3SOF

ONXX came out on my screen for high volatility in the near months compared to Historical Volatility and the Jan09 options. So these are just my initial observations.

To me, High current month IV says something/uncertainty is going to happen. I don't think it's a buy yet, but I'm putting it on my watch list in case I see any strange and interesting option buying and to see if it can stay above support on the daily view.

I can't seem to get the options detail to attach, but the December Volume isn't YET significant ... but it is interesting. There were 1345 December contracts purchased above and out of the money today... ?? Some are WAY out of the money... And the Current IV is 120s compared to historic @ 30s.

Attached - I've also attached the weekly chart which makes me think it's going DOWN ... AND the daily chart that makes me think this just might go UP. I'm still trying to figure out the charting. If I'm missing the charting signals, please set me strait. I haven't looked into fundaments. If it starts looking more like a BUY or a SELL ... I'll get that covered.
-Samantha

The stock is selling right around $18.
If you buy the at the money options on this one in January ... you'll pay about $3.50.
So your break even to the upside with the calls isn't until $21 and the put break even isn't until $14. That range $14 - 21 in January is making me scratch my head...

Not sure how to interpret this.
-Samantha

Hi Samantha (once again),

Right I had a little look at ONXX, and for the most part your charting is pretty much right on.  I would say that the 3 yr weekly chart shows ONXX is in a clear descending channel, although I would point out that support in this channel is much more clearly defined than resistance.  We have no less than 5 tags of this descending support, and if you take that trendline and transpose it to the upper bounds (i.e. move it and connext the top end with the pattern high in March 04) you get a pretty clear channel.  However, the tops of several of the movs do not correspond to the top of the channel, so using it as a sell target may not get made.

In any case, I would say that this chart is looking pretty bearish.  Note that both the RSI and MACD histo are trending downward now, and the CCI on the weekly scale just broke down from above 100.  The last 2 times it did this is signalled a major downward move shortly after (green vertical lines).  SUpport (measured from this weekly chart) looks to come in at 17.80 and 17.66, and below that around 16.85.  Clear overhead resistance comes in around 18.80 and 19.20.  If ONXX were to close above 19.20 on the weekly scale, we could consider that a bullish breakout with a targte of next resistance around $21.  But my intuition is that we won't see that, and this is confirmed by looking at the 6 month daily chart.

When we look at the daily chart, as you correctly noticed, trading through september and october was supported by a clear ascending trendline (note: I have used a semi-log scale here again, mainly becasue the range is quite large, but also we get 4 (or possibly 5) perfect tags of that trendline in the semi-log scale).  It rallied all the way to gap resistance at 19.60 (or 19.75 if you go from the June 2 closing price to the November high).  This resistance looks to be significant for ONXX.  Note also how tboth the RSI and CCI made bearish divergences in their peaks during the later stages of this rally, again suggesting a weakening trend.  However, ofter reaching this high, it has since broken its ascending trendline, and is now beginning to trend lower - and we already have 3 tags of a steep descending trendline that may provide new resistance.  ONXX is sitting right on 17.90 support as of yesterday's close, below that it also has support at 17.66-68.  If these break, next support is around 16.90, and then what should be strong support at $16.  One other thing, CCI is now oversold and rebounding slightly towards -100, which may signal a potential rally from support, but unless this takes out 19.21, I would not call it a bullish move.  In fact, a rally back to 19.20 resistance and failure again at that level would put in a nice H&S top with a technical target of 15.57.

All in all I think Jan07 17.50 puts would probably make you some good money,  as at most the right shoulder of that H&S top would only take a couple of weeks to form.  However, I would hold off buying them until either you get a rally to around 19.00 resistance (they'd be much cheaper then) or a confirmed breakdown of 17.66 support.  I'm not going to go in on the options (cos you know I don't know enough about them) but I may well consider a short strategy on this stock in the near future.  I don't have much experience on shorting stocks, and I want to see how well my analysis fares on that side of the market too.

Anyway Samantha, I hope all this helps give you a better picture on ONXX (or at least my thoughts on it).  Please let me know what you think!!

ST

ONXX looks like it's rolling over on the daily chart and then it closed just below it's 50MA. On the weekly chart, the longer term downward channel is still holding and though it's a couple dollars away from touching the resistance line, it still looks like it's rolling over and headed to support.

