What To Focus On - Part Two

My blog of November 27th was entitled "What to Focus On". Please read it. This week we are feeling a bit of a hangover. Last's weeks triple witching event is over. Stocks that were forced to contract in price to sqeeze out spectatate positions on them are now free to resume there old trading patterns. This Monday morning at 10:20 a.m. the Djia is up 301 points. There are also losers. So now what? Mark on your calendar exactly three months down the road how the markets traded on the first morning after one of these triple witching events and use this same logic to catch the upside on the next "hangeover" day like this. How do you pick the winners? Find a few stocks that have enjoyed a recent upswing and play them to pop on the first trading session after one of these events. This blog is just an observation.

Opportunities With A Stock Going Sideways. Moderna

Sometimes it's nice to have instructions. Here is how to cut down a tree.
If you want to learn about option trading you could start by watching options on a stock that expire one week out. Pick a striking price close to what the stock is trading at and follow how the option premiums move as the stock wiggles up and down. Get a feel for how much of a price change in the stocks price is necessary to move the needle on the options price. It's best to do this with stocks in the eighty dollar price range and higher because they are more likely to have price swings which are tradable. In this example we are talking about Moderna which seems to be in a sideway mode, waiting to break out. Here is it's five day chart.
Up and down,right? Here is how it traded today.
Now look at this. I will tell you what it is after you have looked at it.
It's a printout of how the 105 series of Calls on Moderna that expire at the end of next week traded today. They offered today enough action to get in and out at a profit if you bought on an interday dip. In some ways it's a silly game to play - the game of hoping for this sideways action to continue. They are two dollars "out-of-the- money" so they very well could end up expiring worthless next week. This is a high risk game but that's what option trading is. That's why with having six trading days of life in this series of Calls there is enough breathing room to ride the action. The exercise of option trading is finding sweet spots in the market which are playable. This is not a strategy to employ on options with only two or three trading days of time value left with them. The danger is that sideway moving stocks will at some point in time break out. That said, playing interday swings can be a profitable experience. *** Would I stay away from situations like this knowing only 167 contracts on this series traded today? Is it better to follow stocks like Tesla where the volumes of option traded in any one series is 100 times greater? In some ways it's better to swim in a sea of small sharks than it is to swim in a sea of big sharks. Now for a next day (Friday) look at this same action.
Now this.
Notice the surge in the volume of option contracts traded? Notice that the stock really didn't do very much? It did however produce another opportunity to buy on the dip. Options with six or seven days of life still left in them are tradable. * Now an Oct 11th update. You might find it refreshing to see what they are now trading at (five days later) and look at how the stock has traded over the last week. It helps to validate this entire process.
Notice they hit a high of $2.38 on the opening. Can you see how a whole world of changes have happened over the last week. Can you also see how you get fair value when you purchase an option that far out.


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