Stocks & Commodities V. 23:4 (21): Explore Your Options by Tom Gentile
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Stocks & Commodities V. 23:4 (21): Explore Your Options by Tom Gentile
Got a question about options? Tom Gentile is the chief options strategist at Optionetics (www.optionetics.com), an education and publishing firm dedicated to teaching investors how to minimize their risk while maximizing profits using options. To submit a question, post it to our website at http://Message-Boards.Traders.com. Answers will be posted there, and selected questions will appear in a future issue of S&C.
BUYING, SELLING, AND OPEN INTEREST
I came across something the other day while reading The Wall Street Journal. In the “Leaps-Long Term Options” section, I noticed that the put volume of a stock was quite high compared to the call volume, and the strike price was out-of-the-money. Does this suggest that the “experts” are buying puts because they think the stock will go down, or that they are selling the puts and expecting the stock to go up? Is there any way to get this buy/write volume for a particular strike price? Unusual increases in volume or open interest can sometimes signal that experts or well-informed investors expect the stock to make a significant move in the future. At other times, large volume can represent a protective purchase of puts, the sale of an open position, or maybe even part of a more complex trade involving other stocks or options. So how do you know what is happening?
Remember, all options trades involve a buyer and a seller. In order to determine which one initiated the trade, you can try to see if the trade occurred at the bid price or the ask price. If the trade happened at the bid price, it was probably a sale. If the trade takes place at the ask price, it was probably a buy. As you can see, unless you can watch the market or have access to time and sales data for the options market, it is often difficult to tell if a certain trade was at the bid or the ask, and therefore it is hard to know if the position was a purchase or a sale. Nevertheless, the price of the trade and whether it was at the bid or ask can give you clues regarding whether it was a purchase or a sale.
Got a question about options? Tom Gentile is the chief options strategist at Optionetics (www.optionetics.com), an education and publishing firm dedicated to teaching investors how to minimize their risk while maximizing profits using options. To submit a question, post it to our website at http://Message-Boards.Traders.com. Answers will be posted there, and selected questions will appear in a future issue of S&C.
BUYING, SELLING, AND OPEN INTEREST
I came across something the other day while reading The Wall Street Journal. In the “Leaps-Long Term Options” section, I noticed that the put volume of a stock was quite high compared to the call volume, and the strike price was out-of-the-money. Does this suggest that the “experts” are buying puts because they think the stock will go down, or that they are selling the puts and expecting the stock to go up? Is there any way to get this buy/write volume for a particular strike price? Unusual increases in volume or open interest can sometimes signal that experts or well-informed investors expect the stock to make a significant move in the future. At other times, large volume can represent a protective purchase of puts, the sale of an open position, or maybe even part of a more complex trade involving other stocks or options. So how do you know what is happening?
Remember, all options trades involve a buyer and a seller. In order to determine which one initiated the trade, you can try to see if the trade occurred at the bid price or the ask price. If the trade happened at the bid price, it was probably a sale. If the trade takes place at the ask price, it was probably a buy. As you can see, unless you can watch the market or have access to time and sales data for the options market, it is often difficult to tell if a certain trade was at the bid or the ask, and therefore it is hard to know if the position was a purchase or a sale. Nevertheless, the price of the trade and whether it was at the bid or ask can give you clues regarding whether it was a purchase or a sale.
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