TradeAlert May 9 at 9:46 AM · $STMP Stamps.com implosion yields windfall for recent put buyer. Shares off $45, or 54%, to $38 this morning following disappointing earnings, reduced guidance, and rating cuts, surprising option traders who had expected a move near 14% based on last night's closing straddle price. While pre-earnings options flow near 10K contracts was moderately heavy, the most impressive action took place Tuesday, when an afternoon buyer accumulated 1500 May 10th 65 puts for 81c in a number of late afternoon sweeps when shares were near $83.30. At trade time, these puts were 10 delta, and nearly 22% out of the money and total premium spent was $121K. Now $27 in the money, position value is an astounding $4M- a two-day return of well over 3000%.
I use Snider Advisors and I had STMP recommended to me as a covered call and I lost my whole call diagonal. I learned from that deal to read a chart to select whether to use a call diagonal or put diagonal on their recommendations and to buy my long option longer out in time and deeper in the money so I can keep the diagonal in business.
Nice play. Probably this trade was triggered by a deep study or by someone in the know. I always wonder which one could be the pattern to look at in order to spot beforehands these very informed trades. I write down some possible flags in no particular order: - Few days to option expiration - Small/medium cap - Trade on the ask - Considerable transaction size
I use the top MACD for calls and the bottom MACD for puts. I won't always get it right, but I shouldn't have gone with calls for STMP when puts had such a good track record. And my long call was a 45 and it should have been 30 or lower, but who knew it would fall that far?
Good Point. Reasoning on general terms can help you in avoiding lots of mistakes. However, I feel someone here must have been quite knowledgeable about earnings. Or calculated them very well.