Posts Tagged ‘puts’

Oil Put Demand, That Is

$WTIC chart

 

Cancel that Prius, just like commodity technicians Fall Out Boy once sang, "Oil, We’re Going Down".

OK, it was Sugar. But Oil is definitely going lower. Seriously.

Why you ask? Because the puts are overpriced, says Bloomberg.

The gap between prices of options betting on a decline and those that would profit from a rise in oil widened to a record 10 percentage points, according to five years of data compiled by Banc of America Securities-Merrill Lynch. Crude stockpiles in the U.S. are 14 percent larger than a year ago and OPEC is pumping 600,000 barrels a day more than the world needs, according to the International Energy Agency.

…..Options granting the right to sell, or put, oil in December below current prices have a so-called implied volatility of 54.3 percent, compared with 43.3 percent for the equivalent options to buy, or call, data from the New York Mercantile Exchange show.

The premium for December and other put options shows “the market is worried,” said Harry Tchilinguirian, a senior oil analyst at BNP Paribas SA in London. “If puts are pricing higher than calls, we are looking at a situation where the market is more averse to the downside and is looking for more compensation” for the option, he said.

Demand for puts may be caused by speculators betting on lower prices or by producers hedging against a decline in the value of their oil, Tchilinguirian said.

Well technically they don’t say the options will be right, it’s just presented as consistent with everything else in the article that points to an oil decline. But since we’re an options site (sort of) let’s stick with this.

As my friends Jared and Don would surely agree, Bloomberg gets a bit "so-called" happy. News-flash: It’s not "so-called" implied volatility you refer to, it IS implied volatility.

But more important than semantics, it’s unclear what options we compare here. Are we talking puts and calls of the same strike, in which case the disparity of put volatility to call volatility is about cost of carry, and not sentiment.

(I mean so-called cost of carry and so-called sentiment).

Are "equivalent options…
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Educational Videos

The following is a collection of podcasts and videos from the Options Clearing Corporation and selected others.

The cover a lot of ground and new ones are occasionally added to their site.  They are not as good as the coursework from MarketTamer, who are Option Sage’s excellent group but these are free (as opposed to $99 a month with Sage’s PSW special) so take a peek at the subjects that interest you:

First up is a very good introduction to options basics from Adam Lass, a very good overview.  His next episode is the basics of call options – hopefully he’ll do more.  Then we have the podcasts from OCC: 

 

 
  Introduction to Financial Markets and Options Basics  View
 
 
  An Exploration of Basic Options Terminology  View
 
 
  Options Basics  View
 
 
 


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Solving the Options Problem, Part 1

[Free subscription to PSW, click here  - it's easy - Ilene]

Constructing equivalent option positions,… 

Solving the Options Problem, Part 1

Courtesy of Minyanville, by Mark Wolfinger 

One of the interesting features about options is that there’s a relationship between calls, puts, and the underlying stock. And because of that relationship, some option positions are equivalent -- that means identical profit/loss profiles — to others.

Why is that important? You’ll discover that some option combinations -- called spreads -- are easier, or less costly to trade than others. Even with today’s low commissions, why spend more than you must?

The basic equation that describes an underlying and its options is: Owning one call option and selling one put option (with the same strike price and expiration date) is equivalent to owning 100 shares of stock. Thus,

S = C - P; where S = stock; C = call; P = put

If you want a simple proof that the above equation is true, consider a position that’s long one call and short one put. When expiration arrives, if the call option is in the money, you exercise the call and own 100 shares. If the put option is in the money, you’re assigned an exercise notice and buy 100 shares of stock. In either case, you own stock.

Note: If the stock is at the money when expiration arrives, you’re in a quandary. You don’t know if the put owner is going to exercise the put. Therefore, you don’t know whether to exercise the call. If you want to maintain the long stock position, the simplest way out is to buy the put -- paying $0.05 or less — and exercise the call.

Example of Equivalent Positions

There’s one equivalent position that you, the options rookie, should know, because these are strategies you’re likely to adopt.

Take a look at a covered-call position (long stock and short one call), or S - C.

From the equation above, S - C = -P. In other words, if you own stock and sell one call option (this is covered-call writing), then your position is equivalent to being short one put option with the same strike and expiration. That position is naked short the put. Amazingly, some brokers don’t allow all clients to sell naked puts, but they allow all to write covered calls. The world isn’t always efficient (you already…
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Zero Hedge

"Migrants Are Pigs": Caravan Member Says Tijuana Residents "Treat Us Like Animals" 

Courtesy of ZeroHedge. View original post here.

Residents of Tijuana, Mexico aren't taking too kindly to thousands of members of a migrant caravan - hurling insults, rocks and even punches at the Central Americans which have arrived by the thousands in an effort to ultimately seek asylum in the United States, reports AP

Ivis Muñoz, 26, has considered returning to Honduras. T...



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Chart School

The Power of the Dow Jones Cycle

Courtesy of Read the Ticker.

Once again the data confirms cycles exists in the market. Value and other fundamental investors must concede cycles are in the stock market. [You can learn more about our Hurst Cycle tools here].

