The Option Block

Option Block 361: The Happy Bottom

Trading Block: A little bit of a down day on the street, but nothing like last week. Zynga and Groupon after the bell. ZNGA closing south of the 3 handle. VIX futures trading below the VIX cash. Grains and wheat options and the Russia embargo.

Odd Block: Combos trade in Flotek Industries Inc. (FTK), puts trade in Gerdau SA (GGB) wheel trade.

Xpress Block: LULU has been running hot, but cooled down during the day. Three-to-four leg tickets coming in September. IdeaHub adding 8 names into premium harvesting. What is we see of a Whaley product?

Mail Block: Listener questions and comments

• Question from Reuben Brooks - A few months back, on one of your shows, I think option block, Uncle Mike from RCM was talking about some kind of special offer for individuals in the "wealth accumulation" phase. You jumped in and pointed out that we listeners would be "stupid" to not take advantage of this. So, I am trying to not be stupid. I was not able to follow up right away on that (and in fact I have fallen behind on my podcasts), but I would like to find out more. Can put me in touch with Mike? If you have any other resources for me, i would love to hear it. I am 25, an engineer, I am intrigued by active trading but a bit dubious of technical analysis, and trying to find more edge, and use options to exploit that (either long-term or short-term). Have been trading options in 1 lots to learn. Your podcasts have been a HUGE help in blasting through the steep initial learning curve.
• Question from Christian C Caropolo - If you buy an option on a company that ends up merging or being bought out with another. What happens to the option you own?
• Comment/Question from Kaiserdog76: Thanks for the Option Block update today. Missed Longo’s presence but Sebastian did a decent job. Worlds shortest Odd block, but after looking on the web page I found the "Juicy" unusual activity I crave!! That VNDA trade is intriguing. There are some heavy OTM open interest in VNDA all over the strikes and going well out into the future. I do love me some Bio-Tech! So today I have two stories for you. One of failure and one of success. Let’s start with the failure. Back when PBYI was around $49-50ish I had bought 100 shares in small chunks. When the stock popped to $70 I thought how smart I was and sold every last share. For a decent profit. I know you are thinking well how is that failure? That 4-5 thousand dollar investment would be worth over $20,000 now, so yeah. It can be hard to sleep at night FML for real. My second tale is a much happier one. I own shares on WIN and love the dividend and super well defined uptrend the stock has been in for quite some time. I wanted leverage though. So I took the proceeds from my dividend on WIN and financed some OTM call options on WIN. Well on Tuesday when WIN announced the IRS had "Okayed" them spinning some of their assets into a REIT. WIN popped and I realized over a %1,200 percent gain that day. Now I was able to sell those calls and lock in some fantastic profit all while not selling a single share. So you win some and you lose some I guess. Thanks for everything you guys do! Love the underground radio!! Mark- Kudos again for covering Barclay's and the HFT shakedown that has been going on. It is the biggest thing no one seems to be talking about. Please keep it coming!
• OX Question - Maker / Taker goes away in the UK. Are we next?

Around the Block: What will the US do, and how will it affect the markets?

Option Block 360: Return of the Voice

Trading Block: Some of the Thursday selloff coming back into the market. Where could the VIX go in the next few weeks? VXST trading below the VIX cash.

Odd Block: Ratio roll calls in Select Sector SPDR Financials (XLF), a ratio time "Tosaw Stupid" in SM Energy Co. (SM), size ITM call buyer with stock in AmerisourceBergen Corp. (ABC), and closing call roll in NQ Mobile (NQ).

Xpress Block: A little technical hiccup with Idea Hub. Amazon got a lot of attention today.

Strategy Block: Doing stuff - put spreads, managing risk and staying bullish.

Around the Block: Earnings still left: Activision, Groupon, and Disney. All on 8/5.

Option Block 359: Thursday, Bloody Thursday

Trading Block: A bloody day on the street. A default, a bankruptcy, and bad Fed news. Massive FLEX trades went up today. Professor Whaley and the VIX term structure

Odd Block: Revisiting a position in iShares MSCI Taiwan Index (EWT)

Xpress Block: Alex discusses about the changing metrics in portfolio margining and the risk tools.

Strategy Block: Uncle Mike highlights his strategy using the Long SPY Long Oct 190 Put

Mail Block: Listener questions and comments.

Question from Steven, San Diego, CA: Listing to the July 24th show on the 25th. So, with the benefit of hindsight, I can you see the majority of the activity in AMZN being discussed was pretty much completely wrong. It was down, not up, and way past the expected move. So that brings me to the question. Is there any study or statistical evidence that shows that the unusual activity should be followed? Or should be faded? Really think the retail crowd are chasers, which works until it doesn't. The trend is your friend? Bah-humbug! It makes for interesting press, but is it really actionable? Rather than glorifying, would your listeners be better served to be cautioned on this topic rather than enticed? Love the show. Sometimes customer of the Pit and RCM because of the show.

Around the Block: Non-farm payrolls: could it possibly turn around the market?

