Options Week in Review | 8-23-19 | Ben Watson
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Options Week in Review | 8-23-19 | Ben Watson


Good afternoon, and
welcome this afternoon to Options Week in Review. Ben Watson here filling
in for Cameron May. Hey, we’re going to
take a look at what’s been going on in this
rather crazy options week, and a look over the
horizon at what is yet to come. So as we do that, a
couple of quick reminders. Remember that options aren’t
suitable for all investors. There are some special risks
inherent to trading options that may expose
investors to potentially rapid and substantial losses. There are transaction costs
associated with trading options, so be aware of those. Also, remember that any of the
specific examples that we look at today are not
solicitations to buy or sell nor are they recommendations. Any investment
decisions you make in your self-directed account
is solely your responsibility. Past performance of any
security or strategy does not guarantee future
results or success. Additionally, all
investing carries within it an element of risk. So be aware of that fact,
including the risk of loss. And this is a
copyrighted broadcast. We’re going to be talking
about options so we’re going to bring up here a really
quick definition of the options Greeks, those
mathematical variables. They help us to understand
option premium movement. Now with that, let’s jump on
over to the thinkorswim desktop software platform. This is a demonstration account. It is paper money,
but it is made to look like a live
account so we’ll be able to see some
of the features that are in a live account. But let’s talk about
where we are headed today in this discussion. And the first place
that we are going to talk about, over here
on the left-hand side, since it is the
Option Week in Review, we should have a taste of what’s
been going on in options action this week, and a better sense
of what is coming up next week. The way that we’re
going to do that, we’re going to talk
about market conditions. We’ll talk about
some sizzling stocks when it comes to that
options, actually. We’ll look at a couple
of those examples, and then we will
take a look ahead and I’ll give you some
additional resources that you can use to continue
to go out and learn. And my task, or my challenge,
for you this weekend is to spend a little bit of
time learning more about options and how to use them, and
I’ll give you some resources to be able to do that as well. But let’s, first
of all, take a look at what’s going on here
in the broad market. This is the S&P 500. And so as we look
at the S&P 500, one of the things that
we can see going on here is the fact that the S&P
has been relatively volatile over the course
of the last week. We’ve seen a couple
of– actually, three pretty big downward moves
in the broad market itself. Now, how does that translate
into movement in the options market? Well, for that, let’s
go to the big screen and take a look at what
is happening over here on this volatility index. We’ll jump on over
to our big screen and take a look at what’s
going on on the VIX right now. The VIX is that volatility index
that measures, if you will, fear and opportunity–
let’s put it that way– in the market. It is an average of
the implied volatility of options on the S&P 500. And so when the VIX is moving
higher and [INAUDIBLE] you can see that the VIX is
moving to the upside. And let’s pop
right on over here, and we’ll just draw in a
couple of these big moves that we see higher on the VIX. When the VIX is
moving to the upside, that generally
means that options are becoming, number 1,
more active, and number 2, more expensive. And so when we see these
big spikes on the VIX that pop into these
ranges right here. That typically tends
to mean that there is some sort of activity going on. Now, for those of you who are
familiar with trading options, you already know this. For those of you
that are brand new and you’re saying,
wait a second. How does this impact
my option trade, if I’m looking at the
fear of the entire market and options premiums
in the entire market? The idea is simply this. One of the things
that we know is that volatility,
implied volatility, tends to be mean-reverting. So it tends to spike quickly
and then fall just as quickly, if not more so. So spike quickly and then fall. And so when we see big
jumps in implied volatility, often that’s followed
by moves to the downside in implied volatility, which
means that options can get expensive very quickly,
and options can get cheap pretty quickly as well. That plays right into the
hands of those options traders that are looking to
take advantage of that implied volatility movement. So we can see some of that
going on here in the VIX right now in the volatility index. Let’s clear those off and let’s
pop back over here and take a look at what’s– [MUSIC PLAYING] Down into a couple
of our examples. And again, we’ll pop over
here from our left-hand side. We’ll take a look at what’s
going on in the Sizzle index and see some of those
examples of options trades that are maybe burning up
those options trade screens. We’ll take a look right
here on the Trade tab. And one of the
things that we’ll do is actually jump over
here and run a scan that’s called the Sizzle index scan. So we’re going to go to
the Stock Hacker scan tab. And a scan is just another way
of saying search or screen. And we’re going
to come over here to the upper right-hand corner. And in the upper right-hand
corner, what we see is that little fire symbol
there, those little flames. If we click on
that, that brings up a predefined scan
that looks for stocks that have a minimum
of $5 a share price, volume of
100,000 shares minimum, and a market cap of
at least $35 million, so narrowing down the range. And then those that have
the biggest Sizzle, which is options activity
today, which is greater than the average
of the last five days of option activity. And so we can see some of
the stocks in that mix. One of those stocks
right now, Polaris, if you think about what has
been going on news-wise, one of the factors that has been
playing into options activity has been the fact that we’re
at the tail end of an earnings season and there is
