Many traders think of calendar spreads (or time spreads) as “theta plays,” or strategies benefiting from the passage of time. This idea is an oversimplification at best. Time spreads are complex option trading strategies involving several independent influences on an option’s price including time, implied volatility, and direction.
While these spreads have a lot going on, the ultimate success or failure of time spreads is a function of the relationship of the underlying stock price to the strike price at the expiration of the short-term option. Time spreads are trading strategies that can offer an interesting alternative to a more traditional directional play. Let’s look at an example of one of these relatively advanced option trading strategies. Note that the tickers used are for the purpose of illustration only and do not constitute trading recommendations. Prices are hypothetical. (more…)
Dow component Exxon Mobil (NYSE:XOM) saw some unusual option activity Tuesday as some option investors appear to have sold January 2012 80 calls (expiring in just under a year) and bought January 2013 90 calls (expiring in just under two years). Wednesday morning’s open-interest translations suggest the 2013 calls traded to open (open interest rose from 473 contracts to nearly 17,000) the picture of the 2012 80 strike suggests that these were likely sold to close.
After months and months in the red ink, Abercrombie & Fitch (NYSE:ANF) has shown a marked improvement in its recent sales numbers. Same-store sales grew by 22% (year over year) in December, easily topping estimates. Monthly sales numbers have been positive during the last six months after sinking dramatically each month between January 2009 and January 2010.
Video-game developer and distributor Electronic Arts (NASDAQ:ERTS) followed the rest of the market lower on Tuesday, dipping 3.6% to approach a six-month low by the closing bell. In the past year, the stock has underperformed the broader market indices, giving back about 14%.
Research in Motion Limited (NASDAQ:RIMM) has earned some interesting and enigmatic reviews over the past few days. On the bullish front, Goldman Sachs increased its fiscal year 2012 and 2013 earnings estimates for the BlackBerry parent. The brokerage believes increased sales of tablet-style devices should help sales growth. One caveat to this seemingly bullish adjustment, however, is that Goldman kept its target at $50 (representing modest downside from current levels).
 Steel.jpg "Nucor (NUE) options activity")
Iron and steel mining name Nucor (NYSE:NUE) has settled into a trading range of late, bouncing back and forth between the 35 and 40 levels since early July. Judging from some volume in the Nucor options pit Monday, it looks as though a large-scale investor may be targeting a breakout from this range but not until several weeks in the future.
Although Warren Buffet is a “
Deere & Co. (NYSE:DE) recently abandoned a nice uptrend that had taken the shares to a new closing high on August 9. This uptrend, driven in part by strength in the overall agriculture sector as Russia experienced a drought, came to a screeching halt as the broader market spun on its heels.