Previous Post Kitchin Cycle warned of market volatility

In the past this blog has posted the chart below, the Kitchin cycle or 900 periods, and you can see its success.

The cycle source:

.."Joseph Kitchin (1861–1932) was a British busine...



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Kimble Charting Solutions

King Dollar Creating A Topping Pattern This Week?

Courtesy of Chris Kimble.

CLICK ON CHART TO ENLARGE

King Dollar has spent the majority of the past 7-years inside of rising channel (1), as it’s created a series of higher lows and higher highs.

The 2018 rally has it kissing the underside of potential resistance this week at (2), where it could be creating a bearish reversal pattern. This one week action has NOT changed the upward trend in King Dollar.

If it breaks rising support at (3), odds favor that some selling pressure takes place in the US$, which metals would lov...



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Insider Scoop

Analysts Cautious On Williams-Sonoma After Q3 Print

Courtesy of Benzinga.

Related WSM 48 Stocks Moving In Friday's Mid-Day Session 28 Stocks Moving In Friday's Pre-Market Session ...

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Members' Corner

NY Times: OPERATION INFEKTION

 

This is a three-part Opinion Video Series from NY Times about Russia’s meddling in the United States’ elections as part of its "decades-long campaign to tear the West apart." This is not fake news. Read more about the series here.

OPERATION INFEKTION

RUSSIAN DISINFORMATION: FROM COLD WAR TO KANYE

By Adam B. Ellick and Adam Westbrook

EPISODE 1

MEE...



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Digital Currencies

Bitcoin's high energy consumption is a concern - but it may be a price worth paying

 

Bitcoin's high energy consumption is a concern – but it may be a price worth paying

Shutterstock

Courtesy of Steven Huckle, University of Sussex

Bitcoin recently turned ten years old. In that time, it has proved revolutionary because it ignores the need for modern money’s institutions to verify payments. Instead, Bitcoin relies on cryptographic techniques to prove identity and authenticity.

However, the price to pay for all of this innovation is a high carbon footprint, created by Bitc...



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ValueWalk

Vilas Fund Up 55% In Q3; 3Q18 Letter: A Bull Market In Bearish Forecasts

By Jacob Wolinsky. Originally published at ValueWalk.

The Vilas Fund, LP letter for the third quarter ended September 30, 2018; titled, “A Bull Market in Bearish Forecasts.”

Ever since the financial crisis, there has been a huge fascination with predictions of the next “big crash” right around the next corner. Whether it is Greece, Italy, Chinese debt, the “overvalued” stock market, the Shiller Ratio, Puerto Rico, underfunded pensions in Illinois and New Jersey, the Fed (both for QE a few years ago and now for removing QE), rising interest rates, Federal budget deficits, peaking profit margins, etc...



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Biotech

Gene-editing technique CRISPR identifies dangerous breast cancer mutations

Reminder: Pharmboy is available to chat with Members, comments are found below each post.

 

Gene-editing technique CRISPR identifies dangerous breast cancer mutations

Breast cancer type 1 (BRCA1) is a human tumor suppressor gene, found in all humans. Its protein, also called by the synonym BRCA1, is responsible for repairing DNA. ibreakstock/Shutterstock.com

By Jay Shendure, University of Washington; Greg Findlay, ...



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Mapping The Market

Mistakes were Made. (And, Yes, by Me.)

Via Jean-Luc:

Famed investor reflecting on his mistakes:

Mistakes were Made. (And, Yes, by Me.)

One that stands out for me:

Instead of focusing on how value factors in general did in identifying attractive stocks, I rushed to proclaim price-to-sales the winner. That was, until it wasn’t. I guess there’s a reason for the proclamation “The king is dead, long live the king” when a monarchy changes hands. As we continued to update the book, price-to-sales was no longer the “best” single value factor, replaced by others, depending upon the time frames examined. I had also become a lot more sophisticated in my analysis—thanks to criticism of my earlier work—and realized that everything, including factors, moves in and out of favor, depending upon the market environment. I also realized...



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OpTrader

Swing trading portfolio - week of September 11th, 2017

Reminder: OpTrader is available to chat with Members, comments are found below each post.

 

This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...



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Promotions

Free eBook - "My Top Strategies for 2017"

 

 

Here's a free ebook for you to check out! 

Phil has a chapter in a newly-released eBook that we think you’ll enjoy.

In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

This chapter isn’t about risk or leverage. Phil present a few smart, practical ideas you can use as a hedge against inflation as well as hedging strategies designed to assist you in staying ahead of the markets.

Some other great content in this free eBook includes:

 

·       How 2017 Will Affect Oil, the US Dollar and the European Union

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All About Trends

Mid-Day Update

Reminder: Harlan is available to chat with Members, comments are found below each post.

Click here for the full report.




To learn more, sign up for David's free newsletter and receive the free report from All About Trends - "How To Outperform 90% Of Wall Street With Just $500 A Week." Tell David PSW sent you. - Ilene...

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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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Ilene is editor and affiliate program coordinator for PSW. She manages the site market shadows, archives, more. Contact Ilene to learn about our affiliate and content sharing programs.

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