Weekend Review

Options Action –

Usually the guys start out discussing the overall market, but Apple (AAPL – 663.22*) dominated the conversation out of the box. The * next to the AAPL quote is there as AAPL was trading in the mid 670’s after hours on Friday. AAPL is 20% of the Nasdaq-100 so I guess AAPL discussion is basically a discussion of the overall market. Also, it was noted that AAPL option volume was 5% of total option volume in the US last week.

Sticking with the AAPL theme, the first trading recommendation was based on AAPL and was bearish! That’s right, bearish, but not using AAPL options! The trade involves options on the Technology Select Sector SPDR (XLK – 30.57) of which AAPL is a very large component. The recommendation involves buying a September put spread which incorporates a press event for AAPL which may result in disappointment. The trade buys 1 XLK Sep 30 Put at 0.35 and sells 1 XLK Sep 29 Put at 0.15 for a net cost of 0.20. If the tech sector comes under pressure the payout would be 0.80 and your maximum potential loss is the premium paid for the spread of 0.20.

As a side note (and something worth knowing if you are considering this trade) it was stated that 50 % of the XLK is made up of five stocks – AAPL (of course), Google (GOOG – 678.63), Microsoft (MSFT – 30.56), AT&T (T – 36.95), and IBM (IBM – 197.77).

The second trade revolved around Las Vegas Sands (LVS – 42.63) stock which has been under pressure over the past few months. Checking a chart it appears the stock has broken the downtrend and may be on a path higher. This results in a somewhat bullish outlook for LVS and the idea here is a very straightforward long call. Looking out to October the trade buys a LVS Oct 44 Call at 1.65. Risk is limited to the premium paid and return is theoretically unlimited, however it was mentioned that a big near term rally in LVS would result in selling a call to spread the risk off a bit.

Barrons –

The Striking Price column discussed a decision by one of the national option exchanges to lower the minimum quote size for options on AAPL from 10 to 5 contracts. With AAPL trading in the upper 600’s ten contracts on AAPL represents more than $1 million worth of stock. The idea here it to possibly have narrowed bid-ask spreads result from the move. We will see how this works out when implemented on September 4th.

 

For more information on VIX futures, options, and ETP trading this past week check these blog entries as well –

http://www.cboeoptionshub.com/2012/08/25/this-week-in-vix-and-vxn-by-russell-rhoads-cfa-2012-08-25-8-13/

http://www.cboeoptionshub.com/2012/08/24/this-week-in-vix-options-and-etps-by-russell-rhoads-cfa-2012-08-24-5-54/