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Options Know-How: PMI, AT&T

TSC Staff

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

From Option Traders See a Bottom in PMI Group:

Earnings carnage continued in the insurance segment today, with PMI Group (PMI Quote) reporting lower profits and hits on its investment portfolio. Early data from TradeAlerts suggests that 95% of the option activity in the country's second-largest mortgage insurer weighs in on the bullish end of the sale, with buying interest at the December 5.0 call strike at 35 cents per contract propelling volume to 14 times the normal level. This may simply be an indication of a hard-won bottom for a stock that has lost more than three-quarters of its value this year.

Read the full version of Option Traders See a Bottom in PMI Group (RealMoney access required).

Jud Pyle (Mad About Options, ONN.tv):

Straddles for Sale. The S&P 500 Index (SPX) is trading more than 3% higher today [midday Nov. 4] to challenge the 1,000 level. Meanwhile, the CBOE Market Volatility Index (VIX) is down almost 15%, breaking below the 50% threshold to 45.66%.

Yesterday, with the SPX trading at the 960 mark, the December 950 straddle was trading at $140. Additional straddle selling has occurred today; the spread is going off at $124.50 versus the 995 level for S&P December 2008 futures.

In other words, the market has moved 35 points and the straddle has lost $15.50 in value. This is not how option straddles typically work. This is volatility dropping hard as the market rallies. Yesterday's volatility level in the straddle equated to 52%. Today's volatility has slid to 42.6%.

Mad About Options: AT&T Update (Video, Nov. 4)

The Mad About Options team of Jud Pyle and Matt Buckley take a look back at Jim Cramer's comments about AT&T (T Quote) and how their related options trades performed versus the stock trades.

To watch the video, click the player below:

Plus, don't miss these recent options videos on TheStreet.com TV: Mad About Options: Weyerhaeuser's Roots Will Hold (Nov. 4), Mad About Options: Cubist Pharma (Nov. 3) and Mad About Options: Reviewing Apache (Nov. 1).

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

From Volatility-Selling Continues:

Earlier in the session [Nov. 3] I [Rebecca Darst] noted a tendency among option traders -- perhaps tapping their toes and twiddling their thumbs at the lack of firm directional activity in the options market -- to sell volatility wherever possible. Another example of that kind of thinking surfaced late in the trading session in shares of the Internet HOLDRs Trust (HHH Quote)... implied volatility in its options is sitting steady at a 21-percentage-point premium to the historic reading on the stock price -- a premium that has remained fairly constant for the past month. Option traders have finally opted to sell that volatility via the January 35 straddle, taking a rich $7 credit...

Read the full version of Volatility-Selling Continues (RealMoney access required).

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