Hello, Profit Takeover team!

I’ve gotta say — I’ve been absolutely blown away by some of your questions so far, so please continue submitting them right here, and I’ll answer a few each Friday!

One week ago, I answered some astute questions on implied volatility (IV), selling to open put options, and other trading topics, and today I’ll be dropping even more knowledge on things like:

  1. Interpreting options lingo
  2. “Reading” an option contract
  3. How to get shares on sale
  4. And more!

Because my goal isn’t to just puke out trading ideas for you to blindly follow — I want to teach you the ins and outs of options and how I hunt those asymmetric returns in my favor

I’m coming up on my 20-year trading anniversary — the first half of which was spent on the actual trading floor in Chicago — and it’s time to put my insider knowledge to work for the little guy (as opposed to THE MAN).

With that in mind, let’s jump right into some of the reader questions I received this week, and then we’ll take a gander at some of the “impact money” I’m seeing in the option pit today.

Q&A with Mark

Our first question comes from Leroy, who is trying to conquer that options jargon and learn how to buy options.

ANSWER: Good news, Leroy! Just last week, I broke down both the basics of call and put buying.

I understand that many of you may be stock traders just starting to dabble in options, so I plan to continue dedicating time to cater to the newbies with regular education.

Meanwhile, Robert had a similar question, asking how to “read” an option.

Answer: Excellent question, Robert. A lot of us veteran traders take for granted that not everyone speaks fluent “option talk.”

Let’s break down the example you provided: RSP June 18, 2021 $145 call.

RSP = This is the ticker symbol. In this case, it stands for the Invesco S&P Equal Weight ETF, an exchange-traded fund.

If you ever want to look up a ticker outside of your trading platform, there are lots of online resources, including Google Finance.

June 18, 2021 = This is the option’s expiration date.

Standard monthly options have been around a long time, and expire on the third Friday of the month.

In recent years, we’ve seen the addition of weekly options, which expire every Friday, and then there are LEAPS — Long-term Equity AnticiPation Securities — that expire each January going a few years out.

$145 call = This is the call strike. By purchasing the $145-strike call, the buyer is essentially betting RSP will move above that level by the June expiration date.

Moving on, Edita asked which strategy to use if your goal was to own the stock.

Answer: Another great question!

While most people I know buy to open call options with the intention of selling them to close for a profit, the contracts DO give the buyer the right to purchase the underlying shares at the strike price within the option’s lifetime.

So, for instance, say you liked Stock XYZ, a pretend crypto play. The stock is at $85, and you think it could shoot to $100 soon… but it’s a volatile stock and you don’t necessarily want to risk buying the shares outright.

You could purchase an at-the-money (ATM) $85-strike call option for $3, we’ll say — or $300, rather, since one option controls 100 shares of the underlying.

Then, if XYZ did, in fact, start making its way to $100, the call would be in the money (ITM) and you could exercise the option, buying 100 shares of XYZ for $85 apiece, or $8,500 total.

Compare that to the $100 a share, or $10,000, that it would cost to buy XYZ on the Street.

On the other hand, if you bought the call and XYZ fell to $75, you’d be out $300 on the call — but compare that to the $1,000 loss you’d be sitting on had you pulled the trigger on purchasing the shares for $8,500 outright.

Our final question comes from Nick, who wants to know what I mean by “the retail side.”

Answer: I love this one.

Nick, “retail side” is basically trader-speak for the little guys.

So when I say I’m hunting for two-factor authentication at the retail and institutional level, I mean I want confirmation from the “blue-collar traders” and the “white-collar traders,” so to speak. The men and women in the trenches AND in the C-suites.

We’ve actually seen an influx of new traders on the retail side since the pandemic, which is why I keep close tabs on places where these individual investors tend to congregate, like Robinhood and Reddit.

Great questions, everyone, and if I didn’t get to yours yet, don’t worry — I have another Q&A installment coming next week! So if you haven’t submitted your questions yet, Ask Me Anything right here.

And now…

I Spy Impact Money

Here’s an unusually large option trade that crossed the tape this morning, pointing to potential institutional-level activity:

Click To Enlarge

Unusual volume on NOK – Courtesy of Trade-Alert

Nokia (NYSE: NOK) is once again attracting notable attention, with the shares topping $5 for the first time since the “meme stock” rally earlier this year, thanks to an upgrade to “overweight” at Morgan Stanley.

It looks like a short-term institutional trader expects NOK’s move above $5 to continue, apparently buying to open nearly 17,000 5-strike calls expiring June 18.

Longer-term traders, on the other hand, expect NOK to more than double heading into 2023, as evidenced by a block of 3,375 10-strike calls expiring in January 2023 also bought to open today.

That’s it for today, Profit Takeover crew, but I’ll be coming to you this weekend with a recap of this week… and what to watch in the week ahead.

Talk to you soon,

Mark Sebastian


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