A Breakthrough in Trading Methodology
You know that regulatory agencies routinely examine option trading that took place in specific stocks before takeovers were announced. They are looking for people who acted on “inside information,” bought calls and reaped big profits when the deals were made public.
Our new service grew from a 10-year study of option behavior. Occasionally, a stock and its underlying options will act out of sync with each other. This happens for good reason. For example, on November 17, ‘06, Phelps Dodge is trading at $94.23, down 65 cents on the session. Its December 105 calls, however, are quoted at $1.58, up from $1.20 at the prior close. Very unusual to see these calls up substantially with the stock down on the day. (And no news). A further clue that something was going on came from the pricing of those options whose theoretical value was only $1.16, so the $1.58 price was a 36% overvaluation.
The next trading day, Monday, November 20th, Phelps Dodge opened at $122.90 on a takeover bid from Freeport/McMoran (FCX). The reason for the anomalous option movement and pricing was now clear.
We call this case history Option Mystery 11. (Eleven others are discussed in the section titled 12 Option Mysteries.) The common denominator is that they are all revealed by option anomalies.
The questions immediately arise: can we detect these rare events? Can we interpret them to make smarter trades. Yes; and yes.
Bottom line:
6.4 million options trade every day. Only a handful of these trades are peculiar. The anomalous trades can be fleeting and hard to detect. They can also be very valuable because they possibly reveal the hand of the proverbial “smart money.” That’s the essence of Shartsis Option Alerts.
--
Warnings and Disclaimers
Options are not suitable for all investors, and investing in options carries substantial risk, including loss of your total principal. Individuals should not enter into option transactions until they have read and understood the risk disclosure
document entitled "Characteristics and Risks of Standardized Options", Options are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of
Characteristics and Risks of Standardized Options published by the Options Clearing Corporation. If you would like a copy of the current Risk Disclosure Document, please contact Dan Morgan at the below address.
80 Broad St. 26th Fl. New York, N.Y. 10004 or call 212-293-9000
R.F. Lafferty & Co., Inc. is a member of SIPC, FINRA, NYSE.
Privacy Policy - LINK
BCP Plan - LINK
Testimonials are individual experiences only and are not representative of all clients. Past experience is not indicative of future performance and/or success.
Past performance and events are not indicative of future events or performance. The signals from the “trading alert system” may limit possible gains depending on strategies engaged. The trading alert system may not protect against significant losses and may have adverse tax consequences.