Looking At Five Day Options At The Start Of The Week And Recognizing A Moment Of Panic Selling. Disney.

One might say that there is no merit to randomly guessing as to what might happen over the coarse of one week. My point is to show how volatile option trading can be. Let's use the stock Disney.

Here is the price of it's 106 series of Calls going into the opening trading session.

Can you see the price of $85.00 which means the breakeven point on these Calls at the end of the week would be $106.85. But here is the problem. What happens if Disney drops fifty cents on the day and closes at $104.81? Suddenly the clock is working against you and the value of your position would be down like 30%. Buying options that expire in five trading days makes for a long week of being married to watching the screen. That's not an enjoyable experience. So let's move on and see how Disney closed the day. It closed down a touch.

The Calls are down 21%. I don't like start of the week Call options that expire that week in general. Now it's five day chart.

What was $85.00 is now $62.00. Here is it's five day chart (above) and it's one day chart (below).

Imagine we end this blog right now and say don't buy "end-of-week" Calls at the start of the week. Look at how the D.J.I.A. sold off on the day!

*** Disney's 30 day chart.

Disney drops on Tuesday morning. Is there an opportunity brewing here? It's the falling knife syndrome where only the bravest of traders move in.

Let's see how these Calls trade next. This is interesting.

What just happened in these five minutes? The Calls traded down to $.15 (or fifteen dollars a contract) and eighty eight more contracts traded hands. Now this five minutes later. Three more contracts have been purchased and the downward panic has seemed to come to an end.

$.35 is the most recent sale. Is there a lesson to be learned in all of this? Well it's mid week trading and the option makers have to be mindfull that there is 2.5 days of market life left in these Call options. We just however witnessed a moment of panic selling. Watching for mid week panic selling is a bit of an art. It's actually easy to write about these activities but somewhat more difficult to actually catch the action. Let's move on and see what happens. There is a rebound.

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Just say thank you and get out. To be continued, well maybe.