Sticking With The Plan

This market is providing little direction in general,
but there are opportunities in specific areas. We’re sticking with two we gave you last week,
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January 37.5/42.5 call vertical (buy at the $1 1/8 area on Thursday Dec. 21) and the
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January 50/55 call spread (buy around $1 on Dec. 22).

The CSCO spread is a solid $2 3/4 bid this morning, some of you may have lightened up at $2 5/8 yesterday for more than a double. Either way, this has represented a strong risk/reward play.
The EXTR spread is wide on the screens at 3/4 to $2. This is because of the volatile nature of Extreme Networks stock, but the inside market is probably $1 1/4 – $1 3/4… a 50% move to the middle of the market, but the stock is not acting bad and there are plenty of juicy spreads to sell on top, if you desire.

This stock is “too hot to handle” from the standpoint of just being long premium in my mind, so the vertical is a choice tool with which to work.
Being extremely shorthanded with the holiday vacations, seasonal illness, a family emergency and relentless Chicago weather, has left me with no ability to produce our daily numbers for you today. I’ll take this opportunity to speak a bit about what they mean and how you can use them.

The data is order flow of a representative percentage of the order flow providers sending orders to the options exchanges. This is “customer
paper,” not professional or arbitrage business, on its way to get filled. It doesn’t all get filled, but it is the market and marketable limit orders on their way to the marketplace, so most of it does transact. This is sentiment, pure and unadulterated. This includes no arbitrage volume, no professional rollover volume, no hedged packages, as put/call ratios given by the exchanges contain.

This is not open interest (that data is useful for other reasons, perhaps) but this sentiment data should help you with entry and exit execution for two basic reasons:
It is an indicator of liquidity.
It is an indicator of directional sentiment, both price and premium.
The daily top volume leaders show the liquidity in general. Changes from standard place-holders points to unique interest in those series.

A swap from hour to hour shows a trend and
high-lighted values, which we note in the commentary, show added interest.
Higher ratio buy levels point to customer interest in the respective issue. A confirmation of your feelings in this name, to get aboard, or a chance for you to sell your position into some added liquidity. Extraordinary ratios more times than not point to a directional move.
Keep in mind that these values should act to assist in your strategies. We use them to see trends and help avoid missing an opportunity to scale into or out of a position.

Although this is not an “official” indicator, yet, it makes a lot of sense to us and should for you, if you trade options. We are refining what is a proprietary output to be able to deliver more of the benchmarks and averages to you, on this site. Expect this to happen in the first part of the coming quarter. In the meantime, we can explain individual questions by email and will post those that will help the readership.
I’ll be out tomorrow, so we’ll see you again next week. Have a Happy New Year.

Let me know…