CNO - Deep Calls Roll and What it Might Mean

Discussion in 'Trading' started by livevol_ophir, Feb 18, 2010.

  1. livevol_ophir

    livevol_ophir ET Sponsor

    CNO is trading 5.22; earnings are 2-25-2010 AMC.

    The company has traded over 22,500 options today in the first two hours on total daily average option volume of just 3,304. The largest trade has been the Feb 4/ Mar 4 call spread purchased for 0.10 (buy Mar / sell Feb) - no stock. The Company Tab and day's biggest trades snapshots are included in the article.

    The Options Tab snapshot (in the article) illustrates what the trade is.

    This closes the previous Feb 4 position and opens a new Mar 4 position. This occurs regularly with many stocks near expiration. It's called a "roll" - where the front month position is closed and rolled into the next month.

    From the Level II pop out (in the article) you can see the open interest in the Feb 4 calls jumped on 1-15-2010 (traded 1-14-2010) - which was also the Thursday before expo (just like today). The largest option trades from that day (1-14-2010) are also included.

    So why is this interesting if it's predictable? Since this trade occurs regularly, the unusual part would occur if the trade did not happen. In the pro world, for stocks where rolls are predictable, traders often believe that as call rolls continue, the stock's dwonside risk is limited. When the roll stops, the downside risk re-appears. Why?

    The thought process is that if someone has done the research to own - in this case - 1.1 million shares (these are 95 delta options) and all of a sudden stops - it's probably not a good sign at the very least. There are many stocks which demonstrate rools - some calls, some puts, some deeps, some OTM (not as often). Each type can add a small ingredient to the overall analysis of the underlying movement.

    The Charts Tab snapshot is included in the article for completeness. You can see that CNO can trade quite choppy up and down.

    This is trade analysis, not a recommendation.

    You can see details, prices, charts, trades here:
  2. 1) Interesting stuff.
    2) It would be more "exciting" if the stock in question is pricier, i.e. GOOG or BRKA. :cool:
  3. livevol_ophir

    livevol_ophir ET Sponsor

    Agreed, entirely.... Unfortunately there aren't too many people that can play with 1 million shares of those...
  4. 1) ?......Darn! You quoted me before I edited.
    2) Finite company.......Buffett, Brin, Fidelity, Vanguard......:cool: