Options Week in Review | 8-23-19
Good. Afternoon and welcome this, afternoon two options, we can review Ben, Watson here filling in for Cameron, May hey, we're gonna take a look at what's been going on in this rather crazy, Options, week and a, look over the horizon, at what is yet, to come so, as we do that a couple of quick reminders wherever. That options aren't suitable for all investors there. Are some special risks inherent to trading options that, may expose investors, potentially, wrap it in substantial, losses there are transaction. Costs associated with trading, options so be aware of those also, remember. That, any of the specific, examples that we look at today are not solicitations. To buy or sell nor are there recommendations any. Investment. Decisions you make in your self-directed account, is solely your, responsibility, past. Performance, of any security or strategies, not guarantee, future results, or, success, additionally. All investing. Carries within an element of risk so be aware of that fact including. The risk of loss, and this is a copyright, of broadcast, we're, gonna be talking about options, so we're gonna bring up here really a quick definition, of the, options, Greeks those mathematical, variables. They help us to understand, option, premium movement, now with that let's jump on over to. The thinkorswim, desktop. Software platform. And, this, is a demonstration account. It is, paper money but it is made to look like a live account so we'll be able to see some of the features that are in a live account, but let's talk about where we are headed today in this. Discussion, the first place that we are going to talk about over. Here on the left hand side since it is the option we can review we, should have a taste of what's been going on in options, action, this, week, and a, better sense of what is coming up next week the way that we're going to do that we're going to talk about market, conditions, we'll talk about some sizzling, stocks when, it comes to that options, action we'll look at a couple of those examples, and then. We will take a look ahead and I'll give you some additional resources. That you, can use to, continue, to go out and learn, earn and my, task or my challenge, for you this weekend, is to spend a little bit of time learning, more about options, and how, to use, them and I'll give you some resources to, be able to do that, as well. But let's first of all take a look at what's going on here in the. Broad market, this, is the S&P, 500. And so, as we look at the S&P 500. One. Of the things that we can see going on here is the fact that the S&P has. Been, relatively. Volatile, over. The course of the last week we've seen a couple, of actually three pretty big, downward. Moves, in, the. Broad market, itself now how does that translate into. Movement. In the options, market well, for that let's go to the big screen, and take, a look at what, is happening over. Here on this. Volatility. Index we'll jump on over to. Our big, screen and take, a look at what's going on on the VIX right now and the VIX is that volatility. Index, that, measures if, you will fear. And, opportunity. Let's put it that way in, the market it is an average of the implied volatility, of options. On the S&P 500. And so when the VIX is moving higher and. We. See that the VIX is moving. To the upside and. Let's. Pop right on over here and we'll just draw in a couple of these big. Moves that we see higher on the VIX when, the VIX is moving to the upside that generally. Means that, options, are becoming number, one more active, and number. Two more, expensive. And so when we see these big spikes on the VIX that pop into, these ranges, right here that. Typically. Tends, to mean that there is some sort of activity. Going on now, for those of you who are familiar with trading options you already know this for those of you that are brand-new and you're saying wait, a second, how does this impact my, option, trade if I'm looking at the fear, of the entire market and options premiums, in the, entire market, the idea is simply this one, of the things that we know is that, volatility. In. Applied volatility. Tends, to be mean reverting so, it tends to spike, quickly, and then, fall, just. As quickly if not more so so. Spike quickly, and then, fall and so when we see big jumps, and implied volatility. Often. That's followed, by moves. To. The downside, and implied volatility, which means that options.
Can Get expensive, very quickly and options. Can get cheap pretty quickly as well that. Plays right into the hands of those options traders. That, are looking to take advantage of that implied volatility. Movement so we can see some of that going on here in the. VIX, right, now in the volatility, index, let's clear those off and let's pop back over here and take, a look at what's good. Out, into, a, couple. Of our examples, and again we'll pop over here from our left-hand side we'll take a look at what's going on in the sizzle, index and see some of those examples of, options. Trades that, are maybe burning, up those, options, trade, screens, we'll take a look right here on the trade tab and one of the things that we'll do is actually, jump over here and run a scan. That's. Called the sizzle. Index, scan so we're gonna go to this the. Stock. Hacker scan. Tab and a, scan is just a number another way of saying search. Or screen. And, we're gonna come over here to the upper right hand corner. And in the upper right hand corner, what we see is that little. Fire. Symbol. There those little flames if, we click on that that brings up a predefined. Scan, that, looks for stocks. That have a minimum of five dollars a share price volume. Of a hundred thousand, shares, minimum. And a. Market cap of at least thirty five million so kind, of narrowing, down the range and then those that have the, biggest, sizzle. Which is options. Activity. Today. Which, is greater, than the average, of the last