3SOF

Atherogenics came out on my screen for high Volatility Skews. December options have an Implied Volatility in the 50s, January07 & later are in the 200s. And Jan09s are in the 100s.

This is telling me that there is nothing expected to happen to this stock in December ... but there might be something big in January/early 07.

Does anyone have any buzz that might be helpful? They reported earnings on October 24th ... so their next earnings should be in January. Is that causing the volaitility or is it something else that I'm missing?
-Samantha

I'm going to call this my "WHY WHY WHY!!" Options indicator.

In January ... if you want to buy the at the money options, you would have to pay about $3.5 to buy and sell the stock at $12.50. The stock is only selling at $12.85.

If you buy the calls, you don't break even on your options until the stock gets over $16 and if you buy the puts ... your break even isn't until around $9...

Now if the crystal ball would just tell me WHICH direction...
-Samantha

And as I settle in with a glass of wine before Thanksgiving... A 20# turkey chillin' in the sink...just one other thought... to add to my WHY WHY WHY dilemma...for all the darn posts I have in the Option folder that are in the same boat...

Riddle me this... (batman) ...Why would you buy $3.50 in up or down side on a $12.50 stock ... baring the idiot scenario ... unless you thought you could do better than just get your money back? Every time I make a crappy trade ... and "lend" my money to the market for 6 months ... until I can finally break even and get my money back ... I know that the market is not about charity. Not even a bank ... or my mother expects to just get their money back ... without a little interest.

Every time I enter a trade ... I know that there is someone on the other side who disagrees with me ... and only one of us can be right. It always makes me pause.

The quick (and might I add ... gutless)  little pizza trade I did on PVX during options expiration week gave me a 500% profit (bought for $.05 ... sold for $.30 ... IE $50/$300). Had I held on another day, I would have had a 1500% return (bought at $.05 ... could have sold for $.80 ... $50/$800). Don't get excited ... I bought the equivalent of a pizza and got back 5 pizzas, because I chickened out.

People who speculate in options expect those kinds of returns. Option speculators are just different than people who buy and sell stocks. People who buy Microsoft when it breaks $30 will expect it to go to $32.50... in a couple months ... maybe a year or 2. They don't expect it to go to $65 ... or $480 ... (IE 100% ... or 1500%) ... in a month or two. AND ... when they buy Microsoft stock, the thought NEVER crosses their mind that it could go to zero by the 3rd Friday of of the month... but every option investor KNOWS that the options they buy can/will expire ... worthless if not acted upon.

People buy options for many reasons ... leverage, quick move, cheep compared to stock, protection... etc. The people who are buying these options think they can do better than $3.50 in which ever direction they choose. Or they think a move will happen quickly so that there is time on their side to get the option moving and cover before they lose Theta/time... People don't usually buy expensive options for protection, what's the point? If you make a nice profit on a stock, why would you give it all away to an option ... just sell the stock...

Sellers/Market makers offer the options and try to factor in their worst case scenario. "What if this goes A LOT higher or lower ... worst case ... how much should I charge to cover that up or down side?"

So the quandary is ... who is right? Are the buyers right... when they think they can catch a double and their option will be $7? In which at expiration ... this stock would we worth either $19.50 ... or ... $5.50. Or are the sellers right in that it can only go up or down 3.50 or less?

I'm proposing a new hybrid ... looking to options for stock direction. This should be great with all the charting expertise on this 3sof. As option investors ... we ARE leading indicators.

Someday ... I hope I find a $12.50 stock, with put options selling for $14. Then I'll KNOW there are idiots on the other side ... and I will be... ALL IN.

Just a thought - Please share.

And ... if you happen to be a buyer of this option ... of course I don't mean YOU are an idiot. But I would really appreciate your rational.

Happy Holiday!
-Samantha

Hey Samantha,

Just a thought on all this options madness.  Someone has to be willing to write those options (usually the MMs) and options trade just like stocks - it is all about what buyers are willing to pay for them and how much selllers think they can get for them.  Options are then compounded by the fact that people who trade options trade options and by that I mean intensively.  Speculation blows option prices sky high not because people think "oh its going up and it has to reach this level for me to break even on the options exercise" but because they see a stock price ralying hard and know the options price return will be exponentially higher, when they only intend to hold it for a matter of days.  For example, if you bought Dec NFLD calls at 12.50 or even 15 last week, how much of a return would you have had on them by now, and would there be any way in the world you would think "oh well thats a nice paper profit I have here, but I think I will hold out and just exercise those options to get the stock"  No way!!  As far as I can tell, the whole point of options is as they get closer to expiration, no matter what, their value starts to decrease as the market becomes more confident about where the stock is likely to end up in relation to the available options strikes.  So they have two aspects - the highly volatile, high risk/reward trading phase when you know you will only trade that option, and the point at which people who actually want to own and excercise that option start jostling to get their position.  The trading volatility is what sends the price silly, and you know that buying these options this far in advance, you are paying a significant time-based premium - i.e. if the price action is stagnant for the next month , even though your options are i the money, their value will decrease.

The only way I see that I could trade options is to use them as a way to leverage my intuitions about short term directions in a stock price - i.e. within a few days to a week or so at most.  If I am VERY confident that the share price should move in a particular direction, I may buy them, regardless of the premium, becsue I know that if the stock does what I expect it to  the price at which i could sell them will be much higher.  Of course, if it goes the other way, say goodbye to your money....

Hey ST!

Just so anyone reading this is really clear... I'm not advocating anyone buy these options. In fact ... with the volatilities this high in the near ish months ... It would be best to actually sell them instead of buy them, so you could capture that time Theta depreciation.

