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Sang Lucci

Sang Lucci has been successfully trading options for over six years. He began his career at a proprietary trading firm where he studied the techniques of other traders while managing his own account...

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Sang Lucci January 11th Market Close Summary

The broad indexes were stuck in a range under yesterday's closing price for most of the day until a late day surge back brought us back to flat on the S&P. Stocks ended up mixed with some sectors staying positive while others gave up some ground, however, we saw no conviction selling in any large-cap name across the board.

Investors got excited today about a report about fund flows which stated that equity funds took in a little over $18 billion for the week ending January 9th, one of the biggest inflows since May, 2001. This comes at a time where the S&P 500 sits right below it's 52-week high on September 14th, 2012. Many investors are speculating that we will break those highs very soon into the new year.

Research in Motion (NASDAQ: RIMM) was one of the few movers today, putting in almost a 14% move higher after some leaked marketing materials came out over a new touch-screen Blackberry. The Weekly Calls expiring this evening took in some incredible volume with almost 60,000 contracts traded over 4 strike prices from $12 up to $13.50. Usually, RIMM does not have that wide of a range so the fact that she put in this move on a Friday, means the money potential was absurd. To give you an example of how exaggerated the move in the options was, the $12.50 Weekly Call had a contract low of $.01 and a contract high of $1.07. Have fun calculating the percentage gain on that one.

Netflix (NASDAQ: NFLX) also put in a nice move back over $100 today giving options traders a chance to make some money in the $100 Weekly Call expiring this evening. The contract traded over 10,000 contracts as the option moved further into the money.

Facebook (NASDAQ: FB) continued it's run towards the mid-30′s today and the options chain on the weekly call side was again heavily traded. Unfortunately, those betting on the $32 Weekly Call expiring this evening didn't end up cashing out in the money although 17,000 contracts were still traded. The $31.50 Weekly Call had the most volume at around 27,000 contracts.

Baidu (NASDAQ: BIDU) and the rest of the Chinese Internet sector saw higher prices today, continuing their parabolic moves to the upside. The stock looked poised to break through $115 this morning so people piled into the $115 Weekly Call expiring this evening to try and catch a bigger move. Unfortunately the premium washed out quickly when the stock went into consolidation around $113 for the rest of the afternoon. About 11,000 contracts were traded in that option, which is very heavy for a stock like BIDU.

Most of the money made today, however, was in writing options for time decay on many large-cap names that traded without any direction for the entire session. Stocks like Apple (NASDAQ: AAPL), Priceline (NASDAQ: PCLN), and Google (NASDAQ: GOOG) offered up solid premium for options sellers to capture. Take a look at how the decay hit the options below to see how you could have profited alongside the writers today.

The call side here was a great sell after the stock retraced its initial spike up off the open. AAPL buyers had no conviction on the upside in the tape today and as you can see the out of the money calls slowly dwindled in value into the afternoon.

This is an out of the money $510 Weekly Put on Apple, which as you can see lost most of its value right off the open. The stock has aggressively held up over $515 and $520 which it continued to do today as well.

This Priceline out of the money weekly put option lost most of its value right off the open as the prevailing sentiment on the tape in this stock was fairly bullish. Again, with the indexes chopping around, a trader can take advantage by writing both sides, calls and puts, on stocks like Priceline and capitalize on the NON-movement.

The strategy of writing options for time decay does take some practice but in certain market environments it can provide small safe gains in a market that most likely won't pay you out while net long an option for a directional play.

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Posted in: Options Markets Trading Ideas