Options update for June 17...the first of many 'bear-traps'.
Well, the Dow gave everybody, bull or bear, something to think about today. After opening down and sliding to a 65 point loss, it staged a 'buy on dips'/shortcovering rally that saw it rise 110 points. The bulls started slapping high-fives (and breathing again) and then...there weren't any more buyers. The Dow gave up its gains and closed down on the day some 11 points. The bears, of course, were wondering why we couldn't have kept and improved on that 65 points. (Oops, I said 'we'). Anyway, very toppy action in my view. I'm a trader, not an investor, so I wouldn't disagree about a 12,000 Dow or $50 BCE, but they ain't gonna do it from here. The sell-off may be sparked by another tech earnings shock or a collapse of the tobacco talks, but the market will find some 'excuse' to correct.
BCE: Sort of a fun day in Bell options. Not huge volume, but the public were active buyers of July and August 40 calls, with a few sellers of November 42.5s. This is great for me--it's one of my favourite trading positions, short the at-the-money near term and long the out month outs. The $1.10 range of the stock also provided some good trading opportunities. Call vol bumped up a tad. (21.5,21.5)
ABX: Barrick broke down through the US$24.25 level today, but only marginally...it's in no-man's land right now. Bullion gave up $1.10, still locked in the $340-345 trading range. I'm as delta flat as day-old beer, waiting for the stock to tell me which way it's going to go. The public has been concentrating on one series lately, selling July 32.5 puts. We keep lowering them, and they keep selling them. If you want to sell Barrick puts, pick another line. (29,29*)
N: Another sleepy day for Inco options, but what activity there was was two-way, which is a good sign. It still looks a little lower to me, but no strong conviction. I just think it will follow the market down. (26.5,26.5)
I think I should take a minute to explain what I mean about the ABX July 32.5 puts, namely, what is an option "worth"? You all know the variables that go into the option pricing formula; the only one that is truly variable is the volatility. We have sophisticated computer programs that calculate quotes for our stocks globally and instantly, and update our markets when the underlying changes. We are constantly tinkering with volatility for different series, however, based on our positions and how the series is trading. If we are buying a significant amount more than we sell for a series, we are paying more than they are "worth", no matter what the formula says. Conversely, the program may say a certain call is "worth" 5c, but I may be happy to pay .20c, particularly if I'm short them. Any option trader who gets stubborn on volatility, particulary on the long side, will pay for it sooner or later. (I must confess, this is the one rule I break way too often. Limited losses are losses nonetheless.)
WARNING! Boring exchange stuff follows! Feel free to page down.
I was going to go into a remarkable document the exchange management sent out today entitled "Derivatives Interim Governance Model", but I've gone on long enough already. Suffice it to say that this management has now managed to consolidate power in very select and friendly hands--an (almost) bloodless coup d'etat. They have also permanently removed the chairmen of the options and futures procedures committees from having any formal say in how things are run. The fox has truly designed the chicken coop. The document also says "committee members shall continue as such until removed or until..." I take perverse pleasure in this; this gives Fearless the 'line-item veto' over anyone who might speak against him or the policies his lackeys come up with. He actually had to get his hands dirty getting rid of me...
This is all childish and stupid and petty, but at the end of the day it's important because these people will get their way, and they will cause irreparable harm to our markets. Remember this is only my opinion, but it is formed against the back-drop of 17 years in the trenches and in the policy-making forum. I know what they're up to, and it ain't pretty.
Happy trading.
Porter
PS: This Goldilocks economy/market where everything is not too hot, not too cold, but just right? I think the bears have just been fattening her up with that porridge. |
