This MB has seen two sorts of commentary on the large number of January calls. One line is that it represents trapped shorts looking to get out. The other line is that it is the result of retail buying due to being successfully conned by MMs and that the calls will expire worthless. Of course, these possibilities are not mutually exclusive. Serious discussion is appreciated.
One point that I haven't seen brought up is the fact that Jan options are always available as LEAPS sooner than the more current options. I don't know how many of these options were sold many months ago, but just look at the Jan 14 and 15 options...there's already thousands of open positions on these. The key to the Jan12 10's, I think is the expiry...I think the vested interests will try their best to keep it under 10 at expiry, but may let it spike above it before expiration, so it would be wise to unload those if we get a good pop on scheduling or other good news.
Smart shorts, big money hedgefunds, who already are in the green by trading the ups and downs the last 5 months and is betting on the January calls, have already started covering and making money on their calls as evidenced by this last friday.
They'll cover to get the prices up above $14, that's were the real money is. After that they'll look for another company to screw and drive into the ground.
Dumb shorts, retail and small hedge funds who bet the house (who were so convinced Arena was going bankrupt prior to ADCOM and shorted under $2.50) will be forced to cover by margin calls or die.
MM's could care less, this is peanuts and most of the options will be in the money.
See u at $14+ on January 18th.
Sentiment: Strong Buy
It could simply be a hedge on a large short position, just in case they get a DEA or EU ruling that causes the stock to spike. It is notable because of the extremely large open interest, especially at the $10 strike price. The January call option is the one big one that stands out from all other strike prices and all other months.
It will be interesting to watch for sure. Remember though, 80% of all options expire worthless.
The mythical "trapped shorts" can get out right now at 9.18. Why would they pay 50 cents for a January 10 call, which is, in effect, getting out at 10.50? There are over 59,000 of these January10 call contracts outstanding, representing almost 6,000,000 shares under contract. This represents a huge bet against the house - the MM's who make their living selling these things. (These are the folks who are responsible for the endless flogging of the ridiculous notion of "trapped shorts" here. An idea which is silly to anyone with even a modicum of knowledge.) The huge position in these calls (not just at 10, but at 9, 11, 12 ..) is in itself a guarantee that they will expire worthless. Say that the stock, against all the MM's expectations, made it to 11.50 before expiration. The options holders have now apparently made 50 cents on a 50 cent investment ...but only until January 13. As they take their profits, they automatically drive the price of the stock down as the MM's unwind their covering postions. The profit is made in selling a call which you know will never pay off.
The real money, of course, has been made in peddling the 9 calls. This stock, if I recall correctly, has been walked through 9 at least 12 times over the past two months. Yet, on only one occasion did the holders of the 9 calls finish in the money ... by 15 cents. (I am doing this from memory, but I will check it.) Most of the holders of these calls, of course, paid more than 15 cents for them. This is a sucker's game, just like the lottery, and the only thing that keeps it going is that the price of a ticket is cheap. You lose a couple of hundred bucks and, a month later, sign up for more.
Correction: At 11.50, you have made 1.00 on your .50 investment. The point is the same: Over the past several months, the MM's who sell these calls have made millions. Unless you traded in and out quickly, taking advantage of 5 cent movements in the price of these options, the retail investor always lost money.