NEW YORK ( TheStreet) -- Andrew Keene, of Keene on the Market, was with TheStreet's Lindsey Bell, discussing his new book on trading options.
Keene, who was a market maker in Chicago for 11 years, now trades on a computer away from the floor, just like most traders these days. His book is tailored to help individuals go from beginner to a one-man hedge fund, as he did.
He said that he essentially uses two strategies: unusual options activity and earnings plays. The second strategy is more obvious, where Keene uses an array of options -- such as calendar spreads, condors, call-and-put butterflies, etc. -- to pick his moves ahead of a company's earnings announcement.
The other strategy investigates whether options activity is unusual, typically based on of the size of the order.For instance, when large orders flow into the market, Keene seeks to decipher which institution or big-money player is making them. He watches roughly 2,000 of these trades placed each day, and acts on about five. He mentioned two of these recent trades, Mosaic (MOS) and American Eagle Outfitters (AEO), which have generated between 500% and 600% returns. Although many tips can be found in his book, Keene on the Market, he said that traders could take the at-the-money call price and add it to the at-the-money put price for earnings plays. The combined price is the implied move that the market expects the stock to make after results are reported. -- Written by Bret Kenwell in Petoskey, Mich. Follow @BretKenwell
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
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV