I was all prepared for skx to do its usual nothing today, but there was definitely buying interest all day. the short trade is really over and the emphasis has to be on how to get out of the short side before january when sentiment completely changes. I look for more good trading days to come. Dont the shorts know that this has been a great Xmas selling season?
Weinberg said all along on the q3 conference call that if Xmas season is good there could be surprises to the upside. It sure helps when you are trying to move inventory to have very strong sell throughs at retail which we know to be true.
This is going to be a lot of fun.
According to my chart - sometime in Nov. the Dec 24s were trading as high as 4/4.50.
However the price won't tell you anything about whether it was an open or closing position.
Only OI will do that and the only way I can tell you to watch that is, I guess, at the end of the day, after all trades are tallied, with increase or decrease in OI. Increase would mean more bullish or bearish the sentiment given to any position/strike. Decrease would indicate contracts are being closed.
Price of any given option is determined solely by the volativity/market sentiment/ and time factor.
Does this help?
This is the best I could find for a chart of the Dec $24 puts.
I must admit to not having enough knowledge to do much more than quess, but it looks like these were selling for around $4 in November by the chart (middle of page on left), so maybe someone was closing a position. Guess we can see when the OI shows up later.
Thanks for all the replies from everyone.
Trying not to get too complicated and confusing here.
First premiums are determined by the time factor and volatily of any given stock - that's why say a stock like AAPL will have greater option premiums than a less volative stock. But moving on.
There are two types of sellers of puts (and calls, but we're talking about puts here):
1. the seller of an open position on the purchase - which closes a position - in which case it's no longer reflected in the OI.
2. the seller (writer) of a put
who has an open position until they buy the put back and closes the position - and then also is not counted in OI anymore.
Which side you do is determined by your belief of the stock activity and price. The buyer of a put wants the stock to go down --- the writer (sell) of a put wants the stock to be at the strike price or go up.
OI (dropping) will reflect if positions are being closed or more positions opened. In this (case today, it will be interesting to see if OI declines in which I think would reflect some profit taking on the side of previous put buyers. As well as if someone wrote a put at say 24 - they do not want the stock to be below the price and run the risk of having the shares "put" to them at 24.
The price of the option does have some determining factor (of bullish/bearish sentiment)but it has more to do with the volativy of stock and what the market maker can get given the time factor left. SKX hasn't been so volative lately so even with a week left premiums are pretty much on or near any given strike - but a hot stock can carry some outrageous premiums right into the expiration time - I've seen market markers rape a trade right at the close! Make sense?
That goes back to where I mentioned the price they were going for. If they were cheap, basically with no premium then maybe they know that by OE next Friday those will expire worthless and they just want to sell as many as they can as fast as they can. B
UT, what you said about knowing if OI went up or down or not plays a major role in trying to determine that. If the OI went up on those calls then those would be new ones and then you would want to look at the price they went for. The higher the premium the higher belief in both the seller and buyer that the stock is going down. The lower the premium the higher belief that the stock is going up and that those options have a better chance at being worth less, than worth more come OE. Make sense? I'm asking, not telling.
If the OI was unchanged though or decrease then the positions are closing out which could mean a change in trend, which I believe that woudl be a change from the downtrend to the uptrend.
You are exactly right - say they pay $1.70 for the $24s - anything under $22.30 is a profit (less factoring in any costs) that's the 1 week gamble!
Now, am not sure what you are asking on the other part of your question - but say someone sold (wrote) puts (an open position and technically a naked trade) that means they are agreeing to have the stock PUT to them at the strike price (for which they collected the premium money). So they are betting that the stock won't go under their strike price - IF it does (and they don't cover their position before that happens) they will have 100 shares for each put written assigned to them!
One should read the internet more before asking silly questions. So I went and read after I asked silly questions but for those of you like me that have a lot to learn about options check out this.
I get the buyer of the puts wanting to close them out at a profit if they believe the stock will be up more going into OE. That's common sense.
But who goes and buys them now? The seller of the options? But why would they go and buy them back now if the stock is going to go up going into OE, making them much cheaper next week?
Maybe someone believe's the stock will be pegged at a number for OE next week like it was last month. So say that number is 22 and they paid 1.70 per 24 put, they'd make .30 per contract. If it is 21 then they would make 1.30 per contract. Both cases would be a bearish bet?
My head is starting to spin, but I might learn something today so that's good.