|
PureBytes Links
Trading Reference Links
|
Please excuse this if you feel that this is like an advertisement, but I
have found that using option volume and open interest is a great way to
find movers. My theory is that the public usually shuns options with low
open interest. Wide spreads, low liquidity, underlying stocks that are
mot public favorites, etc. account for the lack of public participation
in these options. Therefore, when you see heavy activity in an option
with low open interest it COULD represent "smart money" accumulation of
an option.
For example, on 5/14, HOME DEPOT (HD) June 75 calls traded 5697
contracts with open interest of 1933. To my way of thinking, this was
URGENT buying by someone who knew something. Now, I do have some filters
(common sense and technical) that I use to make sure that the volume is
important. The filters led me to conclude that I should buy the calls. I
bought the calls on 5/15 at 1 5/8. Sure enough, within days, HD
announced a stock split and a dividend hike and I sold the calls on 6/1
at 5.
My only current position involves TANDY (TAN). On 8/3, the TAN September
60 calls traded 2310 contracts with open interest of 20. I paid 1 15/16
for the calls. Despite the market weakness, they closed at 2 11/16 on
Friday and TAN has shown outstanding relative strength. I expect the
stock to hit the 65 area.
Not every situation with high volume and low open interest works. A few
weeks ago, BERGEN BRUNSWIG (BBN) August 70 calls had high volume and low
open interest, but my filters told me to stay away. Sure enough, the
next day a Judgeblocked CARDINAL HEALTH's merger with BBN and the calls
went from 1 7/16 to 1/6 overnight. Actually, common sense would tell you
that it was the public buying the calls expecting a favorable ruling.
Some of the filters I use:
If more than one option in the series has similarly high volume, you can
consider the activity to be spread related and you can ignore it
Any option more than 2 months from expiration is eliminated; if someone
knows something in advance, they will try to buy the nearest option they
can get their hands on
Usually, options over $5 are eliminated because someone with information
will buy the cheapest option they can and options over $5 are often uses
for hedging or spreads
I do haved more info at my web site...a note of caution...my web site IS
an advertisement. If this offends you, do not visit!
http://www.netword2000.com/wolf/wolf.htm
Regards,
Alan Friedman
The WOLF
|