HR asked in Business & FinanceInvesting · 8 years ago

Options question for advanced traders?

I've come across this puzzling activity: On a website I use for active options volume I came across this

PFE Nov 19 2011 18.0 Call PFE Call 18.00 343,157 34,072

AEP Nov 19 2011 37.0 Call AEP Call 37.00 115,065 11,372

AEP Nov 19 2011 38.0 Call AEP Call 38.00 53,674 5,923

PFE Nov 19 2011 17.0 Call PFE Call 17.00 46,949 4,681

My question is (both stocks are calls) why would there be such heavy volume for calls at the strike which is below what the current stock is trading? On the options chain the other higher strike prices are no where near as much volume. Why would traders prefer to buy the lower strike on a call volume??

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  • 8 years ago
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    <<<My question is (both stocks are calls) why would there be such heavy volume for calls at the strike which is below what the current stock is trading?>>>

    There is no way to know why another trader made a particular trade.

    <<<Why would traders prefer to buy the lower strike on a call volume??>>>

    There is no way of telling if the trader(s) initiating the transaction(s) were buying or selling. Assuming the other side of the trade was market maker, the market maker would fill the order whether it was a buy order or a sell order, assuming the price was right.

    Even if we assume it was a buy order there could be any number of reasons, including:

    o It was a "buy to close" order to cover a short position already in place.

    o The buyer wanted to hedge a delta negative position and chose the lower strike because it had a higher delta.

    o If it was a speculative buy, and the buyer wanted a higher probability of a profit and was willing to sacrifice some potential gain if the stock moves up more sharply than he expects.

    Large option trades are usually part of a spread, so it is quite dangerous to use speculation on the reason for a trade as a factor in deciding. what trade you want to make.

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