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What's Hot!
OptionsHouse investment specialists Steve Claussen and George Ruhana give you a look at what's hot in the world of options. Get the inside scoop on which options are the hottest, and which ones are beginning to cool down.
Notable options activity in DR Horton (DHI) and Dell (DELL)
Options traders! As we head into the last two hours of expiration day, the market is once again trying to recoup early losses.
Again the markets took an early hit, extending the weakness from Thursday. There hasn’t been a ton of short activity pressing the selling! The 1085 level is the next significant technical support zone for the S&P 500 Index (SPX) and that looks to be holding. The dollar is up slightly, energy is weaker, and we seem to be getting one of those quiet boring expiration days. Meanwhile, the CBOE Market Volatility Index (VIX) is unchanged! If the market continues its recovery, I wouldn’t be surprised if this implied volatility measure heads back south.
On the Hotlist today is Dell Computer (DELL). The stock announced earnings last night that some are blaming for the negative start. The computer company missed on the earnings line by a nickel and the stock has shaved 10% off of its value.
The options action is leading the Hotlist with 164,000 contracts trading. And interestingly, the call volume is dominating. I am seeing 10,000 of the Dec 15 calls trading, possibly looking for a holiday bounce in here. The risk to a long call is all of the premium paid, while the possible reward is theoretically unlimited above strike.
Also on the Hotlist – one of the largest U.S. homebuilders, D R Horton (DHI). The company reported a loss of 73 cents a share and a 10% miss on the revenue line. The stock is off by more than 14% and the options have traded almost 60,000 contracts. I am seeing a strangle sale in here, specifically the December 11-13 strangle being sold at 80 cents, early in the day when the stock was trading at $11.35.
The risk to a short strangle is unlimited outside of those breakevens of 10.20 to the downside and 13.80 to the upside. The short strangle is traded when you think the stock will remain in a range, as the reward is keeping the premium received if the stock stays between the short put and call. Something DR Horton hasn’t done already!