five, days of option activity and so we can see some of the stocks in that mix one. Of those stocks right now Polaris. Is. If, you, think about what has been going on News wise, one. Of the the, factors. That has been playing into options activity has, been the fact that we were at, the tail end of an earnings season and there. Is trade and tariff, issue. Discussion. Going on so let's take a look really quickly at a chart, of PII, and, see. What's happening with the price of the stock and we can see that in today's trading, that, stock is breaking perhaps. Below. A level of support, that, might influence, some, options, traders, to, take perhaps a bearish. Perspective. On this. Stock and look for some additional, bearish. Movement, let's, go over to the trade tab for, PII, and confirm. That so we're gonna look first of all to. A sense of that sizzle, right, over here on the right-hand, side of, our. Sizzle, index our excuse. Me of our today's, option, statistics, and we're, going to look at this information, over here on the right hand side that gives, us that sizzle, information. And one of the things that we can see is that the, overall sizzle, index is 25, that means that. Right now the options, activity, going on today is, about, 25, times the five-day. Average. Of options, activity and in. The call side, of the equation. That activity. Is about 36. Times versus the put side now, we might be thinking whom okay interesting. If. If. Investors. Are thinking, that there is bearish, downside, movement that there is the possibility that PII. Polaris. Which, manufactures. Recreational. Vehicles among other things is moving. To the downside. Why. Aren't those options, traders. Buying. Put. Options, that we can see that, that put activity, is not quite the same as what's going on on the call side of the. Equation. So what, that might also mean is volatility. May have spiked, and options. Traders perhaps, are selling. Options. And, selling premium and if option. Traders. Want. To take advantage of bearish movement, by, selling, premium they may sell, call, options, or call. Spreads, so, if we take a look over here on the right hand skews. Me the left hand side of, this, today's. Option, statistics. Page which, is down at the bottom of the option, chain we, can see that the current. Implied. Volatility, is about 45%. That. Means that its current implied volatility, percentile, is up in the 60th, percentile, not the highest it's ever been but it has perhaps, spiked, a little bit and one of the other things that we can see is it, in the current, expiration. Which is the 20 September, expiration, that, implied volatility, is about 45%, now, we're gonna come down to option time and sales and, one of the things that we can see is that right here, today. One. Of the biggest option, trades that went through on. This stock was a ow, call. Options, at the, 20, December. Expiration. So, looking a little bit further out into the future bringing. In about, two dollars and 80 cents, now, the market, was 265, by 320 which means that you, could sell those options for 265. At the bid and the, ask was, at 320, so buying them at 320, so this may very well have been the sale, of an option trying, to sell that a little bit higher than that bid price and working that order just, a little bit so selling, those options, and there's, a matter of fact if we were to.
Right-click. And just create, a. Duplicate. Or analyze the duplicate trade let's create a duplicate. Order here and let's, make this an option, sell. We. Can see what that trade looks like here will bring up the confirm and send box over here and remember those transaction. Costs that we talked about it's, a pretty substantial amount, of transaction, cost and one, of the things that we might think about here is a sale. Of a thousand, call options, creates. An obligation to. Buy, a. Thousand. Contracts. Times a hundred shares per contract of this. Stock at that strike. Price which represents. A fairly, substantial investment. In fact two, hundred and eighty two thousand. Dollars of investment. In this particular, trade and that being the case that. Could be substantial. Risk to the upside, so, this may very well be a part, of a. Spread. Trade but as we see it right now all we're seeing is that, thousand. Contracts. Of the. Ninety strike call, option, being, sold. So. Let's go back over, here to our scan. Tab again let's take a look at a couple of others in this list and this list is, one of those dynamic, lists, if we go to our market, watch tab we, can also see, that kind of in a shorthand or shortcut format, we, can go to our, quote. Page here and we can come down to top. Ten and we can see top ten sizzling, stocks we can just click on that and that's going to give us that same watch, list as well now one of the other stocks that has reported, earning, this week and as. I said we, were in the middle of an earning season that. Created, some upside, potential, movement with, Salesforce. And CRM. Coming. With an earnings announcement, we see from a technical, perspective a big, pop to the upside on this particular, stock and in, today's trading rallying, up and pulling back so. Let's, take a look at what's going on in terms of options activity, in, this. Stock one of the big players this. Week in those option. Trades. So we'll go to the trade tab once again and, notice. That there's a lot more options activity going, on in this. Particular, stock over. Here on the, left hand side we can see that we've got lots more. Option. Expirations. To choose from from, this particular stock, but, once again let's take a look at two areas we're, gonna come over to the right hand side we're gonna take a look at the sizzle index the sizzle index at 3. / 3 the. Call sizzle. Index about 3 the put sizzle index about 3.1. So about 3 times the, typical options. Activity, going, on today and, if, we come over here to the left hand side and, we take a look at the.
