and the all in one trade ticket features on the OX website.

Strategy Block: Uncle Mike talks about his most recent strategy in everyone’s favorite fruit company - Apple.

Around the Block: Update on MSFT earnings. Tomorrow: AAPL, YHOO. Boeing, FB - 1/28, AMZN, GOOG - 1/29

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 401: Apple vs. Swiss Franc

Trading Block: Switzerland stuns markets by giving up on currency peg. Big moves in gold. The Tesla free fall: Elon Musk now $2.8B poorer. US stocks head lower; crude oil price falls again. Intel moving up again.

Odd Block: Puts go up in Taiwan Semiconductor Mfg (TSM), calls roll in WeyerHaeuser Co. (WY), and size call buyer in Brisol-Meyers Squibb Co. (BMY)

Startegy Block: Uncle Mike discusses long SPY positions

Mail Block: Listener questions

Question from Faye Cuzername - On 10/24 I bought 2 Dec 305/315/325 call fly in AMZN for $0.91. Stock moved through the fly so today (11/14) when AMZN @ 326, I sold it for $1.50. A whopping $.55/ contract after commissions. What adjustments should I have considered with the fly since I do not see AMZN retracing during the Christmas season? Note that I have a 9-5 so I am not watching the screen all day if that affects what you suggest.