Don’t short ahead of Employment report (report date:1/10/2014)
I am not saying to go long either
By stacking the OI graphs together, I can see that since last Friday, the highest OI for put is 46. By looking at 6/13 expiration as of 6/3, people are betting on SCTY going even lower to 45…. It is 49 ish right now as of 6/3 close… Of course, it could go to 52 as well and 52 has the highest total and put/call are distributed evenly (sort of).
On 5/30/2014 @ 9:38, I shorted a put on VRTX expiry 6/6/2014 @2.4 strike 67. Using my tool, gambulator.elasticbeanstalk.com, I see that on 5/29, the highest put interest is @67.5. After checking the quotes, I realized that the implied vol compared to historical is also extremely high for VRTX. Since this is a weekly option, the time decay should be working for me quickly. At the time of my trade, VRTX is 71 ish. So, stock price has to drop 5% and then there is 2% ish from the premium to make up a 7% ish cushion for this trade. On Friday 5/6/2014, if price were to drop 7% ish, I will have a losing trade.
Yeah, it is a biotech stock and anything can happen but by stacking these open interest (OI) charts together, I am able to monitor daily if relevant strike has shifted or OI itself has changed. From 5/29 to 6/3, there is no change yet. The bid/ask as of 6/3 for the option is 0.45/1. The trade is still open until Friday 6/6. As long as price of VRTX is above 67, I will be able to pocket the 2.4 premium. Well, anything can happen but I want to use this as an example of how to use the tool.
For the past few months, I have spending time on going through sassyoptions.com’s max pain concept (a variation of it anyway).
I have been applying sassyoptions.com’s technique to trade a few options successfully as well. I figured that lots of people would be interested in investigating this technique. I have created an app http://gambulator.elasticbeanstalk.com/ hosted on Amazon AWS so others can have a chance to check out this tool. The cosmetics of the apps may require some work but it seems to be getting the job done. Feedback using twitter/email or blog is greatly appreciated.