Options Trading Blog
Options Trading Tips and Strategies
Apple & Google Pivot Points for 11.23.2012
Black Friday Myths & Returns (SPX, NDX, AAPL, NKE, SKS, and TGT) 11.21.2012
Given that the index products were slightly negative and AAPL/SKS were positive, one could potentially put on a pair trade. The statistic below the average is the R^2, this would be a key indicator for a pair trade
R-squared is a statistical tool used to measure the degree of correlation between two items. Correlation analysis allows investors to make predictions about an asset by looking at how it reacts with other market variables. Specifically, the number R^2, is used as a metric to measure how well outcomes can be predicted. Zero being weak and 1 being extremely strong.
This relates to pair trading. A trade like selling NDX and buying AAPL could hope for a weak R-squared…meaning, historically and statistically, the two products can move different ways…thus having the potential to have the short (NDX) down and AAPL (long) up (as they have proven on average historically)…or the opposite…for Mark Twain reminds us that there are, “Lies, damned lies, and statistics.” Statistics can be used to support a weak thesis.
Option volatility trades can also be made from this data.
If one was inclined to, the data suggests that the SPX, NDX, NKE, and TGT products do not move that much…so selling iron condors could be a potential trade. Either way, the data is interesting.
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S&P Emini & Unusual Option Activity Video Recap 11.20.2012
S&P Emini Pivot points for 11.21.2012
Apple & Google Pivot Points for 11.21.2012
Would you "like" FB, ZNGA, or GRPN? 11.20.2012
There is no question that FB is richly valued by traditional metrics, but the counter argument is that these are not traditional times and future prospects justify said valuation. Eloquent arguments can be made from either side, however while others are fighting lets try to make some money. FB is trading around $23 at last check. In order to have smooth sailing into the 7/27/12 earnings gap, FB needs to break and respect overhead resistance. The day of the formerly mentioned earnings had a high of $24.54; we can call that level 1. The following day FB opened at $24.04; our level 2. It is interesting to note that our level 2 resisted a recent gap up because of earnings on 10/24/12; indicating a strong ceiling and a selling opportunity. It is even more interesting to note that the high on Friday, 11/16/12, was pennies below our level 2, further strengthening our thesis.
Every time FB has made it up here in the sideways channel it has only taken a day or two to be promptly rejected. This may lead one to believe that price could break either way, and quickly. The ‘at the money’ straddle is trading for about $1.25 for the weekly, or about 5.3% of the stock. Given that the pattern may fail or take time to play out weekly options could be risky, but then again it only took five trading days for FB to move from $19 to $24. This could be partially explained by the 7% short interest in the stock and the fact that it is hard to borrow.
Similar names like GRPN and ZNGA have taken advice from AA, being perpetual earnings disappointers. FB probably should not be clumped into a basket with these stocks for FB is different, but then again that is what they all say.
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