Option Block 357: AMZN Call Buyers Get Crushed

Trading Block: Markets mostly unchanged in modest volume. Apple posts decent numbers but disappoints overall. Amazon earnings after the bell. OX clients still buying far OTM calls? Facebook rallies $4.50 post earnings and trades over 1m contracts. Ford announced before open. Not much of an event.

Odd Block: Call buyers trade in Wisconsin Energy Corp (WEC), spreads go up in iShares Dow Jones US Homebuilders Index ETF (ITB), call buyers trade in Navios Maritime Holdings Inc (NM), and block prints in WhiteWave Foods Co. (WWAV)

Xpress Block: Alex showcases "The Dragon,” an OX tool that allows you to find unusual activity.

Mail Block: Listener questions, comments, and suggestions

• Question from Sea Biscuit: How do the market makers figure into open interest? Do they essentially double all of the OI because they are taking the other sides of every trade? Should i divide all OI numbers by two to get the real activity or is that already done for me?
• Question from Avon Man: Just to clarify on the conversation from last week, Alex said OI was broken down from each exchange and then netted with market maker activity. So if customer A buys 10 calls on Arca and then customer b sells 10 of those same calls on Arca, both opening, that would be net 0 open interest because they are on the same exchange? But if customer B sells those same calls on a different exchange, let's say NASDAQ, then it would be net 20 calls open on the strike because it’s two different exchanges? Is that right?
• Question from Alex C: Facebook looking strong post earnings. What option trades do you guys like out there right now, if any? Thanks for the shows. Just checked out Advisors Option for the first time as well. Very timely as I am in the process of picking an advisor.

Around the Block: Earnings-palooza continues

Option Block 356: CME and NFLX Earnings Rundown

Trading Block: A relatively quiet day on the street, after a crazy week. Earnings so far: NFLX after the close, CME (the stealth Apple) after the close. Positioning for Apple tomorrow.

Odd Block: Call buyers trade in Steel Dynamics (STLD), call spreads buyers trade in Orexigen Therapeutics, Inc. (OREX), calls buyer trade in Crocs, Inc. (CROX), call spreads, rolls selling Dec, buying March trade in CytRx Corp. (CYTR).

Xpress Block: Herbalife taking a pounding. News on The Walk Limit tool.

Strategy Block: An expiration day lesson from Uncle Mike Tosaw and how to avoid unnecessary weekend risk.

Around the Block: A quick earnings review in CME, NFLX. MSFT and APPL tomorrow. On 7/24: AMZN, F, GM.

Option Block 355: Bleeding Out Into the Pillow

The Trading Block: A bit of a bloodbath on the street. Dire world news out of Ukraine and Israel/Palestine. Yellen's comments reverberating around the market. A 33% spike in the VIX. Microsoft slashing jobs. U.S. House passes spending bill with Dodd-Frank changes.

The Odd Block: Opening put buy in Currency Shares Canadian Dollar ETF (FXC), short puts with stock trade in Gerdau SA (GGB), big block of puts traders in Janus Capital Group Inc. (JNS), and buying puts in Entergy Corp. (ETR)

Mail Block: Questions and comments from you, our listeners

• Comment from Jake - I just wanted to let you guys know that I can’t go a week without getting my fix of lobsters, bubble pipes, fancy hats and of course Mark’s baritone pipes. Keep the shows coming. It makes my week fly by.
• Question from Series 7 - Hey Mark and his all-stars. I know you guys have touched on a stock being hard to borrow impacting the pricing of the options. But I’m still confused. Can you break it down for me please? Thanks. I know I’ve come to the right place.
• Question from Connor Mac - If I own a stock and I write an in-the-money call against it is that the same thing as selling the stock? If so what price am I selling the stock for? The strike price? If not am I increasing my probability of my stock being called away before expiration by selling an in-the-money call?

Around the Block: Thursday earnings: Morgan Stanley, Google and IBM.

Option Block 354: When to Close Out a Spread

Trading Block: VIX and VIX cash. LULU taking it on the chin. It’s time for the Trading Patterns Guessing Game once again!

Odd Block: Calls roll in Danaher Corp (DHR), calls roll in Wisconsin Energy Corp (WEC) - Buy Jul, Sell Jan., closing collar in AGCO Corp (AGCO) - Buy call/sell put, and ratio call spread unwind in Beazer Homes USA, Inc (BZH) - Sell 1, Buy 2.

Xpress Block: Alex discusses the development of migrating the OX tools to Schwab, including the 3 and 4-legged trade ticket, due to Schwab Mobile and Street Smart Edge by September.

Mail Block: Listener questions and comments.

Question from Neal Augustin - Like the discussion on the recent show about getting free gamma going into earnings. It makes sense since the contracts should experience minimum decay. But do you not have to use a contract that expires after earnings, preferably the earnings week, in order to get that bump? If you use the contract that expires prior to earnings, it should decay like normal, correct?

