Is there any way we could find out who the counterparty was to these option trades?
It would also be interesting to see the terms of the option trade. There is probably no secondary market for these over the counter calls and pricing would be difficult. Can you imagine the counterparty having to deliver 55+ million shares should Corvex decide to exercise these calls.
The WSJ article today said a trader sold nearly 40,000 of the Jan 2016 12.5 calls this morning at the bid price of 0.30
Although not entirely clear, the article implied that this was a sell to open trade, meaning the trader was bearish on ARCP.
I find it hard to believe that someone would do this as a bearish trade. Too much risk for such a small profit.
But we will know tomorrow morning. If the open interest is over 60k, then it was a STO. Around 40k means a STC.
Take a look at an expanded chart for USO during the 2008-2009 decline. The comparison between then and now is interesting.
The peaks were on 7-11-2008 and 6-20-2014
The earlier decline formed a H&S bottom. The first shoulder low was on 12-26-2008.and the second shoulder low on 4-21-2009, 4 months apart.
Maybe this will play out with a similar scenario.
Did you notice the large trade of the Jan 2016, 12.5 calls on Friday? If that was a buy to open trade, the open interest would now be over 60k for that one option. Someone is making a large bet that ARCP is going to have a big recovery in 2015.
This is from the VelocityShares site regarding UWTI
"The ETNs are only suitable for knowledgeable investors seeking daily exposure (including inverse or leveraged exposure) to the underlying index. The ETNs are intended for short-term trading, therefore investors with a horizon longer than one day trading should carefully consider whether the ETNs are appropriate for their investment portfolio.
Because the inverse leveraged ETNs and leveraged long ETNs are linked to the daily performance of the applicable underlying Index and include either inverse and/or leveraged exposure, changes in the market price of the underlying futures will have a greater likelihood of causing such ETNs to be worth zero than if such ETNs were not linked to the inverse or leveraged return of the applicable underlying Index."
Because of contango, this will be in a continuous state of decline should the price of oil remain the same. This is only intended for short term trading.
Looks like a descending triangle with a baseline at 20.53
The breakout, either up or down should occur soon. It usually happens before the apex is reached which is due around Dec 31.
Being an ETN, it has a higher risk of becoming insolvent than USO which is an ETF. Also, being 3X, it will be subject to extreme contango. Some of these ETN/ETF have stated in their prospectus that they will close if the share price drops below a certain level. Not sure if UWTI is one of them. However, this could be a better bet than just buying a call in USO, which would be subject to an expiration date. I recently bought some Jan2016 call spreads in USO. I will consider buying some UWTI if it drops below 5. Money spent on UWTI should be considered the same as money you would risk at your local casino.
The rally on Friday of last week was probably caused by the short covering and the MaxPain being 25.
The MaxPain calculated for this week as of today is 21.50 which is essentially the same as today's closing price. I have not had the chance to study the effect of MaxPain on the price of USO, but I would expect it's influence would be less than for a conventional stock such as AAPL.
The time premium portion of an option is always at it's highest value at the strike which is nearest to the current share price. OTM (out of the money) calls are cheaper because of the higher probability that these calls will expire worthless than an ATM (at the money) call. The buyer of an ITM (in the money) call will have two risks: 1) losing intrinsic value should the share price drop and 2) losing the time premium portion of the call. This is why the time premium portion for an ITM call is less than for an ATM call. Notice that the time premium portion for the July 19 calls is essentially the same as the time premium for the July 25 calls.
Dennis Gartman was on CNBC today. He had been calling for oil in the 40s but today he said we may have seen the bottom based on this weeks price action.
The MaxPain for this week's USO options exp is 25. This has probably provided an upward bias for the share price.
It looks like a possible double bottom being formed.
Six years ago when oil peaked around 150, the experts were predicting it to go even higher by 30%.
Today, they are predicting oil to go even lower by 30%.
Are you doing call spreads? Longer term call spreads would reduce the drawdown should oil continue it's decline.
A lot of traders are still playing USO short but also do not want to get caught on the wrong side of a major reversal. Did you notice that Tuesday's low was 20.53 and today's low so far is 20.54. They are now watching to see if it breaks below 20.53 before adding to their short positions.
Every day has been lower highs and lower lows. If it can stay above yesterday's low, buyers should start coming in.
It best to scale into your long position.
The trend has been lower highs and lower lows for awhile. If at least one of these can reverse, it may give traders some confidence to start accumulating a long position. With today's new low, a close above 22 may do it.
I am thinking of doing a 3 way call spread. With UVXY around 28.75, sell March 30 call, buy March 29 call, sell March 50 call for a net credit of around 5.00
At exp, profit would be 6.00 with UVXY between 30-50. Profit would be 5.00 with UVXY under 29. Breakeven with UVXY at 56. Loss would begin with UVXY above 56.