It was able to dip below it's $12.50 option support, but was able to close above that strike. Current month options are still expensive ... future month options are still cheep...so the action should be out a month or so.

I'm still waiting for news.
-Samantha

PS ... I just edited this entry ... cause I had the near term options as cheep ... they should have been "expensive"

ONXX - their drug failed. The stock is down 30% at the open. The volatility is completely sucked out of the options. So for now, the option play is over.

http://yahoo.reuters.com/news/articlehybrid.aspx?storyID=urn:newsml:reuters.com:20061204:MTFH48948_2006-12-04_15-07-04_L04344903&type=comktNews&rpc=44

-Samantha

Man that would have been a nice short!!!

I tried to short ONXX when it broke 17.66 support, but couldn't get any shares to short.  Oh well...

You'd be laughing on those puts too!!

ST, I need a plan for these!!! The puts would have made money ... but not a lot. They were so expensive when they had $3.50 of premium included - that premium got sucked out and so all you're left with is the relatively fair value of the $5 fall. $1.50 isn't really that much of a reward for the risk.

I didn't take a benchmark of the option prices, I wish I had. I'll do that for the others I'm watching. I wonder if a really in the money calendar spread would have worked. You could have sold the expensive current $12.50 options and used the money to finance the Jan08 or Jan09 $12.50 options that were cheep? When it fell out of bed, you could buy back the December and sell the Jan07 ... and then keep selling the current month? If it had gone up instead of down and you get called out, you're out the debit on the spread. Something. I don't know. Who would have thought the $12.50 options would be at the money ... and you tried a calendar with the $15s, you would be screwed ... or at least have a really long time to wait before selling the calls. Maybe you have to go as low as you can on the strikes? I don't know.

BUT you have to admit, for all my crazy talk, when the stock was at $18, of it moving in a range of $14 $21 ... you thought I was either really blond ... crazy ... or in the process of losing my mind! Hind sight ... I was underestimating the move ... it really was a $12-23 range. hahahahHAHAHAHAHA ... even a blind pig can find a truffle! 
-Samantha

Well ONXX is havign some options madness once again today!!!  I was looking for a quick daytrade for the day and ONXX was up massively this morning, so I thought it was worth a look.  I thought I would buy some Feb 20 calls this morning (along with some share) as I was sure the news would cause further upside movment today.  Picked some up for .60 on what I thought was the early dip, and then watched as it just kept on dropping.... sheesh, it is so tough with options when you see half your position wiped out in a matter of minutes (I think maybe, just maybe they are too risky for me).  Anyway, I capitulated and sold them almost at the morning low, for .35, only to see the share price start tearing up without me!!  Fortunately I bought them back again (but at 1.40 this time, sheesh again!!) and have just sold the lot - half at 2.80 when I hit my double and the remainder at 3.50.  But man, a nailbiter of a ride!! All in all, with the loss on the early purchase, I still managed to make a double on the trade, which is good, but if only  I had held onto those original options... it would have been a 1-day 5-bagger!!! (OMG  )

Quote from: ScottishTrader on February 12, 2007, 01:36:15 PM
Well ONXX is havign some options madness once again today!!!  I was looking for a quick daytrade for the day and ONXX was up massively this morning, so I thought it was worth a look.  I thought I would buy some Feb 20 calls this morning (along with some share) as I was sure the news would cause further upside movment today.  Picked some up for .60 on what I thought was the early dip, and then watched as it just kept on dropping.... sheesh, it is so tough with options when you see half your position wiped out in a matter of minutes (I think maybe, just maybe they are too risky for me).  Anyway, I capitulated and sold them almost at the morning low, for .35, only to see the share price start tearing up without me!!  Fortunately I bought them back again (but at 1.40 this time, sheesh again!!) and have just sold the lot - half at 2.80 when I hit my double and the remainder at 3.50.  But man, a nailbiter of a ride!! All in all, with the loss on the early purchase, I still managed to make a double on the trade, which is good, but if only  I had held onto those original options... it would have been a 1-day 5-bagger!!! (OMG  )

Wow, nice move getting a double on that, and here I was happy to squeeze 6% out of it in about 45 minutes.  Me thinks I must learn to trade options, any options trading book or site recommendations ScottishTrader???

some good sites i think

www.888options.com
www.tradeking.com
www.volatility.com
www.cboe.com
www.1option.com

always wanted to learn about options.  Just need to get better at it!

