Exposing Ideas to the Envelope of Serendipity

Contact moo at: bluechipbulldog@gmail.com

Thursday, January 24, 2013

The "Icahn" of the Day

Mr. Icahn bought 10% of NFLX at about $58

By measuring your risk exactly, in other words - matching what you otherwise would choose to accept as a loss in dollar terms as your total money at risk, one may become very wealthy with just a few well placed trades. In the past month or so, I have taken on the study and execution of trading weekly options. By analyzing the front weekly option prices for NFLX, both on the call and put side, I could see the market was "expecting" a sizable move - over $120 or perhaps under $80. Additionally, call traffic was significantly higher. A quick study of past recent earnings reports shows that moves greater than 20% are frequent. Finally, the demand for calls can be measured in an absolute sense by looking at the ratio between open volume and OI (open interest). Collectively, these observations expose the potential of "smart-money" activities, and by looking at options as literally indicators, it is possible to create heuristics that enable one to identify profitable opportunities. I'll write more on this as I develop a trading plan that addresses specifically these ideas into a cohesive plan. 

This comment is true, but only if NFLX were not subsequently "in-the-money" - a trade I took and is yielding about 26 times the committed capital on the call side of the trade.

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