You mean as the premium approaches par with the underlying? Right, but that's perfectly predictable given that the premium is nothing more than the interest on the index from now to the future's expiration minus dividends (adjusted by divisor.) I don't recall that being called time decay as futures are not wasting assets in the sense that options are. They can never become worthless. And at expiration, as a holder, you simply receive the settlement. So it's not something to worry about because it's easily dealt with if one is actually long term trend following with futures.
DTN sadly resets its volume at midnight each night, and my program isn't smart enough to ignore the "0 volume" lines and get the ticks anyway to see how bullish or bearish the volume was. You're right though, the technicals just don't "feel" right for a big breakout up. I'd completely agree--puts if it falls through 26 would be a good bet. There are two possibilities for call volume (assuming these calls were all bought and not sold): 1) Someone just shorted a lot of stock and bought protective calls in case of a big rally. 2) Someone believes its going to break out up. If all of these calls were bought on the ask, it would probably be #2. If these were bought at a "fair value", I'd guess #1. (The stock falling 4% in one day wouldn't make short sellers desparate enough to pay up for calls in such large numbers) When someone "in the know" is fading a big down move, you'll often see call prices go UP despite the stock price dropping. In this case, the call price dropped substantially. That's the fun part about these large volume events--using some technical analysis and rationalizing why the buyer did what he did.
I'll just put my 2 C in here. I've been trading options since 1990. Still at it. But I wanted to parse a couple statements about 80% this and 40% that as blow out traders. I think you guys may be talking apples and oranges. One says "80% of all options expire worthless" and that may in fact be true. Another says" 40% of all option POSITIONS expire worthless," and that may be true too. There are many series that have no open interest at strikes far OTM. Of course these will all expire worthless. I believe this is where the discrepancy arises. I don't have a horse in this race but maybe you guys need to discuss either an apple or an orange.
That was actually worth a whole lot more than 2c. I had thought about that but was too lazy to pursue it. You summed it up nicely.
Interesting perspective. (Thought I'd get one. ) It's number #2 ("in the know") that worries me. Do you know of any resources that list the percentage of shorted shares out there? If there are considerable shorts, #1 would be a very realistic explanation. If not, then #2 is more likely. Although, my objective would be a quick move down to 24, make 100% and get out, so it might not matter either way in the short term. Have you considered storing EOD volume data to a database. Pretty easy if you have a java app already developed. (Well, "easy" is relative). plenty more opportunities out there though. I was staring at JEC on Thursday for about a half hour as it hovered at 90. I think it has a date with 82 in the next few days. EXCEPT this stock is trending UP,UP, so I need to maintain discipline.. I look for these: (My software does anyways .. ) BUY PUTS: \ ..\ ....\ ......\ ........\...../ ..........\_/ OR: BUY CALLS: ......./\ ...../....\ .../ ../ / I think the markets are going to sell-off in the next few weeks, buying puts baby!
Quote from neophyte321: Have you considered storing EOD volume data to a database. Pretty easy if you have a java app already developed. (Well, "easy" is relative). I hadn't really thought about this--a standalone unusual activity application wouldn't be too hard to create and make web accessible. This gives me some ideas for a search engine: 1) Daily volatility (specifically for day traders--I really liked stocks that would move 2%+ per day) 2) Move "abruptness" (e.g. AMD tends to trend slowly, then in one or two days SLAM the other way--smooth moves are better for options sellers) 3) Portfolio correlation for hedging purposes. (e.g. my portfolio tends to be highly correlated to the Nasdaq. Even though I trade a lot of S&P & Dow stocks, hedges using either of those indicies really don't help me. It'd be nice to know what is needed to hedge at any given time. It'd also be nice to avoid buying everything correlated) 4) Cheap/free opportunities given some criteria. For example, this month I bought an ARIA calendar spread--I risked .05 per contract with potential gain of .95/contract. That's good stuff. 5) "Good market" finder. I like BOX a lot, and would prefer equities they carry. I also like equities where the bid ask spread of options is < .15. On second thought, maybe that should be a percentage--I like GOOG and CME options, and neither trade with <.15. Hmmm... 6) Sale finder. I have this built-in to my Java app already, but it's super useful. I can search by probability breakeven/win and a bunch of other "secret" formulas that find some really interesting opportunities. (think non-traditional partial derivatives of the greeks) Other ideas? Impactopia does a correlation database which it looks like they've finally fixed. I love these sorts of stats.
You're much more advance than I am at this point. I've been focusing on data collection and discerning patterns. I'll have to concentrate on optimizing my entries and pricing... Right now, I look for markets that look like they are teetering... I put together a database of 1500+ securities, tracks all the popular statistics. RSI,ADX, etc ... The ones I've focused on are StndDev and a method I created to rank the strongest trending stocks, over 12 weeks, 26 weeks, etc ... The strongest trending stock over the last two years is ..... TIE. (Not a shocker I'm sure) The two tables might interest you. Daily (5,12,26 day periods) ATR, HV, and Weekly (5,12,26 week periods). Sorted by 5Day/26Day HV. http://www.geocities.com/wpp289/hv.htm http://www.geocities.com/wpp289/hv.cvs I made two dumb trades today, one profitable, one not. BMHC & MLS... ("Dumb", primarily because my internet connection got hosed this morning and I got terrible fills), Puts both. I think I'll recoup MLS tomorrow, 31 is strong resistence. I'm looking into IQFeed, I need accurate real-time quotes. Quick moves outside there ranges... (quick === the first half hour) is my optimal entry point.
Probably not enough to reverse this trend. http://stockcharts.com/h-sc/ui?s=LEA&p=W&b=5&g=0&id=p40748297862 This is what I'd call a stock that is "teetering". Seller's more likely to protect recent gains, than more buyer's to step in and buy at these newly inflated levels. In addition to the skew in HV/IV. LEA might not be worth the added risk though, and prolly too expensive. I use standard deviations when querying the DB to determine "high levels", in the upper 98% of its current range ... pretty high. http://www.ivolatility.com/options.j?ticker=LEA:NYSE&R=1&period=12&chart=2&vct= I got burned on MLS, right after I bought puts, a hedge fund annouced it was upping its stake. I think it will retrace and give my an out. BMHC is behaving very nicely though! Perhaps I can turn this around, just demands a few tweaks in your thinking... Do you do this fulltime? Anybody else>?