Confirming Direction

Discussion in 'Options' started by CaptainObvious, Jul 15, 2006.

  1. I'd like some opinions on this simple strategy. Preface to say I am a novice at options and rarely trade them. As a directional options trader only, I live and die with movement. Perhaps all options do. I'm looking for a way to add confirmation beyond charts and fundmentals. Perhaps the greeks would glean some info, but my eyes begin to glaze over when caculating greeks. Perhaps I'm just too dumb to understand them. Anyway, on to the strategy.
    Lets take a stock like GM. I think it's going down. I look at the August experation and here's what I see.
    Current PPS is 27.47
    August 30 Call is @.85
    August 25 Put is @ 1.05
    Even though the PPS is nearly right in the middle there is a .20 difference in price per contract. In my simple strategy this confirms a stronger bias to the downside for GM. Any merit to this or am I just spinning my wheels?
  2. rosy


    in equities downside is usually priced higher than upside. the reverse is true for commodities. this is because panic selling (or supply disruption for commodities) is more likely. anyway, GM is in the middle of talks with renault so take that into account.
  3. yes, look for heavy open interest in the nearest month deeply out of the money (several strikes out) options 5 days prior to earnings announcements. It should all be heavily weighted on one side (call or put). It must be so obvious that it precludes analysis. This indicates leveraged insider buying.