My only problem is that the volatilities are so meteoric, I can't come up with a calendar spread combination that makes sense to me and would cover my ass in case there really was a huge move in one direction or the other.

The transactions are happening - - It must be speculation. So on that note, it must be people trying to capture quick moves. But, when we start looking at these stocks that have high IV a couple months out. These speculators are willing to risk the near month depreciation. If a month goes buy on a 2 month option ... then the IV will have to increase to balance out the Theta loss. I can't envision the IV getting any higher than it already is.

So current month high IV on a dicey stock makes sense ... but couple month out high IV buyers just don't make any sense to me. Maybe there's some obscure strategy where you buy the current month low IV and sell the high IV future month in hopes that the IVs start coming back to equilibrium .... then you'd have to close/cover both sets ... otherwise you'd be naked. But boy ... that's certainly not a trading plan I've ever heard of... 

ANYWAY... I do think these bazaar option skews give a good indication of sharp moves in the near future, that may be better suited to just buying and selling the stock instead.

I'll concede the $5 - $19 price range was probably the wine talking. hahahHAHAHAHA ... 
Thank you for all your help, insight ... and sanity!!!!!
-Samantha

AGIX fell through $12.50 option support. Still no news. IV is still really high. It looks to me like the next level of "short term" support is the low from July 18th @ $12.11 (ish). If it can stop there, then we'd have a nice descending triangle or downward channel that spans a pretty big time frame. Next stop though, from a technical standpoint, would be around 10.50 ... at which point be might be building the mother of all long term ... 4 years in the making ... head and shoulders??? That might be too odd. Right? I think these are possibilities if we don't get news soon (ish). But once we get news, I think all the technical analysis will be eclipsed by a move in one direction or the other. Careful with this one ... my Samantha sense has got the hairs standing up on my neck...
-Samantha

This was Dr J's stock to watch this morning. He said it was all over the "Heat Seeker" premarket. He was planning to buy up to 12.55 with a price target of $15. Since I can't figure out where this stock should be going, I'm not so sure that was a good decision ... especially since the stock is touching $12 right now. DrJ IS options... I wonder why he thinks the stock should go up. I'm assuming big SOMETHING ... soon ish ... seems strange he's not keying into that same volatility and just recommending based on fundies... hu.

http://www.cboe.com/tradtool/webcast.aspx

Boy this one has made some moves in the last couple days ... the options on this one are now really skewed.  I'm thinking it still has a big move - like maybe $5 - not sure of the direction ...

The long term trend is still down, but the near term is up.
Does anyone have a feel for the direction?

-Samantha

Hey samantha,

haven't seen you about in a while, (but I supose I have also been a bit quiet). Hope you had a lovely festive period.   

Boy, I completely missed that one, but what a nice move on Friday!!  Looks to me like AGIX has gotten nailed at 12.50 resistance, and needs to break 13.50 to get some legs.  Having a look at the news items:

http://biz.yahoo.com/ap/070105/atherogenics_mover.html?.v=2

http://biz.yahoo.com/iw/070108/0201065.html

It looks like it may have been a short squeeze based on speculation that they might report preliminary data this week at the JPM biotech conference, o a possible results leak from doctors associated with the trial.  They have since re-iterated that they expect to do so by the end of Q1, at the American College of Cardiology Scientific Sessions in March 2007, I think it ain't gonna happen, and more than likely we will see a re-trace, but it sounds like this one is another case of NFLD-style make or break options madness.

I found a very interesting discussion of options strategies on the agix board here:
http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_A/threadview?m=te&bn=555&tid=20193&mid=20193&tof=1&frt=2#20193

Certainly worth a look - sounds like a selling covered call strategy may be profitable, but still risky if it tanks real bad.  In any case, probably not much is gonna happen before March, except a lot of volatility.  I'll be keeping an eye on this one too.

ST!!!!
Well this one has certainly been a rollercoaster hasn't it! HAHAHAHAHAHA
oh my....

I haven't been around much because I had to get a dreaded ... JOB ...I miss posting... ... even if nobody else misses me posting. hahahah

OK ... with the move on this one today, the options have come back into alignment. I think it's no longer an option story ... I'm not saying that it's done moving ... but all the options buyers/sellers have come to their senses and the pricing is much more reasonable in the near months. March options are not yet available ... April looks high .... so I think you have it's number buddy!
-Samantha

Hey Samantha!!!

You'll be proud of me - I bought my first options yesterday!!!  And now I am beginning to understand why you like them so much (and why they can make you so much money )  I picked up some AAPL Feb 90 Calls yesterday to leverage my long position before MacWorld, and boy did it pay off!!!  While my stock was up 8%, which was great, the options I bought in the morning were up a whopping 76% by the close!!!!  Unbelievable!   But boy it makes me nervous!

Well, I hope that your job doesn't take all of your time and you are still able to post (and trade) a bit.  Keep coming up with those ideas!!

ST

WOO HOOO!!!!!! Good for you! Course with a 76% increase .... I hope you took the money and ran with it! ... Or at least took your money out and are just playing with the house's money now.

Don't hang onto them too long. Keep an eye on the "Theta". That will tell you how much money per day you can expect to lose if the stock doesn't move. And watch your Volatility. As soon as all the news is known, the IV will drop and your options will take a hit.

GOOD LUCK BUDDY!!!!!!
-Samantha

AGIX update:  Still looking bearish after the big channel breakout.  Support @ $10, resistance @ 12.50 and 11.40.  Possible falling wedge, needs breakout follow through.

would you say overreaction to news?  might be a good time to get some long term calls here or leaps?