Question from Trader64 - Spread decay question: Mark said in the mail block in response to a listener question about spread pricing, that the at-the-money and in-the-money options would decay at different rates to make the spread widen. Since this takes a substantial amount of time, should I always count on only capturing a portion of the maximum profit in each of my spreads? If so, what percentage is reasonable? Thanks for the show Mr. Options Voice!

Around the Block: More earnings on tap for this week. Citigroup - 7/14. JP Morgan Chase and Goldman Sachs - 7/15. Bank of America - 7/16. Morgan Stanley - 7/17.

Option Block 353: Crazy Combos and the Great Open Interest Debate

Trading Block: A volatile day on the street - S&P got as low as 1952. VIX cash ticking up nearly one handle. Gold a big mover today - to the delight of Uncle Mike Tosaw. It’s time for the Trading Patterns guessing game again - this time with GLD! Lumber Liquidators (LL) gets crushed, down over 20% today. Options volume already 10x ADV on new that they are cutting 2014 earnings outlook. Sprecher calls for market-wide purge for order types. Chicago Fed joins the HFT conversation calling for curbs.

Odd Block: Calls roll in Thermo Fisher Scientific (TMO), closing combos trade in CBS Outdoor Americas Inc. (CBSO), call buyers trade in Goodyear Tire and Rubber Co. (GT), dividend trade calls trade in Freeport McMoRan Copper (FCX)

Xpress Block: A reminder at IdeaHub for futures is out. Please be aware that firms are trying to rein in exposure fees.

Mail Block: Listener questions and comments

• Question from Nico Belle: Am I correct in assuming that open interest refers to the number of contracts that are available for exercise on a particular strike and not just the trading volume seen on the strike?
• Question from Rick: What does the term spot refer to? Also how is change calculated? These terms are used with unusual activity. Thank you, Rick
• Question from T Jon: Hey all stars - great show Mark and the gang. Please say hi to Uncle Mike, the rock lobster and the viceroy for me. I enjoy all of their segments including the strategy block. On a recent episode Uncle Mike referred to selling put spreads to help finance the cost of a longer term put. Can he explain his methodology for this strategy - if he buys a six month ATM put is he also selling ATM put spreads against it for a straight up calendar? Or is he selling OTM put spreads and going for diagonals? What frequency is he doing this on - weekly? Monthly? Does he ever combine the short put (spreads) with a short covered call essentially turning it into a long term put vs a short term strangle (plus)? Question for viceroy as well - what is your favorite question you’ve ever been asked at one of your seminars? Mark - thanks again for this great show. Your network will always have a home on my iPhone.

Around the Block: On Thursday: weekly jobless claims, May wholesale inventories as well as Fed talk: Stanley Fischer, Vice Chair of the Fed Reserve, gives his first speech (financial reform in Cambridge, MA) and KC Fed President Esther George (economy and monetary policy in Oklahoma). Problems in Portugal: parent of Portuguese banks delayed payments on some short-term debt.

Option Block 352: Hot GoPro Action

Trading Block: A mild selloff ahead of earnings. The newcomer GoPro was very active today, as well as everyone’s favorite fruit company, Apple.

Odd Block: Call buyers trade in URS Corp. (URS), puts buyers with stock trade in King Digital Entertainment (KING), call buyers trade in Zions Bancorp (ZION), and put spread buyers trade in iShares MSCI Germany Index (EWG).

Xpress Block: A lot of speculation in fixed income.

Strategy Block: Tosaw discusses how not trading can also be an option when you can get what you want.

Mail Block: Listener Question Question from T. Simpson: Hey all-star panel (viceroy, meatball, lobster, uncle and the voice)! I’m sitting on some gains in ford and would like to protect it. I’m looking at the December 17 put (currently trading for 82 cents). I know you guys have said aim for about 2% of your portfolio for protection. But my math shows this to be about 5% of my portfolio for decent near-ATM protection. What are some ways that i can do stuff to make this protection more affordable? I very much enjoy the show and i am wearing a fancy hat as i write this letter. – Tom

Around the Block: ALCO kicks off the earnings madness again tomorrow.

Option Block 351: Dollar General Insider Loses Millions

Trading Block: A quiet day on the street, given the shortened trading week. A stealth rally in Gold. Traders preparing pre Google earnings. Under 400K ADV in VIX today.

Odd Block: Call spreads trade in Dollar General Corp. (DG), size ratio spreads trade in Carnival Corp (CCL), puts sellers trade in Companhia Energetica Minas. (CIG), and small call buyers trade in Amicus Therapeutics, Inc (FOLD).

Xpress Block: Alex discusses premium harvesting in IdeaHub.

Strategy Block: Uncle Mike Tosaw discusses when it’s OK to break the rules and to make new ones.

Mail Block:

Question from Aviatrix - Hello all-star panel! Great program. I have a question about option open interest. I don’t really understand it. I’ve read some blogs that say open interest can impact a stock’s direction during expiration week. Is this just, as Mark would say, the “tin foil hat crowd” or is there something to this? Should I be tracking open interest as an indicator? Keep the “wit and wisdom” coming!

Around the Block: Be aware - this is a shortened holiday week.