I mentioned yesterday, I intend to make you, the reader, develop into
a competent and successful options trader with the aid of my daily column. I
plan to initiate you into my own trading style, which I have honed over many
years of trading both â€œin the pitsâ€ and off the floor in an electronic
environment. I also indicated yesterday
that a good motto or battle cry for my style of trading might be â€œStaying
Spread is Staying Alive.â€ It is my opinion that a huge percentage of private
traders would be using the current market prices to their advantage had they
â€œspread offâ€ their risk to a greater degree over the past year.
the course of time, I will be making two types of major contributions to your
knowledge of options spreads.
will present Trading
Lessons on various aspects of spreading in the Education Section of
This will help those who are unfamiliar with what we’re saying and what we’re
looking at each morning. For those of you that have advanced beyond this
level, this will allow for a quicker distillation of our daily observations.
Iâ€™ll both provide some commentary on what I take to be the tone of the market
for each trading day based on the first hour of options trading which we see
from our customer base. This base includes a large percentage of all of the
customer order flow coming to the exchanges. I will also engage our
sophisticated search engine to point out what I see to be the dayâ€™s top
risk/reward spreads for various directional â€œplays.â€
in Opening Sentiment
weâ€™re seeing a strong switch to the buy side from the customer paper. Market
sentiment changes from the overnight build-up of orders, and we saw
reversal of orders by the open. First-hour values show call buyers making up 55%
of total flow, with buyers leading call sellers 3:1. Put sellers still led put
buyers 3:1, as volatility levels continued higher.
traders, this should
serve to confirm or contest your personal attitude towards the contrarian aspect
of the option trading public. We use sentiment throughout the day and
find it sets the tone early on. This is one of the reasons my column appears in
this time slot. Our trading decisions are not necessarily changed, by virtue of
what we see in these numbers, but they help us to formulate our ability to scale
in and out of positions. As you become more familiarized with this indicator
(and others that I will bring in the future), you can use this to scale your
trading decisions, too.
and JDS Uniphase (JDSU)
all saw jumps over their respective first-hour averages, reflecting the impact
of the earnings reports and precipitous slide in their respective stock prices.
preponderance of call buyers in the opening hours seems to reflect some
"bottom fishing" in these names. Be careful, bottom pickers get dirty fingers.