I dunno, to be honest, I just started playing with them last month.  Its a ridiculously hairy game though.  I have had some big winners and some really big losers too, and the jury is still out as to whether they are worthwhile.  I just had a look, and to date (this year) I am up a total of $118 on my options trades.  So overall, not very good.

On expensive stocks they can be worthwhile, because it is directly related to the stock price, so a move of a dollar on a $80 stock, can involve a significant change in the option price vs. a relatively small change in the underlying security.  I started playing with them to leverage my position in AAPL last month, and made a load on them on the way up, but lost a load on them on the way down too.  In fact, I just had a look, and while I made over $1200 on the AAPL options over their Macwold rally, I have lost over $2000 on them since during the pullback, primarily because I didn't understand them fully (e.g., not taking the time component into acount) and got bounced out because of short term pain, even though I knew the overall trand was negative (and I was mostly playing puts!). 

Also, the spread can be crippling, depending on what they are trading at it can be like a 20% difference at times, which is scary.  Finally, I would say go small, VERY small, at least until you get a feel for them.  They do trade fairly consistently with the stock, but can swing like crazy, e.g. my 50% loss in about 10 minutes this morning, but then again a buy of those ONXX Feb 20 calls, at say .40 this morning would be sweet, considering right now they are trading at 4.30 - ridiculous to see a 10bag gain in one day, but it is possible. 

However, you can and WILL lose your shirt at the same time.  I'm currently stuck with some worthless ONNN $10 calls, which I bought last week when it broke to the upside, as I anticipated that I would see it abov $10 by now.  Its not and they aren't worth the (virtual) paper they're written on, so $200 down the drain there.  So be VERY careful if you are looking to buy out of the money options.  They're cheap for a reason and sometimes do not move how you would expect them to and you can't get rid of them (except for peanuts).

I think on balance, I would stick with David's advice and stay away (I think I'm gonna have to) unless you are VERY sure about a short term move in a heavily traded liquid stock.  The swings are just too much, and it is very hard to make consistent money unless you are very disciplined, willing to watch very closely, and often willing to daytrade them.  However, options strategies take on a whole other level of hedging, and I know they can be used in combination to more safely generate returns.  Samantha and others would know more about this though.

This is just my experience of them so far

ST ... I can't stop smiling!!!! 
The fact that you're even considering options makes me thrilled.
And all the discussions of crazy movements we had... I think you really get it.

Personally - I think there are a list of rules to live by when it comes to options (I can hunt it down if anyone is interested) and it really comes down to volatility (implied and historical) and the "Greeks".

http://www.investopedia.com/search/results.aspx?q=greeks

or if you like to do a bit of math...

http://www.answers.com/topic/greeks-finance

I usually scan for high implied volatility compared to low historical volatility to let me know that someone thinks the stock is going to move. The only problem is that the options are usually so uber expensive that you really have to day trade the stock instead. And I rarely get a feel for the actual direction of the move. I just know it will be big. I suppose, the flip would be to look for stocks with low Implied Volatility compared to historical - those options would be cheep if you know that something in the near future might make them move. The problem is that I can find them like a blind pig finds a truffle. I just have no clue what to do with them once I find them!!!!!!

So you have to really watch your IV, make sure you know what your Theta will be if the stock does nothing and don't buy too little or too much Delta.... among other things. I've made some good plays on expiring options in the current month/final week ... but you could be here or you could be in Vegas. Kind of a good rule of thumb might be ... that if you plan to hold for a day ... current month or one month out might be fine. If you want to hold a week or less ... consider 2-3 months out. The trick is to give yourself enough time to be right. But you really have to have the discipline to only hold for the amount of time that you intent to hold. You need a catalyst and if the catalyst doesn't come in your timeframe you need to exit. Or if it comes and you were wrong you need to exit. You can't hope something else will come along to move the stock and your options. As soon as you hit your up or downside targets you have got to exit - - YOU CAN'T BUY AND HOLD.

