We are suposed to see a PR abount the earnings
call next week today, if no PR by 5:00 PM est,
there is a very good chance the deal will be done
by this weekend, the stock action sure is indicating
that way. We need 4+ million trading volume and
close up $2 to confirm it.
A simple rule that I keep in mind is that OI is increased if more options are opened than closed (and vice versa} on any particular day.
OI = Options Opened - Options Closed.
For example, if a buyer opened 3000 calls on the same day that another another buyer closed 1000 calls at the same strike then the OI would be increased by 2000 on that day.
Also be sure to remember that volume has nothing to do with open interest.
1) The impact on OI is determined soley by the seller, not the buyer. If the seller is selling an existing long position, OI does not change. If the seller is opening a short position, OI increases by the number of contracts sold.
2) See 1) above.
3) See 1) above.
4) Yes. To the extent that an option contract is exercised prior to expiration, OI decreases by one contract.
Lind, Thanks for trying to explain how OI is impacted. OK that would be the option writer side (collecting premium) either on calls or puts. What happens on the other side where the trader buys a call or put?
In other wards how is the OI impacted when:
1) The number of calls or puts bought (2,000) is less than the current OI?
2) The number of calls or puts bought (2,000) is greater than the current OI?
3) The number of calls or puts sold (traded) for a gain or loss is less than the current OI?
4) Does exercising a contract before expiration impact the OI?
Info., when you sell contracts in any option (put or call) to "Open," you are always adding that number of contracts to the open interest in that particular contract. Once you have an open "short position" in such contract, you can always buy those contracts back to "Close" that position. When you buy to Close, you are always reducing the open interest in that particular contract by the number of contracts you bought to close. It has nothing to do with exercising those contracts.
Lind, No arguments here. I could not have said it better myself. Fridays unsourced rumor was just a little preamble to this coming week.
A few more positive points to make on BIG:
David Simon the arb on CNBC Friday mentioned that the auction for BIG could be very interesting and draw alot of PE interest. BIG is an easier business to lever up. David also worked on the LBO for BIG many years ago which was then called Consolidated Stores.
The fact that the dollar stores have been selling and starting to expand food items helps there sales growth and makes them more competitive against Walmart, etc.
Higher gasoline prices at the pump especially for a prolonged period of time will help the dollar stores sales. As we all know gasoline prices have never been higher in the month of January and February so BIG's 4th quarter ended in January. Any future guidance would include February forward high gasoline price trends.
If BIG does confirm the auction, they will not issue any future earnings guidance.
Bullwinkle60061, I agree based on Friday's OI that the four 2,000 contract blocks across said strikes were new positions. It is conceivable that some of those contracts were traded on Friday and not exercised especailly the MAR $45 calls which had the highest volumes and ROI.
MAR 45.00 calls 2k contracts @ .50 price high .80 a 60% ROI
contract vol. was 1,146 contracts
The remaining contracts could be held in anticipation of more stock price movement next week up to and including the earnings report release.
Bullwinkle60061, My theory is that Friday we saw volumes across said strikes that may have represented partial activity. My definition of activity would be to trade the contracts (buy low then sell higher), not exercise them to obtain control of the underlying stock. Correct me if I am wrong. I think when you say "closed" you are referring to exercising the contracts which would reduce the OI numbers?
Boys, boys, boys...I think you are over complicating things. I think there was single buyer in all four contracts, and that that buyer was merely making a bet that the eanings release would result in a binary outcome. 1) Confirmation of and details relating to the auction: BIG shares get a nice pop. 2) Silence regarding the auction and/or an earning's miss: BIG shares give back a chunk to the speculative premium with which they are presently trading. Seems like a reasonable and ver straight forward bet.