Weekend Review – 11/17/2013

Options Action –

The group started out talking about the most popular stock of the week Twitter (TWTR – 43.98).  Option trading commenced on Friday for TWTR and 122,435 contracts changed hands.  66.9% of that volume was on the put side with the remaining 33.1% in calls.  Read what you want to into that imbalance of activity, but apparently on big trade was a big seller of out of the money puts which translates to a bullish outlook.

The first trade recommendation was on TWTR and based on implied volatility coming in as the trading activity in TWTR settles down.   If you are a holder of shares the recommendation is to create a covered call and 1 TWTR Dec 49 Call @ 1.00.  49.00 is the high end of the trading range so this is more of an income recommendation than an exit strategy for shares.

Apparently on Friday there were several high profile investors that popped up as having bullish positions on Gold.  The charts were consulted and it appears that gold or gold related stocks seem to be finding a support level that has been holding for several months.  This may be a precursor for a bearish to bullish reversal.   The trade idea is a bullish one on the Market Vectors Gold Miners ETF (GDX – 36.83).  A call spread risk reversal is suggested which involves selling a GDX Jan 22 Put for 0.70, buying a GDX Jan 25 Call for 1.20 and then finally selling a GDX Jan 28 Call for 0.40.  The net result is a debit of 0.10 and a complex payout that is shown in the diagram below.

GDX PO Diagram

Barron’s –

The Striking Price column discusses a rollout of a new section to the Interactive Brokers website.  Thomas Peterffy has been a pioneer in the trading world for decades and he now has created a “Probability Lab” at his firm.   He believes that the best traders and investors approach trades in a probabilistic manner.  He expands on these thoughts through essays about how to approach this sort of thinking.