Options are great if you want to capture an anticipated move. Like going into APPL macweek ... or earnings. But I think you only want to hold them going in ... not through. Because as soon as you are in macweek or they announce earnings ... all of the unknown is know. IV = uncertainty. As soon as everything is announced, good or bad, the IV will come back to it's equilibrium, if you hang on too long you'll start losing Theta value ... and you can't count on Delta helping you if the other two have fallen out of bed. Others posting in the options folder will disagree - cause they buy specifically to go through the earnings ... I'm not a fan ... just an admirer.

Like ... lets's say going into macweek ... the stock is at 90 ... you buy the 90 calls for a buck... then as the event gets closer ... the stock is still 90 ish but the 90 options are selling for 5 bucks ... and they keep going and going ... rumors are flying about new ipods and cures for cancer... the stock is still at 90 but the options go to 10 bucks. SELL!!!!! Because the day they make all their announcements ... the IV uncertainty will get crushed, the stock will have to move to $91 for you to break even on your option IV coming down ... and it will have to move to $100 for you to get out the money you could have had ... had you not gotten greedy and just sold your option on the way up. Worse yet ... on the way up ... nobody was willing to sell the options for cheep ... so the Delta and the Theta kept adjusting higher to keep your options soring. After the announcements ... and your IV gets crushed you realize that you have 5 days to expiration and every day... your theta is going to lose 50 cents ... and your delta may have been at 70 cents on the dollar ... but now it's at 20 cents. You really need a miracle to get out of that death spiral.

With options - you have to be right ... quickly. There are a bunch of strategies you can consider in addition to just buying calls and puts. AND .... You can't get greedy ...

I'd love to elaborate if I'm not boring anyone to death....

Maybe we should start a purely option strategy thread that is not stock specific ... I know it seems counter intuitive to the 3sof strategy, the magic lines, the gspot and all ... I really think it's a great tool even if you never touch options.

-Sam

Hey Samantha,

Thanks for your response - I know exactly what you mean, and have learnt it the hard way!!!  With my AAPL options play, when it was trading at 97 before earnings, I bought some 105 Feb calls in anticipation of a strong result that would break 100.  When I bought them, they were 1.90 - quite a premium, when the stock is $8 away from the strike price.  The next day (before earnings) the trading was real choppy, and the volatility was still high.  I bought some Jan 90 puts (which expired 2 days later - bad move  ) for .90 to hedge my position, in case the stock dropped, so I would at least get something out of it.  Little did I know...

Earnings came out, the IV crashed, and the stock dropped about 3 bucks.  Obviously my 105 calls got crushed - I think I sold them that morning for 40 cents, but my Jan 90 puts, which expired 2 days later, also got crushed, even though the stock was trading $3 closer to the strike price.  At the time I couldn't understand it, I thought that as the stock went down, I should have made the corresponding amount of money on those puts.  In the end I sold them at a loss too.  Obviously I should have bought the Feb 90 puts (or later) as a hedge, but they were much more expensive (rightly so), and I had seen the strongest movements in the near month options (where the volatility was centred, due to their impending earnings) so thought that was the way to go.  I have to admit, this is probably a very basic rule of options trading and a total mis-read of the situation.  As a newbie, I was bound to get burned.

I also made the mistake of holding onto some options too long over the last month.  In January, I bought some CHINA Feb 10 calls, because the stock had been looking strong , was trading around $10, and I anticipated a continuation of thee recent price trend, based on the chart at the time.  Instead, CHINA found resistance at 10.50, and struggled between there and 9.90 for most of the last month, which I held through, as my options were down about 50%, sometimes more.  Finally, CHINA got the brak I was looking for last week, but by now the options were basically trading for the difference to the strike price, i.e. I had lost all the theta value of the time premium.  I got out of them for almost a breakeven on those.

On the plus side (they haven't all been losers) I made some good money this last monh on options in AMKR, XING, VPHM and DIVX, all of them supporting stock positions I owned to get a bit more leverage over a short term price movement.  In fact on most of those I probably made more money on the options than I did on the stock iteself, despite holding them for a much shorter period.  The keys that made these trades work, as opposed to the ones that didn't were that the stock was alreading in a price trend, and I could reasonably anticipate a short term move, I bought "in the money" options that traded roughly in line with the price movement  (out of the money options are WAY more risky, as I learned), and finally, I didn't get greedy - as soon as I saw a pause in the movement, the options were the first thing I sold, and I locked in profits fast.

