Options Trading News: A New Elections Option Trading Market?

Options Trading on Election Outcomes

(CNN)

The North American Derivatives Exchange (Nadex), a small trading exchange in Chicago, has recently asked federal regulators for permission to sell options that are tied to the outcome of various 2012 elections in the US – elections that include the US presidency and control of the US Senate and House of Representatives.

Options trading on the US elections would work like this: A trader buys an option on Former Massachusetts Gov. Mitt Romney winning the presidency for $45 and if he wins, the trader gets $100 or a profit of $55. On the other hand and if Romney looses the election, the trader would get nothing.

Traders would also be able to sell their options before the election. In other words, if a trader buys a Newt Gingrich or Ron Paul option for $10 and it moves to $15, the option could be sold for a profit.

However, it should be noted that there is already a limited options trading market for the US elections run by the University of Iowa’s business school and known as the Iowa Electronic Markets where betting is capped at $500. (but anyone can wager).

On the other hand, the proposed Nadex election options trading market would be different as there would be a $100 minimum, no maximum and a fee of 90 cents per transaction. In addition, their elections market would be subject to federal regulation.

Nevertheless, Nadex still needs to win approval from the Commodity Futures Trading Commission (CFTC) and one of its five commissioners is already opposed to the idea because he thinks its “political poker.”

It should be noted that the recent Dodd-Frank financial regulations passed by Congress forbids US futures that are based on war, terrorism or unlawful activity. However, there is nothing in the law that forbids futures based on elections.

Options Trading “Fear Gauge”: Calm Before the Storm?

(Wall Street Journal)

The so-called “fear gauge” shows a relative calm at the end of 2011 but as 2012 begins, options trading investors should not be at all surprised if fear and anxiety suddenly reappear.

Specifically, the Chicago Board Options Exchange’s volatility index or VIX was at a five month low right before Christmas – closing at 20.73 after starting the week at 25.1. This sudden fall took many observers by surprise.

Even as investor anxiety has eased before the holidays, Europe’s debt problems along with worries over global growth remain. This suggests that the VIX’s sudden drop has more to do with seasonal factors such as thin volume along with the usually strong December performance rather than actual anxiety and fear falling.

Moreover, January VIX futures are priced around 25 while August VIX futures are priced at 29 – meaning that options trading investors are preparing for another bumpy wide next year.

Otherwise, it should be remembered that the VIX surged near 50 over the summer when stocks became particularly volatile and it topped out at 90 during the height of the 2008 financial crises.

In addition, trading volume has substantially slowed in December – making some investors cautious going into 2012.

Options Trading Ideas: Going Bearish on Cheesecake Factory (CAKE)

(Schaeffers Investment Research)

Earlier in the week, the Cheesecake Factory (CAKE) saw a significant increase in put options trading activity with trading reflecting at least 11 times the equity’s expected intraday volume. Moreover, much of the options trading activity was centered around the January 2012 28 and February 28 strike prices.

Otherwise, it should be noted that CAKE’s 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE) and NASDAQ OMX PHLX (PHLX) put/call trading volume ratio stood at 6.83 – meaning that the puts bought have outnumbered calls by nearly seven to one over the past few weeks. This means that traders have been buying up bearish put options over bullish call options at a much faster-than-usual clip.

Options Trading Ideas: Getting Bullish on the Las Vegas Sands (LVS)

(Forbes)

Right before Christmas, one options trading investor went bullish on Las Vegas Sands (LVS) call options – betting that shares in the casino resort stock will rally sharply during the first few months of 2012.

Specifically, the options trading investor got positioned for big gains next year by purchasing a bull call spread by buying 2,000 calls at the Feb. 2012 $46 strike and then selling the same number of calls at the Feb. 2012 $50 strike for a net premium of $1.05 per contract. The investors will profit should shares of Las Vegas Sands (LVS) rise from the $43 level to a breakeven price of $47.05 at expiration.

Moreover and should Las Vegas Sands (LVS) shares jump 15.6% to settle above $50.00 at expiration in February, the investor will earn a maximum of $2.95 per contract. Otherwise, it should be noted that Las Vegas Sands (LVS) last traded above $50 on September 21 and have not closed above the $50.00 level since February 3, 2011.

Traders Slash Net Long Options Trading Positions in Precious Metals

(Forbes)

After the steep drop in metals prices across the board in mid-December, options trading speculators significantly lowered their net long positions in futures and options on the Comex division of the New York Mercantile Exchange as well as on the Nymex. In fact, options trading speculators’ positions are also the smallest in a few years for both gold and silver.

Category: Options Trading