Option monster notices something I point to casually in class.

n one of the classes, while looking at DVAX pharma to illustrate something, I notice a pair of 2000 contract trades in the January calls, and point to the possibility of this being a spread trade around the time some FDA news is likely for that security. Option Monster (here), today says the same thing. Ha.



Stcok based compensation and earnings

Barron’s does the piece below on compensation and earnings, reproduced below. Recall our class discussion on option-based compensation and what was skulking about in financial statements.


Barron’s Feature

 | SATURDAY, JUNE 1, 2013

Beware the Hidden Costs in Tech

Stock-based compensation is often overlooked on Wall Street, leading to understated price/earnings ratios for companies like Google, Amazon.com and Facebook.

From the options institute at the CBOE

A bit belatedly, I receive an email from the Options Institute at the CBOE today, asking me to point students to their upcoming seminar on options. The link appears below.


The marketing PDF they sent with the email is (here).

These seminars are expensive, the first is about $2k and the second about $1k. I would love to know what they teach you that I do not. The one component that is not easy  to replicate sitting in SoCal is interactions with professional traders. All I can do is tell you stories about what happened when I last spent time on a trading floor-something that is getting further and further back in time. If any of you choose to attend any of these events, I would appreciate knowing more about their content.


The meaning of Apple straddle prices…

Into my inbox arrives this message a few hours ago. Note what they are saying about option straddle prices going into Apple earnings on Tuesday. a 7.5% change is about a $30 move. But the weekly straddle can be had for about $20, and a call for about 11. I don’t see all that much downside.

How To Play Apple’s Earnings This Tuesday
by Quoth the Raven

Apple will report their earnings Tuesday after-hours and investors are anxiously awaiting the corresponding action in the share price. Options trading (based on straddle prices) has suggested that investors are expecting at least a 7.5% change on Apple’s (AAPL) share price after earnings. read more »

Mini Options

To welcome the options leg of our Spring Semester, NYSE/Euronext just announced the trading of mini options. Starting the 18th of March, traders can take option positions in GLD, SPY, AMZN, AAPL and GOOG with 10 shares underlying each contract rather than the typical 100. The common logic for this is as follows. Say you own 50 shares of Apple ($ 22K) and you wanted to purchase protective puts or sell covered calls. With the minimum contract size at 100 shares, you would have no  choice but to over-protect your equity position. With the mini options now you can.

But what it will also bring are the hordes of speculators who can now trade Apple calls at 10-share lots and lose all their money on a dead-cat stock!

More disbelieving than moi.

Read this piece from a hedge fund manager who appears just as disbelieving of market machinations as I have been.

And this for a bottom-fishing gold miner trade. Way out of the money calls, one-year out, over $ 5 million spent. A speculative long shot for sure, a pessimistic currency macro view and or a hedge against global economic collapse. See how hard it is to classify any random trade as hedging or speculative. This is why derivatives accounting is a nightmare.

T-VIX (Tyrannosaurus VIX)

IF you haven’t been following the T-VIX story here are a couple of links (GreenbergZH).

First, the VIX is a weighted average measure of the implied volatility of a bunch of  near-term, near-the-money S&P call and put options  (HERE for its calculation). To learn about the many different volatility indexes go HERE. The main appeal of the VIX as a hedging instrument for short-term traders is its negative correlation with broad-based equity market indexes.

Second, VIX futures represent the futures market view of the 30-day expected volatility or VIX.

Third, an ETN or exchange-traded note is like an ETF except that it is a debt instrument.

Fourth, TVIX is a double-leveraged version of the VIX futures contract.

Fifth, Credit Suisse that offered this product, decides last month to stop issuing more shares. When it became difficult to borrow shares, the ETN traded at a huge premium to its NAV (more like a closed-end fund).

Sixth, Credit Suisse decides to open the fund again and the premium collapses.

Seventh, long or short volatility at your own risk.  GOT IT!

That said, I think VIX below 15 with earnings coming looks more like a buy than a sell to me.