Options

Return to Article

Options Know-How: Industrial Stocks

TSC Staff

The following are highlighted options insights and ideas from TheStreet.com.

From Mad About Options: Steer Clear of Steel (Video, Oct. 3):

Jud Pyle and Matt Buckley review Jim Cramer's recent bearish comments about U.S. Steel (X Quote) and offer an appropriate options strategy. Pyle and Buckley also offer options ideas for Yamana Gold (AUY Quote) and Jefferies (JEF Quote).

To watch the video, click the player below:

For more information about Mad About Options, visit www.ONN.tv.

From Slump in Railroad Stocks Raises Implied Volatility:

Yesterday's [Oct. 1] move higher in volatility and put volumes in a bevy of diversified industrial stocks -- despite a relatively flat finish for stocks -- continued apace today, with traders seeking defensive positions in transportation names. Adding urgency to the options positioning today is the biggest intraday drop in the value of the S&P Railroad Index in two decades, sending implied volatility in the options of most railroad stocks hurtling toward 52-week highs.

According to live market data from Interactive Brokers, implied volatility in Norfolk Southern (NSC Quote) rose nearly 28% on the session to read 71.7% -- handily a 52-week high and fully a 45% premium to the historic reading on the stock. With shares down 12.6% to $56.84, front-month call premiums are down more than 60%, with what appears to be buying interest in October 65 calls and selling in 55 puts.

Read the full version of Slump in Railroad Stocks Raises Implied Volatility (RealMoney access required).

From Dykstra: Playing by the Rules:

First, my strategy calls for buying deep-in-the-money calls. I [Lenny Dykstra] usually pay a premium of $1 or less to purchase these options contracts. Sometimes it's a little over a dollar, but it doesn't happen all that often. That's a main part of my system and it's part of my ground rules.

I figure out the basic premium by adding together the strike price of the option I am purchasing plus the amount I am going to pay to purchase each contract. From that total, I subtract the price the stock closed at the previous day. When that calculation is done, I should have a premium of less than $1.

Read the full version of Dykstra: Playing by the Rules.

(To learn more about Dykstra's deep-in-the-money calls -- from Dykstra himself -- live on Saturday, Oct. 25, register now for TheStreet.com Investment Conference.)

For more on options, bookmark and visit TheStreet.com's Options/Futures section.