Options Know-How: Continental, Microsoft - TheStreet

How much do you know about playing the stock market with options?

The following are highlighted options insights and ideas from

TheStreet.com

.

From

The Influence of Option Expiration

:

First, I'd say the impact of option expiration is overblown, as it is akin to the tail wagging the dog. That is, it would take large open interest of a near-the-money strike, let's say share equivalent of 25% of the underlying stock's daily average strike, to override the prevailing news or influence price movement.

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As far pinning goes, yes, strike prices with large open interest can act like a magnet, but remember, the force can be either attraction or repulsion. Much depends on recent trading patterns. In a low-volatility environment, you might see more gravitational pull or pinning.

In a high-volatility environment, such as the large daily price swings we recently witnessed, there might be the opposite, as traders need to defend positions. So, as a stock moves through one strike, those short options need to hedge and will buy or sell stock accordingly, which will exacerbate the price move and push the stock toward the next strike.

Here is how the dynamics might play out in actual equity options:

Imagine I'm long five $17.50 calls in XYZ. As the stock rises above the strike, I can look to take a profit either by selling the stock in an attempt to lock in a small profit, or by simply closing the position by selling out the calls. In both cases, this creates selling pressure and drives the shares back toward the $17.50 strike price. If I sell out the calls, they are bought by someone else, who now in turn might short shares of XYZ.

This plays out on both the put side and the call side. The larger the open interest at the strike, the greater the magnetic pull. Most of this trading is done by market makers using their long gamma inventory as a way to scalp a few dollars on expiration day.

Read the full article.

Prepare for Continental Shares to Lose Altitude (Video, Aug. 12)

Find out why options expert Steve Smith thinks the airline sector's oil-related rally may be limited, and hear his suggestions for how to play

Continental

(CAL) - Get Report

.

To watch the video, click the player below:

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From

Dykstra: The Cost of Nailing It

:

Some readers have asked how much money is necessary to execute my DITM

deep-in-the-money strategy. There is no easy answer: There are a number of variables to consider and everyone's circumstances are different. But I can give a rough sense of what to expect.

In a recent update in my newsletter, I told subscribers to buy January $20 calls (MQFAD) of

Microsoft

(MSFT) - Get Report

. I told readers to place their order paying $6.60 or better, so that means it required an initial investment of $6,600.

How did I reach that number? Well, in nearly every one of my columns I suggest placing an order for 10 contracts. Each contract essentially controls 100 shares of the common stock of the company. I seek to control 1,000 shares of the common stock at the start of every one of my picks.

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Regarding Microsoft, I would consider this type of pick a layup. We had one initial outlay of cash and no rebuys. It stayed in play a short amount of time, and turned out well.

Read the full article.

From

Dykstra: How to Fix a Bad Options Trade

:

I don't want people to follow my picks blindly. If you get the basics of the system, you are a lot less likely to make rookie mistakes. I have gotten a handful of questions in the last month regarding easily avoidable mistakes.

Many of them are from people who bought the wrong option. I typically go out four to seven or eight months out with most of my picks. However, lately I have peppered in some longer calls in there, going out to 2010.

This has caused confusion with some readers who inadvertently placed the order for an option contract with the same strike price, same month and same price. But they got the year wrong. This could have been easily avoided by checking the call letters and double-checking to make sure the order price is in the same realm as the current bid. It comes down to the details.

Read the full article.

Mad About Options: Feeling Out Freeport-McMoRan (Video, Aug. 14)

Jud Pyle and Matt Buckley review Jim Cramer's recent bearish comments about

Freeport-McMoRan

(FCX) - Get Report

and offer an options strategy for traders and investors. The Mad About Options crew also breaks down options ideas for

General Motors

(GM) - Get Report

and

Hudson City Bancorp

(HCBK)

.

To watch the video, click the player below:

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Plus, don't miss these recent options strategies on

TheStreet.com TV:

Mad About Options: RIM's a 3G Win

(Aug. 13) and

Mad About Options: Coca-Cola KO'd

(Aug. 12).

For more information about Mad About Options, visit

www.ONN.tv

.

To stay up to date on options, bookmark and visit

TheStreet.com's

Options/Futures section

.

This article was written by a staff member of TheStreet.com.