Stocks vs. Options: Which generates better returns?
Plug in your stock idea to find options trades offering a potentially better ROI.
NEW TO OPTIONS?
Visit our New to Options page to learn more.
Find out more »
you're watching:
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.
Call trading picks up in CIT Group and Hasbro, as market volatility continues
Congratulations Saints Fans! The Mardi Gras celebration has started early! The markets are mixed this morning, however, as traders may be groggy at their desks following the big game. Let’s look at What’s Hot for February 8th . I’m Steve Claussen, Chief Investment Strategist at OptionsHouse.
The CBOE Market Volatility Index (VIX) is slightly higher this morning as traders seem anxious and unsure whether the recovery late Friday will hold. The index’s current reading above 26% does indicate the expected move in the markets will be more than 1.6% daily in the S&P 500 Index (or 17 points per day), so hold on.
Near the top of the OptionsHouse Hotlist today is CIT Group (NYSE: CIT). The stock is up almost 4% after John Thain was elected as CEO. Thain, as you probably remember, was most recently the CEO of Merrill Lynch during the distressed sale of the firm to Bank of America (NYSE: BAC). Thain was then vilified for accelerating bonus payments to Merrill employees and especially for his extravagant renovations to his office bathroom.
CIT options have traded 20,000 contracts with the majority coming in the July 32 calls. 12,000 calls have traded here, with both large institutional buyers and sellers of this line. The verdict on Thain’s real impact is yet to be known, but a purchase of an at-the-money call theoretically gives the holder unlimited upside to the stock while limiting the risk to 100% of the $4.85 premium paid.
Also on the hotlist today is Hasbro (NYSE: HAS)! The toymaker is sharply higher on the back of earnings numbers of $1.09 per share, beating estimates by 28 cents! The company has been buying back stock since June of 2005, which may have had a positive impact on those numbers. The same earnings divided by fewer shares outstanding equals a higher earnings per share.
Today we are seeing the usual contraction of implied volatility levels in the front-month options, but interestingly 1,200 of the far out-of-the-money, April 40 calls have traded on the offer, indicating buyers. Even after the 13% rise today, these options remain 15% out-of-the-money, so this buying interest to me clearly indicates an aggressive move higher is expected.
If the shares fail to gain another five dollars, the premium paid will be lost, however the holder of these teeny calls has unlimited upside beyond the 40 strike.