So I think I will make a new rule for myelf when trading these things.  They are for SHORT term purposes only, and if I don't see the anticipated price movement within 2.-3 days, get out of them regardless - the scenario you bought them for ahs not developed, and options have to be about real confidence in reading a short term move, you don't want to get stuck with them.  Finally, keep the positions small, just a few hundred $ at most.  In that case, if it works out, well, nice, you may have doubled your money, but if it doesn't you haven't lost the house.  For anything more than a few days, stocks are still the way to go.

another options blog.  The writer seems very knowledgeable and blog is informative, http://www.optionpundit.net/ .

ST - I gotta tell ya ... you're sounding ... and acting more like an options trader every day ... hahahhAHAHAHAHHA

catrader - awesome resources! To that I would add: http://www.optionsmonster.com
Najarian has a bunch of simulators and web resources. Very Awesome ... and he does a CBOE webcast twice a day that you can sign up for ... where he points out insider buying/selling ... occasionally they have gone to the SEC for convictions ... but once the buying takes place ... the buying in and of itself becomes public knowledge and is therefore .. free game! Bring it on!

And to the rules... I would add... 11) have a near term catalyst.

Here are the standard 10 commandments... ST - you've figured out a couple of these out already... And I'm sure there are probably a MILLION other very important rules...

From ....The OptionInvestor.com
TOP TEN RULES FOR OPTION TRADING
1.  Never put all your money into one play. As soon as you do Murphy's Law will take control and you will be broke. With a $2000 account put $1000 into two plays. $5000 should divide into 3 plays, $10,000 = 3 to 5 plays maximum. I strongly recommend NEVER playing more than 3 to 5 positions at one time. You cannot watch more than three and act decisively when the situation demands action.
   
2.  Never hold a position over an earnings report. Historically the number of stocks that rise substantially after an earnings report is less than one in ten. Sure there are a rare few that gap open on great earnings but far more gap down. To gap open they must beat the whisper number by a LARGE margin AND have a good conference call. To go down they only need to meet the whisper, meet the estimates, miss the estimates, prewarn any problems or just plain not be positive enough in the conference call. Traders leaving after playing the earnings exert enough pressure on the price as it is without bad news.    

3.  Never play deep OUT OF THE MONEY call options. Sure they are cheap but they are cheap for a reason. They are like playing roulette and betting on any one number. If you hit the payoff is 36 to 1 but the odds of being hit are 38 to 1.    
4.  Never put in a MARKET BUY before the open. You will more than likely get filled at the high of the day. Enthusiasm is rampant at the open and everything costs more (as a rule) than it will an hour later.    

5.  Never place a market order for a thinly traded option. You may take out the current ask and be very shocked at how high the next ask was. Several times I have seen fills more than $2 over the current ask quote.
   
6.  Always pick a sell price you would be happy to get BEFORE you buy an option. Immediately after purchase place a limit sell for that price. You will be surprised how many times you will sell on an intraday spike that you did not expect. See #5 for why. Decide how much you are willing to risk on the trade BEFORE you make it. Sell when that limit is reached. Ask anybody who ever had an option expire worthless. They will all tell you now "they wish they had sold". At the time emotion will always convince you tomorrow is turnaround day. Hundreds of thousands of contracts expire worthless EVERY month. Turnaround never came for them.    

7.  Never bet against the market/sector. The trend is your friend. It does not matter why the market/sector is going down you will still lose your money. 85% of stock movement is due to market/sector movement not stock fundamentals.    

8.  Always sell when you pass 100% profit. If you still like the play take half the money and buy back in at a higher strike. Once you sell they can't take the profit away from you. Don't play 100% of the money again. Double or nothing will eventually get you nothing.    

9.  Emotion is your enemy, logic is your friend. Never trade on emotion. There is no such thing as "it has to go up", "it can't go down". The market does not care what you think or hope. It is ruthless and makes its own rules. You should say this 50 times a day, "past performance is not a guarantee of future results".    

10.  Never buy on impulse. If you just heard the news, it is already to late. Plan your buys during non market hours. Once the bell rings your mind is clouded, emotion takes over. Plan your strategy, execute your plan. When in doubt, stay out.
   
PS  Cashflow is king. It is very easy to make 25% every two weeks but very hard to make 100% routinely. 25% on $1000 every two weeks for a year is $6500. (without benefit of compounding) Take a profit over and over and over.