Written by Andrew Keene | March 26, 2013

Apple & Google Pivot Points for 3.27.2013

Written by Andrew Keene | March 26, 2013

A Brief Note On CBOE's Volatility Index (VIX) 3.26.2013

The Volatility Index’s 200 day moving average is 15.94, its 100 day average is 15.01. Its 50 day average dropped significantly to 13.50 with an even lower 20 day average at 13.26. The VIX had been averaging 25.8 from 2008 to 2012, but has now been trading at its lowest levels in six years thanks to a bullish market (even after fears surrounding Cyprus). VIX values greater than 30 are associated with large amounts of investor fear and uncertainty, while values below 20 represent a complacent market.

VIX options are used to hedge against market declines because its value generally increases as stocks decline. The Volatility Index can move sharply, increasing or decreasing significantly in a short amount of time. VIX call volumes have been setting records of late. March 19^th set the single-day volume record totaling 1,392,621 contracts. Three weeks earlier the record had been set at 1,388,634. There is a great deal of speculation but no definite answers surrounding the new interest in VIX. Still VIX options are rarely exercised. In 2012 95% of VIX options expired worthless and that trend has continued through March of this year.

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Edmund Gray
KOTM Contributor
Edmund.Gray@gmail.com

Written by Andrew Keene | March 26, 2013

What are Options?

What are Options: Definition

An option is simply a contract that guarantees the right to buy or sell an underlying asset at a specific price before a certain date. An option is another type of security, like a stock or bond. The price the option guarantees its owner is called the strike price. An options contract generally represents 100 underlying shares. The income earned by the seller of an option contract is called the premium.

What are Options: Calls and Puts

There are two types of options: calls and puts. A call gives its owner the right to buy an asset at a certain price before a certain date. A call holder hopes the stock price will increase before the option expires. A put gives its owner the right to sell an asset at a certain price before a certain date. A put holder hopes the stock price will decrease before the option expires.

What are Options: Example

Someone buys an options contract to buy 100 shares of stocks for $80 dollars for $200. The contract expires in 180 days. If the stock price grew to $85 dollars before the 180 days, the options holder would have the right to buy the 100 shares at $80 strike price, essentially saving $500 while paying the option’s seller the $200 premium.

Written by Andrew Keene | March 26, 2013

Free Trade of the Day for 3.26.2013

This March Alaska’s Senate passed legislation to cut taxes on oil production. The bill is expected to pass and be signed by their Governor Sean Parnell. ConocoPhillip is Alaska’s largest oil and gas producer and will be the biggest beneficiary when the bill passes. ConocoPhillips is expected to expand its exploratory drilling in arctic Alaska next year. ConocoPhillips is investing $2.5 billion in Alaska over the next five years on innovative technologies with the aim of reversing its declining production there.

My Trade: Buying the COP May 62.5 Calls for $.52
Risk: $52 per 1 lot
Reward: Unlimited
Breakeven: $63.02

Greeks of this Trade:
Delta: Long
Gamma: Long
Vega: Long
Theta: Short

—
Andrew Keene
President/Founder
Andrew@KeeneOnTheMarket.com