trade and tariff issue discussion going on. So let’s take a look really
quickly at a chart of PII and see what’s happening
with the price of the stock. And we can see that
in today’s trading, that stock is breaking, perhaps,
below a level of support. That might influence
some options traders to take, perhaps, a bearish
perspective on this stock and look for some
additional bearish movement. Let’s go over to the Trade
tab for PII and confirm that. So we’re going to
look, first of all, to get a sense of that Sizzle. Right over here on the
right-hand side of our Sizzle index, or excuse me, of our
today’s Options Statistics, and we’re going to look at
this information over here on the right-hand side. That gives us that
Sizzle information. And one of the things
that we can see is that the overall
Sizzle index is 25. That means that right now, the
options activity going on today is about 25 times the five-day
average of options activity. And in the call side
of the equation, that activity is about 36
times versus the put side. Now, we might be thinking,
hm, OK, interesting. If investors are thinking
that there is bearish downside movement, that there is
the possibility that PII, Polaris, which manufacturers
recreational vehicles, among other things, is
moving to the downside, why aren’t those options
traders buying put options? And we can see that
that put activity is not quite the same as what’s
going on on the call side of the equation. So what that might also mean
is volatility may have spiked and options traders, perhaps,
are selling options and selling premium. And if option traders
want to take advantage of bearish movement
by selling premium, they may sell call
options or call spreads. So if we take a look over here
on the right-hand, excuse me, the left-hand, side of today’s
Option Statistics page, which is down at the
bottom of the option chain, we can see that the
current implied volatility is about 45%. That means that it’s current
implied volatility percentile is up in the 60th percentile. Not the highest it’s ever
been, but it has, perhaps, spiked a little bit. One of the other
things that we can see is that in the current
expiration, which is the 20 September expiration,
that implied volatility is about 45%. Now, we’re going to come down
to Option Time and Sales, and one of the things
that we can see is that right here, today,
one of the biggest option trades that went through on this
stock was 1,000 call options at the 20 December expiration. So looking a little bit
further out into the future, bringing in about $2.80. Now, the market
was $2.65 by $3.20, which means that you could
sell those options for $2.65 at the bid, and the ask was at
$3.20, so buying them at $3.20. So this may very well have
been the sale of an option, trying to sell that a little
bit higher than that bid price, and working that order
just a little bit, so selling those options. And as a matter of fact, if we
were to right-click and just create a duplicate, or
analyze a duplicate trade, let’s create a
duplicate order here. And let’s make this
an option sell. We can see what that
trade looks like here. We’ll bring up the Confirm
and Send box over here. And remember those transaction
costs that we talked about. It’s a pretty substantial
amount of transaction costs. And one of the things that
we want to think about here is a sale of 1,000 call
options creates an obligation to buy 1,000 contracts times
100 shares per contract of this stock at that strike
price, which represents a fairly substantial investment,
in fact, $282,000 of investment in this particular trade. And that being the case, that
could be substantial risk to the upside. So this may very well be
a part of a spread trade. But as we see it right
now, all we’re seeing is that 1,000 contracts
of the $90 strike call option being sold. So let’s go back over here
to our Scan tab again. Let’s take a look at a couple
of others in this list. And this list is one
of those dynamic lists. If we go to our
Market Watch tab, we can also see that kind of in
a shorthand or shortcut format. We can go to our
Quote page here, and we can come down to Top 10,
and we can see Top 10 Sizzling Stocks, where you can
just click on that and that’s going to give us
that same watch list as well. Now, one of the
other stocks that has reported earnings this
week, and as I said, we were in the middle of
an earnings season that created some upside potential
movement, with Salesforce and CRM coming with an
earnings announcement. We see, from a
technical perspective, a big pop to the upside
on this particular stock, and in today’s trading,
rallying up and pulling back. So let’s take a
look at what’s going on, in terms of options
activity in this stock, one of the big players this
week in those option trades. So we’ll go to the
Trade tab once again. And notice that there is a lot
more options activity going on in this particular stock, over
here on the left-hand side. We can see that we’ve
got lots more option expirations to choose from
this particular stock. But once again, let’s
take a look at two areas. We’re going to come over
to the right-hand side. We’re going to take a
look at the Sizzle index. The Sizzle index at 3– the call Sizzle index about 3,
the put Sizzle index about 3.1. So about three times the
typical options activity going on today. And if we come over here
to the left-hand side and we take a look at
today’s Options Statistics, we can see that that
implied volatility really hasn’t increased all that much. Currently at 31% puts it
in the 25th percentile because we are past earnings. We’re past that latest earnings,
so that implied volatility, perhaps. Even with an increased
implied volatility, overall in the
market, as we looked at with the VIX, the
implied volatility here in this particular issue,
in this particular security, not quite as high. It’s past its
earnings announcement. The unknown is now known, and so
that implied volatility perhaps has bled off just a little bit. Nonetheless, there were option
buyers, or option traders, coming in here to this
particular option. We’re going to come down
to today’s time in Sales, and we’ll take a look at
some of those trades that have been going on. Right now, we see a January
