It's been a quiet week of trading so far, with the S&P 500 gaining just 0.15 points Monday, about 4 points yesterday, and indicated a few points higher early-Wednesday. Options volumes have been relatively light with 14.5 million contracts traded yesterday, which is a bit below the 15.4 million daily average of the past month. Yet with the November expiration a few days away we will likely see an increase in volume, driven by rolling activity.
A roll is simply an adjustment in which the investor is closing out one position and opening another in a different options contract. A roll can be up or down strike prices or to a different expiration month. Near expiration, positions are often rolled to salvage time value of an out-of-the-money or to avoid exercise/assignment on an in-the-money contract. The investor covers a position in the expiring contract and opens a new one in a later month. Let's take a look at a few examples that have already surfaced this week.
iShares China Fund (FXI) was trading around $36.50 Monday and a November 37 - December 38 call spread was bought on the exchange-traded fund for $0.25, 61400X. The investor sold November, bought December, and probably rolled a position out one month and up one strike price. Buyers of November 37 calls on FXI were active last month, including a rather substantial block for $0.35 on October 10. The trade seemed to be working out well until elections in the US and China took the wind out of China's equity markets. FXI suffered a three day 4% slide. Now, by rolling to massive block of December 38 calls, for $0.48 per contract, the investor seems to express confidence that the rally in China's equity markets will resume. There's now 103K in open interest at that line, which is the largest block of OI in the product.
Marathon Oil (MRO) was trading for about $30.40 Monday when a November 30 - December 29 put spread trades on the stock at $0.30, 41500X. The investor bought November, sold December, and probably rolled a position opened on 10/17 when November 30 puts traded at $0.49 per contract. Shares are holding above near $30, and the investor is covering the at-the-money puts for $0.26, while opening a new position in the December 29 puts at $0.56 per contract. If so, the put write in the December term seems to express confidence in the oil refiner.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas