The Weekly Options Report: The Case For Serial Put Selling

Vol is Back…or is it? Another eventful week coming to a close, as markets have seemingly been able to shake off Euro Zone concerns and look poised for positive weekly gains. After spending a few solid days below the 30-level, the VIX skyrocketed 16% on Tuesday only to give much of it back by market close on Thursday. Our MarketClub Signals System had a pretty solid week producing 2 winning day trades and 1 break-even. For specific details on how to put the Weekly Options Mastery System to work make sure to sign up for the Free Course by entering your name and email in the box to the right.

This week in The Weekly Options Report we highlight upcoming weekly options catalysts, including a potential opportunity surrounding Cisco (CSCO) earnings; we discuss the pros and cons of implementing a serial put selling strategy on shares of Yahoo (YHOO); and we analyze the risk/return dynamics of trading on the weekend. Enjoy!

Weekly Options Catalyst Catcher:

With earnings season still in full swing, a few heavy hitters are set to report quarterly results during the November ’11 weekly options trading cycle, most notably: Priceline (PCLN), General Motors (GM), Green Mountain Coffee Roasters (GMCR), NVIDIA (NVDA), and Cisco (CSCO). CSCO is the name I’ll be most focused on given its importance to the tech sector and its recent history of volatile swings around earnings. Shares of CSCO have averaged +/-8.6% over its last 8 earnings announcements, with 4 out of its last 5 moves in excess of 10% absolute. That is some extraordinary volatility for such a large, mature company. ….

Using Thursday’s closing prices, the near at-the-money weekly straddle in CSCO could be purchased for roughly $1.21, suggesting a +/-7% move over the coming week, which seems a little low considering its previous weekly and one-day earnings related moves. Is a long weekly straddle in CSCO ahead of earnings in order?

Weekly Options Research Corner:

As previously mentioned, Yahoo (YHOO) is a name we’ve been playing from a weekly options perspective over the last month or so. Rampant speculation that the company is considering a range of strategic alternatives, including a complete sale, has investors positioning for near-term upside in the name. While speculation this time around feels a bit stronger, we have been down this road, off and on, for the last 4-5 years so forgive me if I’m not rushing out to buy way out of-the-money lottery tickets. However, one strategy that I do like, to take advantage of the elevated volatility and increased buy-out prospects is serially selling weekly put options.

By “serial selling” I mean traders should consider selling the nearest downside weekly put option in YHOO, collecting premium along the way. In the event shares of YHOO closed above the weekly put option strike upon expiration, traders would simply bank the entire premium. Should shares of YHOO finish below the weekly put option strike, traders would be required to purchase shares of YHOO at the strike price (minus the premium collected). So if you like YHOO in the long term, feeling the strategic alternatives being considered will likely push shares higher over the next few months and you are comfortable with the downside of being an equity shareholder, then serially selling YHOO weekly put options over multiple weeks/months will in all likelihood provide a nice combination of premium collection while slowly building a long stock position in instances when the puts are assigned.

Weekly Touch Options Trading:

In addition to our focus on traditional weekly options trading we also like to look at the pricing of weekly touch options on some of the leading online binary options trading platforms. Two platforms of note, Banc de Binary and Anyoption, allow customers to place trades/bets on certain names on the weekend, paying a set return if the selected name finishes above (for call buyers) or below (for put buyers) the specified levels on any day over the coming week. For instance, this past weekend Anyoption offered a 180% return on Bank of America (BAC) if shares finished above $7.86 for call buyers or below $6.69 for put buyers on any day this week. BAC closed Tuesday below the magic $6.69 level yielding weekly touch put options buyers a handsome return.

For this type of trading I prefer to buy both the put and call, especially if I believe the name could face some decent volatility over the coming week. Prior to the late August uptick in market volatility Anyoption was offering 200%+ returns for weekly moves as low as 3%, but as to be expected, the weekly ranges have widen substantially to account for current market conditions. However even with ranges in excess of 8%, Bank of America (BAC) weekly touch options have yielded a profit in 3 out of the last 4 weeks. Anyoption provides weekly touch option trading on the weekend on a few select US equities.

 Anyoption Weekly Touch Options Trading Platform

Banc de Binary is the other weekly touch options trading platform I like to check every weekend to gauge volatility expectations for the coming week. The offered returns on the Banc de Binary platform far exceed that of Anyoption, averaging in excess of 400%, but these returns require the underlying assets to move a further distance to yield a profit. I’ve found success purchasing both the high and low levels in names like Apple (AAPL) and Google (GOOG) when I knew there were company-specific events scheduled for the following week.  Banc de Binary also offers pricing on select indices, currency pairs, and commodities.

Banc de Binary Weekly Touch Options Trading Platform

 

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