Caterpillar and Deere at 11:00 a.m. on a Friday morning. I will try and make this simple.
1) Caterpillar. Shown are both the Calls and Puts which expire at 3:00 p.m. today. Caterpillar jumped up in early trading and basically sold off to where it started the day. The problem now for option traders is the wide spread between the bid and ask. Sure you can try to get a fill on the buy side by splitting the difference however when it comes to selling you will be forced to accept a selling price closer to the bid than to the ask. That's a major concern.
2) Deere. The same thing. Look at the wide spreads between the "bid and asks".
Once again, getting into or out of these contracts at a fair prices would be difficult to do with the spreads this far apart at this time of the day. This reality helps to keep option traders away.
Now compare this to the relatively tight bids and asks found on one day options on the stock Walmart. As you can see, Walmart options are so much more liquid.
The difference is like night and day? This is one of the reasons Walmart has a higher number of option traders following them. Exxon offers the same story.
Given the much tighter spreads wouldn't it make these last two stocks more attractive to trade?
Something further needs to be explained. In the first hour of trading on a Friday morning both Deere and Caterpillar have decent spreads. It's closer to 11:30 a.m. when the option makers want to put a grip on option traders to squeeze out the "time-values" left in any open option positions. It's only at the noon time when this happens as the market makers start to worry about shifts in the markets. This is especially evident on Friday's when the markets are basically flat on the day. Existing option holders at this time who want to liquidate their positions have to accept lousy fills. Enough of these teachings. Let's review how some of these positions closed out the day. It was a relatively flat day on the markets as you can see.
1) The closing numbers on the Caterpillar 360 Calls.
In the morning they were trading at $1.02
2) Deere.
These are Puts. In the morning when we looked at them they were trading at $2.01.
3) What about Walmart? Back at 11:22 a.m. the 96 series of Calls were trading at $.18 or eighteen dollars. Here they are now at $.15.
So finally Exxon. Back at 11:44 a.m. the Calls were trading at $.35 cents or thirty five dollars a contract. Here they are now at the close.
They closed at $.80 or eighty dollars a contract. That's what you would expect to happen going into a weekend with a war happening in Iran. Call option trading in Exxon has being an excellent gig in the last two weeks.
* I know these types of blogs on one day option trading can be kind of tough to read. If you have the energy look at what is happening in the bigger picture.
Trading the markets now require new skill sets. What an interesting new reality. In a recent blog I talked about Costco dropping like $40.00 in one day. A1 has to learn how to recognize trading opportunities like this. So far they haven't.
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