Today's. Option, statistics, we can see that that implied volatility, really hasn't increased, all that much currently, at 31% puts. It in the 25th, percentile, because we are past, earnings. We were past that latest, earnings so that, implied, volatility, perhaps even with an, increased. Implied, volatility, overall in the market as we looked at with the VIX the implied volatility here in this particular, issue. In this particular security. Not, quite as high it's past its earnings announcement, the known, is now, or the unknown is now known and so that implied volatility, perhaps has bled off just a little bit nonetheless. There. Were option, buyers or option traders coming in here to this particular, option we're going to come down to today's time and sales when. We'll take a look at some of those trades that have been going on right, now we see a, January. Call, trade. The. 17, January, expiration, so long. Dated, option and with this is one, has a number, of those long dated options, listed, way. Out into January, of. 2017. 5000. Contracts. In. This case and, those. 5000, contracts, coming at a, price of 29:20, these are in the money options, and we. Think about that that's the 130 strike that stock currently trading at 151. And so, there may be a little bit more of a bullish. Expectation. And notice. That this is also perhaps part of a buy. Right, type, of. Scenario. Where somebody is buying the underlying stock and selling. The, call, option, as well but, in this particular case, that that. Trade, looking, at those. 5000. Contracts. At the. 130. Strike, if we go back to the chart and we take a look at the 130, strike, on this chart that is, a pretty. Decent. Distance from. Where the price of the stock is as a matter of fact there is 130, the, price of the stock rallying, up and they'll pulling back just a little bit but still option. Traders at some, point taking perhaps a little bit of a speculative bet that's not a guarantee that the price of the stock is going to continue to rise nor, is it a guarantee that the price of the stock is going to fall. But. That can give us some insight into, what. Is going on, with. This particular, option or with this particular, stock today let's, take a look at one other that released earnings, this week and this is on the retail side let's, take a look at GPS, which is gap we, see that gap came with earnings, we saw that gap pulled, back just a little bit let's go over to the trade tab take, a look at what's going on with gap, so first we're gonna open up today's, option, statistics, and the, sizzle index a little bit. Smoldering. Here not quite as flaming, as, some, of those other sizzle, indexes, that we've seen in, today's trading activity, but, we also notice, that the current implied. Volatility. Right now is about. As, we scroll over here on the left hand side about, 46%. That, puts it at about the 40 third percentile, again, post. Earnings. Implied, volatility, has likely dropped, but let's see if there's still some, option activity, in this, in, this issue and.
One Of the things that we're seeing here is early this morning, in this. In, this particular instrument, in gap, GPS. Is the symbol there, were six thousand, three hundred and fourteen, call. Options, that the August 23rd, expiration, that is guess what today. Coming. In, and. Being. Bought. Up looks like at thirteen cents so that may be of closing. A number of positions, closing. Out a substantial, trade, post that. Earnings. Announcement. So there was some option activity going on there in. GPS. In gap so. A couple. Of things that I want to show us really quickly and then we'll come back over, here to. Our thinkorswim. Platform but, again remember where, you've talked about market, conditions, the sizzle index we've looked at some examples let's. Take a really quick look ahead at. What is likely, to be going on over. The horizon. Into. Next, week and so to do, that let's, pop back over here to our big screen and we're. Gonna make sure that we're on that big screen and, we're. Gonna come right back over here and we'll. Go to the TD Ameritrade, website, and on, the TD Ameritrade website in order to see over the horizon. One of the tools that we have is a great, calendar, so we're gonna go to research and ideas and then, we're gonna go to calendar. Here we'll navigate right to that market calendar, and we'll see what's happening, over the horizon. Into next. Week so here we are on, August. 23rd. We're, gonna go now into next, week let's go to the 26th. And we'll see what's happening, in that next, week and so as we start to look we've got about, 23, earnings, announcements. Still left in next. Week's trading, or in, Monday's. Trading, we've also got, economic. Events coming up as well, into, next week and so let's take a look at what some of those are we've, got durable good. More in, this, range right here so we can see that we've got those durable goods orders on Monday. Coming on Tuesday housing. Price index, consumer. Confidence which. May be a market moving data point and then, we've got mortgage, applications. And crude, oil and with, the interest, rates and yields changing, mortgage. Applications. May, be one of those areas that we could, potentially. Want to pay attention to just, given, its impact, from, what is happening, with, the Federal Reserve so let's pop back over here again, really quickly and I said remember. That I wanted, to give you a couple of resources, that you could use to, continue, your education so, I'm going to click on the education, tab and if you want to learn a little bit more about. Options. And how to use, options, in your portfolio. One, of the things that you can do is you can come right over here to the options. Whoops. Let me pop back over here we'll go over right over to options under education, Center and then. The next thing that you can do is you can join us for additional, webcast, and this weekend would be a great, time for you to spend a little bit of time looking, at our, webcast. Calendar. And our, upcoming, webcasts. Going into next week and one. Of the great, ways that you, might learn a little, bit more about. Using options, in your portfolio, is Cameron. Mays webcast, next week getting. Our she's me selecting. An option strategy. And that's right here, a great. Way for you to extend your learning from, our discussion. Today. So let's, come back over here again really quickly we'll pop back and, just. Jump back into our, slides. And. We'll. Make sure that we are right back here, again really. Quickly a quick reminder, about my. Challenge go, and do, go. And learn watch. A video watch. A webcast, and learn more about options, and how to use those in your portfolio, and again, remember. That, everything that we've talked about is simply for illustrative, and educate, you know purposes, remember. Of course that none. Of these have been recommendations. And there is risk involved, in the, market, any investment. Decision that you make in your self-directed account, solely, your. Responsibility thanks. For joining me Ben. Watson for, options, Week in Review have, a great weekend everybody we'll see you back here on Monday, for. More great webcasts, have a great weekend.