Options Action –
The guys stated out talking about the overall markets which instantly leads to Apple for some reason. AAPL has been under pressure and the guys attributed the weakness to the last two big product releases being more defensive in nature than innovative.
The first trading recommendation was on Facebook (FB – 21.18) which has a share lock up expiring on November 14. After the lock up expires 777 million shares may be sold on the open market. Despite the lock up the recommendation is for a bullish outlook into November expiration. A long call spread buying the FB Nov 22 Call at 0.45 and selling a FB Nov 24 Call at 0.10 was suggested. The net cost here is 0.35 with a potential payout at November expiration of 1.65 which is an inexpensive way to get some long exposure to FB for a couple of weeks if you are up for fading the lock up.
As the show progressed a discussion of Disney (DIS – 49.86) started, but news broke of the cancellation of the NY Marathon and we never got the idea there.
The Striking Price column was guest authored by Stephen Solaka of Belmont Capital Group in Los Angeles. His discussion talking about rebalancing portfolios through the use of cash secured puts on broad based exchange traded funds (SPY, IWM, EFA, and EEM are all mentioned).
This is an area that is of great interest at CBOE. We have an index, the CBOE S&P 500 PutWrite Index, which is quoted using the ticker PUT. This index is an excellent measure of how a systematic method of selling SPX put options performs. This method of gaining equity market exposure versus the traditional ‘buy and hold’ S&P 500 total return has been pretty impressive on both an absolute and risk adjusted basis. Below the link for more information on PUT is one of my favorite charts showing $100 invested in PUT or the S&P 500 Total Return index from the end of 1999 up to the present –