call trade, the 17 January expiration. So long-dated option. This is one that has a number
of those long-dated options listed. Way out into January
of 2020, January 17, 5,000 contracts in this case,
and those 5,000 contracts coming at a price of $29.20. These are in the money options. And we think about that,
that’s the $1.30 strike. The stock currently
trading at $1.5. And so there may be a little bit
more of a bullish expectation. And notice that this
is, also, perhaps part of a buy-write type
of scenario, where somebody is buying
the underlying stock and selling the
call option as well. But in this particular
case, that trade, looking at those 5,000
contracts at the $1.30 strike, if we go back to the chart and
we take a look at the $1.30 strike on this chart, that is
a pretty decent distance from where the price of the stock is. As a matter of
fact, there’s $1.30, the price of the
stock rallying up, and now pulling back
just a little bit. But still, option
traders, at some point, taking, perhaps, a little
bit of a speculative bet. That’s not a guarantee
that the price of the stock is going to continue
to rise nor is it a guarantee that the price of
the stock is going to fall. But that can give
us some insight into what is going on with
this particular option, or with this
particular stock today. Let’s take a look at one
other, the released earnings this week, and this
is on the retail side. Let’s take a look at
GPS, which is Gap. We’ll see that Gap
came with earnings. We saw that Gap pulled
back just a little bit. Let’s go over to the
Trade tab, take a look at what’s going on with Gap. So first, we’re going to open
up today’s Options Statistics. And the Sizzle index, a
little bit smoldering here. Not quite as flaming as some
of those other Sizzle indexes that we’ve seen in
today’s trading activity, but we also notice that the
current implied volatility right now is about– as we scroll over here
on the left-hand side– about 46%. That puts it about the
43rd percentile again. Post-earnings, implied
volatility has likely dropped. But let’s see if there’s
still some option activity in this issue. Now, one of the things
that we’re seeing here is early this morning in this
particular instrument, in Gap– GPS is the symbol– there were 6,314 call options
at the August 23rd expiration. That is, guess what, today
coming in and being bought up, looks like, at $0.13. So that may be of closing
a number of positions, closing out a substantial
trade post, that earnings announcement. So there was some option
activity going on there in GPS, in Gap. So a couple of things that I
want to show really quickly, and then we’ll
come back over here to our thinkorswim platform. But again, remember, where
you’ve talked about market conditions, the Sizzle index. We’ve looked at some examples. Let’s take a really
quick look ahead at what is likely to be
going on over the horizon into next week. And so to do that,
let’s pop back over here to our big screen. And we’re going to make sure
that we’re on that big screen, and we’re going to come
right back over here. And we’ll go to the
TD Ameritrade website. And on the TD
Ameritrade website, in order to see
over the horizon, one of the tools that we
have is a great calendar. So we’re going to go
to Research and Ideas, and then we’re going
to go to Calendar here. We’ll navigate right to
that market calendar, and we’ll see what’s
happening over the horizon into next week. So here we are on August 23rd. We’re going to go
now into next week. Let’s go to the 26th,
and we’ll see what’s happening in that next week. And so as we start
to look, we’ve got about 23 earnings
announcements still left in next week’s trading,
or in Monday’s trading. We’ve also got some economic
events coming up, as well, into next week, and
so let’s take a look at what some of those are. We’ve got durable goods
[INAUDIBLE] a little bit more in this range right here. So we can see that we’ve
got those durable goods orders on Monday. Coming on Tuesday, housing price
index, consumer confidence, which may be a market
moving data point. And then we’ve got mortgage
applications and crude oil. And with the interest
rates and yields changing, mortgage applications
may be one of those areas that we could, potentially, want
to pay attention to, just given its impact from what is
happening with the Federal Reserve. So let’s pop back over
here again really quickly. And I said, remember,
that I wanted to give you a
couple of resources that you can use to
continue your education. So I’m going to click
on the Education tab. And if you want to learn a
little bit more about options and how to use options
in your portfolio, one of the things
that you can do is you can come right
over here to the Options– whoops, pop back over here. We’ll go right over to Options
under Education Center. And then the next
thing that you can do is you can join us for
additional webcasts. And this weekend would
be a great time for you to spend a little
bit of time looking at our webcast calendar and
our upcoming webcasts going into next week. And one of the great ways that
you might learn a little bit more about using options
in your portfolio is Cameron May’s
webcast next week, Getting, or excuse me,
Selecting an Options Strategy. And that’s right
here, a great way for you to extend your learning
from our discussion today. So let’s come back over
here again really quickly. We’ll pop back and just
jump back into our slides. And we’ll make sure that
we are right back here. Again, really quickly, a quick
reminder about my challenge. Go and do, go and learn. Watch a video, watch a webcast,
and learn more about options and how to use those
in your portfolio. And again, remember
that everything that we’ve talked
about is simply for illustrative and
educational purposes. Remember, of course,
that none of these have been
recommendations and there is risk involved in the market. Any investment
decision that you make in your self-directed account
is solely your responsibility. Thanks for joining me,
Ben Watson, for Options Week in Review. Have a great weekend, everybody. We’ll see you back here on
Monday for more great webcasts. Have a great weekend. [MUSIC PLAYING]

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