Paper bought 1896 DPM March 40 Puts for $.40 (6.0 times usual volume) when stock was trading $42.76
Paper bought 300 VSI April 55 Puts for $5 (49.1 times usual volume) when stock was trading $51.18
Paper bought 1000 RY July 55 Puts for $.72 (2.7 times usual volume) when stock was trading $61.63
Paper bought 1710 BMRN March 55 Puts for $1.45 (3.6 times usual volume) when stock was trading $55.50
Paper bought 770 WCRX April 13 Puts for $.75 when stock was trading $13.37

Paper bought 9855 VXX April 20 Puts for $.59 when stock was trading $24.76
Paper bought 1388 TOT March 50 Calls for $.55 when stock was trading $49.15
Paper bought 8000 CHK March Weekly 19.5 Calls for $.35 when stock was trading $19.35
Paper bought 3000 EGO March 10 Calls for $.60 when stock was trading $10.31
Paper sold 10,000 RDN Jan 2015 5 Puts for $1.075 (4.2 times usual volume) when stock was trading $8.15

My Trade:  Buying the CHK Weekly 19.5 Calls for $.35

Risk: $35 per 1 lot
Reward: Unlimited
Breakeven: $19.85
Goals:  Offering 1/2 of the Position off at $.60 and will leave the balance until expiration

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

KOTM did a simple scan for the largest beta in popular indices. These indices include the DJIA, S&P 500, and the Russell 2000. In the Russell 2000, the largest beta belongs to AUMN.  In the S&P 500, the same crown belongs to AIG and finally in the DJIA, BAC wins. These are three very interesting names that deserve a closer look.

AUMN is Golden Minerals Company. The firm is a precious metals producer, primarily engaged in the operation and further development of its acquired Velardena gold, silver and base metals mines in the State of Durango, Mexico and other geographic areas, but the stock is under $3.00. With that in mind, most folks don’t follow cheap (nominally) stocks, but it has a 9.8 beta.

The other two stocks are BAC (with a 2.4 Beta) and AIG (with a 3.5), both of which are a little more well known than AUMN. The financial firms are increasingly gaining interest from investors as interest rates are expected to increase. Both of these stocks are involved in the financial services industry to a certain extent and, interestingly enough, these stocks are also some of the most popular hedge fund picks too.

From a technical prospective, the BAC and AIG charts are presented below. The financials have been in rage mode of late, but over the last week decided to come into their respective 50 DMA’s, maybe a solid trade point.  The moving averages, for both stocks, are pointing up and looking bullish, but these are risky picks…as measured by beta.

— 
salerno.mark.a@gmail.com

Paper bought 4500 TSN March 23 Puts for $.25 when stock was trading $23.86
Paper bought 3000 ITUB March 21 Puts for $.25 (2.3 times usual volume) when stock was trading $21.97
Paper bought 625 BBG April 15 Puts for $.40 (3.3 times usual volume) when stock was trading $17.87
Paper bought 450 SIMO March 12.5 Puts for $.325 (2.3 times usual volume) when stock was trading $13.21
Paper bought 750 ANSS March 75 Puts for $2.40 (33.6 times usual volume) when stock was trading $76.14

Paper bought 22,446 TXN Jan 2014 35 Calls for $2.50 (2.8 times usual volume) when stock was trading $34.31
Paper bought 2000 ASNA March 18 Calls for $.20 (12.6 times usual volume) when stock was trading $16.81
Paper bought 1300 DUK March 70 Calls for $.75 (2.5 times usual volume) when stock was trading $70.13
Paper bought 7500 RDN Aug 8 Calls for $1.50 (4.7 times usual volume) when stock was trading $8.24
Paper bought 1750 WPZ June 50 Calls for $2.30 (2.8 times usual volume) when stock was trading $50.01

Paper sold 28,214 SD June 7-9 Bear Call Spread for $.20 (4.4 times usual volume) when stock was trading $5.69
Paper bought 3000 JCP March 22 Puts for $1.76 when stock was trading $22.58
Paper bought 22,446 TXN Jan 2014 35 Calls for $2.50 (2.8 times usual volume) when stock was trading $34.31
Paper bought 9498 LM Jan 2014 Jan 35 Calls for $1.00 (12.6 times usual volume) when stock was trading $28.34
Paper bought 1000 BKS April 15 Calls, Sold April 13 Puts for $.80 debit (7.3 times usual volume) when stock was trading $14.65

Greeks of a Call:

Delta: Long
Gamma: Long
Vega: Long

90% of the time if a stock goes higher Calls will lose money because the implied volatility will move lower.  This is not always the case but it occurs the majority of the time.  I use a strategy from the trading floor where I buy both Puts and ‘extra stock.’  

For example, I bought 100 LVS May 48 Puts for $2.60 and purchased stock for $49.89.  The delta of the Puts was 35 so I would need to purchase 3500 shares of stock to be delta neutral.  Let’s also examine what would happen if I purchased even more stock, for this example let’s say I were to purchase 5000 shares of stock:

Long 100 May 48 Puts, Long 5000 Shares of Stock:

Long 5000 Shares of Stock can translate to Long 50 May 48 Calls and
Short 50 May 48 Puts since this is a Combo.

Lets net out this position:

Long 100 May 48 Puts minus Short 50 May 48 Puts= Long 50 May 48 Puts/Long 50 May 48 Calls

So, I am long the May 48 Straddle.  Why did I choose this position instead of just buying the Puts outright.  Well, I have downside and upside as well.  If the stock sells off $10 on Monday, I will make money on this trade because I am long 50 of the May 48 Puts.  Since the stock is $50.75 and the Long May 48 Calls have a larger delta than the Puts, I will get longer as the stock goes higher as well, similar to the Calls.  The primary reason I chose this trade was because I will make money if the stock continues to go higher.  Let’s look at how the trade breaks down:

Long 50 May 48 Calls, Long 50 May 48 Puts  

OR

Long 100 May 48 Puts and Long 5000 Shares of Stock:

Delta: Positive: around 1500
Gamma: Positive: around 500
Vega: Positive: around 900

As stated earlier, stock moves higher the implied volatility will move lower.  An out of the money Put has higher implied volatility than a Call.  The further a put is out of the money the higher the implied volatility will be, this is known as the Volatility Skew.  Therefore, as stock moves higher I should actually make money on the Vega as the Puts will become further out of the money and their implied volatility will rise.  The position will get crushed if the stock goes to 48, but I consider the likelihood of this happening to be low.

For those interested in learning more about this, I offer private 1 on 1 mentoring and boot camps.   In a boot camp I will fly to your location and personally educate you on Options 9 hours/day for 1 week.  1 on 1 mentoring is peformed remotely.

—
Andrew Keene
President/Founder
Andrew@KeeneOnTheMarket.com