I follow the footprints of big money and will often place my bets alongside them. We often find this is the most telling of future stock movements, and since 80% of all market flows from institutions then it only makes sense to pay attention to these money flows.
Stock volume is clearly the best view of where we see interest, but in addition the option volume offers even more clarity as to shorter term possibilities.
Names come and go on my radar screen, because the charts and technicals force me to be discriminating. I have criteria to follow and when stocks come and go on
Recently we have seen some brisk call buying on Cisco, and not of the normal variety. For Dec and Jan contracts we have seen well above normal 10K or more against very little open interest (expanding open interest basically is a buyer or seller creating supply to meet the demand). We’ll often see good volume over several day, and so far this is the case with Cisco. Heavy buying in calls is bullish into the near future.
So, trying to time the move is the challenge. Do we follow exactly the strikes of big interest, or take another? I generally will go 1-2 strikes lower and perhaps take more time. In this instance, there was brisk call buying on the December 24 and 25 strikes which are out of the money right now, but follow earnings. I chose the December 23 strike, which has some intrinsic value – and if this buyer is right I will still be paid handsomely on these.
Position: Long Dec 23 calls at 1
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Bob Lang has been managing private options trading accounts for clients since 2004 and providing subscribers with guidance on trading options for income at Explosive Options since 2011. Leave a question for Lang below.
