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Day Trading One Month Out Options. Learning To Skim The Tiniest Of Moves

This blog is different. It's about skimming small profits on one type of option in particular. It's also my story about how to make the time value of "one-month-out" options your very best friend. What I am about to try to describe to you is a phenomenon of wrongly calculated time values built into option pricings. Wrongly calculated from the perspective that some option prices (their "bids and asks") are over-sensitive to the tiniest of pricing swings. Who am I to make claims like this? What credentials do I bring to the table? I don't want to tell you as I want to keep my identity a secret. Let's just say that I have being trading options for a long time. Over the years I have learned that "nine month" or "one year out" Call options or Put options on stock's in the ten dollar price range are often mispriced. As example, I have followed the stock "Ford" for like forty years and to me it's January Call options a...
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Cat Puts on Earning Reports

Third quarter profits were released
....................
Now a look at a statement made after the release of their second quarter earning report three months ago.
So if you were anticipating a price swing on the release of their earning's report could this be a profitable adventure? Suprisingly, yes and no. It depends on how you reacts to the stocks quick and precipitous decline. It also takes a bit of luck. Look at how the "near-to-the-money" Call options and Put options traded just after the release of this news. First the Calls. They lost 82% of the value at this particular time. The open interest number is just over 800 which is actually a small number when you consider Tesla options often trade 100,000 option contracts in multiple series everyday.
Notice how these Calls, the 390 series actually traded down to $.14 or only fourteen dollars a contract before rebounding back up again to $1.42 in a short period of time. That was a nice rebound. Yet then again who would have the confidence in something this far "out-of-the money rebound to where it started at on the opening. If a rebound didn't happen this particular series of Calls would surely end up worthless. Now look at how the 390 series of Puts traded. These are the ones many traders would be looking at on the day prior to the release of this earnings report. That shows you how few traders understand how options on stocks in the $300.00 and $400.00 dollar range work on the release of quarterly earning reports.Notice the open number of only 178 contracts and the volume of trading of only 36 contracts in this series.That's nuts.
At some point in time in the first 36 minutes of trading they dropped down in price to just over $22.00 and the stock quickly snapped back up in price. It took that long for the markets to adapt to the downside and then come to the realization that things were not really not all that bad. No talk about the company losing money, no talk about layoffs. So anyone holding Puts going into the opening markets this morning would of had a chance to more than double their money. Yet your timing would have to be near perfect. That's the hard part of doing this. You have to wonder why so few traders were willing to take these kinds of risk. Now look at this chart.
Look at the almost twenty dollar rebound.
A rebound of $1.34 to $9.65. Look at how few contracts traded. It baffles me that more option traders are not glued to this kind of action. Check back in on Caterpillars next quarterly profit report. ** The magnitude of today's rebound within a matter of an hour rarely happens. The apex point of when the market switches from going down to up is never an exact science to pinpoint. Trader's close to trying to nail it should have confidence in the fills they will get from market orders. With swings of this magnitude if you catch the right direction you will be amply rewarded.

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