Weekend Review – 10/20/2013

Barron’s –

The Striking Price column does what the options market is supposed to do and looks forward to the next potential market moving event.  We averted a crisis last week, but the next hurdles come in early 2014.  It is noted that a pattern seems to have developed where VIX and VIX futures go up in anticipation of a problem and then when it appears all is well (for a little while) VIX trades lower.  As the patterns seems to be destined to repeat the column finishes declaring that we are citizens of the United States of Volatility.  This brings a tear to this vixophile’s eye.

Options Action –

The show started off with a discussion of Google (GOOG – 1011.41) finally topping $1000 a share.  The question that was kicked around was whether Apple (AAPL – 508.89) will follow this path higher.  The feeling was this is unlikely, but there may be some upside from here as the stock appears to be bottoming out and that 545.00 to 550.00 is achievable.  The trade recommendation is bullish and short term in the form of a calendar spread using weekly options.  The trade sells 1 AAPL Oct 25 515 Call at 3.50 and buys 1 AAPL Nov 1 515 Call at 11.00 for a net cost of 7.50.  The hope is that AAPL starts to work higher but is below 515.00 this coming Friday.  Earnings come out October 28th and the desire is for AAPL to put up good numbers and rally after the short call option expires.

There was also a bearish recommendation on Netflix (NFLX – 333.50).  The company reports Monday after the close, but the trade idea is a little longer term oriented.   The specific trade recommendation was a put calendar spread selling a NFLX Nov 275 Put at 4.50 and buying NFLX Mar 275 Put for 18.50 and a net cost of 14.00.

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Russell Rhoads, CFA

CBOE Options Institute

Russell Rhoads, CFA, is a Senior Instructor with the Options Institute at the Chicago Board Options Exchange. He joined the Institute in 2008 after a career as an investment analyst and trader with a variety of firms including Highland Capital Management, Caldwell & Orkin Investment Counsel, TradeLink Securities and…