The Stock Market - A daily diary

Yes Rush! WMT will be my next buy for all of the reasons you mention. One thing I have noticed over the past 8 weeks is that WMT is moving inversely to the overall market 80% of the time. I find this a very interesting development. On the 5% down day, WMT was up slightly. When the market has moved higher, it has generally gone lower. 

I would prefer to see WMT correlate more directly to the markets on big down days before I move in. I'm not necessarily waiting on a specific target price, especially one as low as $100, but I would like to see the inverse correlation begin to normalize into more typical movements with the markets. I think that day is coming, and that will be the day I move in. 

concave,

I think you might not be seeing things correctly. Any time I see something that does not make sense the first thing I do is look at the bid/ask and see if that is way out of wack from the current price. What you likely saw was a trade and in that block size its likely a short call trade meaning uncovered just to take in the premium and since it was at such a high price and far away from the stock price then it could have been a last sale done LONG LONG ago. 

To me I will keep it simple for you...in options pricing there are only a few variables...the price is based on the length of time to expiration, the beta of the stock AND the beta of the market and then the distance from the stock price... I understand all that stuff posted above but you really do not need to input ten pages of data to black scholes to get your answer, its much more simple than doing that.

So go back to the stock and that option chain and look at the current bid/ask, then if you really want to get fancy get the option symbol and enter it and some brokers will show a chart of an options symbol and you can see how the contract has traded over time and with only one month left to expiry per your post and it being so far out, that is not a current bid/ask.

The link below may be of some help. It is the simplest one I could find.  This can lead you to more advanced reading/study ignore you like:

https://theoptionprophet.com/blog/7-factors-that-affect-an-option-s-price

Gamble, that's an interesting observation on WMT.  It's JMHO, but I don't know if I'd put much too much stake in the inverse relationship.  To me, the markets are still in la la land when you have sectors like airlines, cruiselines, casinos, etc. all rocketing higher on good days... and getting slammed on bad days.   WMT may be viewed as a "defensible" position to investors if the inverse relationship holds up, with people looking at its relative safety on bad days, and trading out of it on overall good days for the market.   The current price action really wouldn't worry me over the long term.  If anything, it can act as ballast to a stock portfolio, too.  

Huh?  It really is NOT that simple at all.

I think his question was about what he could profit if the stock doubled in price in a month?

In all my years of this I have not heard anyone say they can look at simply the current bid/ask, past chart and determine a future stock option price?  Or maybe I misunderstood his question.  Or maybe I misunderstood the question you were answering.

Current bid/ask is .43/.44

So, yes that was quite likely what the current ask price was if he saw it at some point yesterday.  Because it opened at .1 and went past .23 at some point to a close of .75.

It is not 10 pages of data you need to input.  And, as I explained they have online calculators that do this for you already. Basically 7 variables. As the link explains:

There are seven factors in the model: stock price, strike price, type of option, time to expiration, interest rates, dividends and future volatility. Of the seven factors, only one is not known with any certainty: future volatility. This is the main area where the model can skew the results.

Out of the seven factors volatility is the only one that is estimated. Out of the seven factors, the most important are stock price, strike price, type of option, time to expiration and volatility. Interest rates and dividends have a very minuscule effect on an option's value.

Two of those (interest rates and dividends) do not matter that much.  The key things to understand are volatility, and intrinsic value and extrinsic value.

Raiders     nicely done and thanks for answering.  there is just so much stuff I wish my brain could digest QUICKLY.   unfortunately it doesn’t work like that.  trial and error I guess just like everything else.  I’m gonna dick around with Kroger KR and look at their options on calls.  Lotta people bullish out there about their earnings report tomorrow.  keep the chatter goin on here 

No problem.

Many others on here WSC, Gamble, Rush -- all have great insight.

I try not to encourage people to get into options or futures unless they have a really good grasp ahead of time.  Paper trade a lot!! Practice and know the ins and outs.

The reward can be great --but the time decay is very important.

As WSC mentioned -- the one you are looking at is very, very short-term.  It is recommended to give yourself more time in most instances.

But when you are right -- it makes all the little losses pale.

Good luck if you decide to get started and keep us posted!

There was some discussion here a bit ago on Kroger -- I think it was on this forum?  But one of these guys knew a bit about them.  That sector and healthcare are two most people like in tough times. But the same applies to them as I mentioned with WMT earlier -- some fear of retail dropping off as stimulus dries up.  But folks gotta eat, maybe just not as much! 

So what does beta mean to you raiders? 

I am not wanting to get into a discussion with you at all but yes you missed the point I was making. I said it was a block trade 4k size and if he wondered about the price to look at the CURRENT bid/ask and that will tell you what the price is not what something might have traded at at who knows when...then if you are still looking for more information pull up the option quote symbol and look at the chart. I said all that right there.

And yes options really are only priced on time, beta and relative strike price vs the stock. Market and sector beta also influence option pricing. Not sure exactly what you are again trying to nit pick...but nit pick you will and that is why I am not at all interested in discussing things, it goes nowhere and your intentions are always the same. So lets just agree to not waste our time, its way past the point of discussion.

Yes. You can look, for example, at the last trade to see the actual last price.  Then you can look at the ask price to see what is offered.  You can look at bid price and see what is currently bid.  

So, he saw a bid or an ask. More than likely he did not see a trade.  

By his question, of if he bought the 4000 calls at .23 how does that work, and what is his potential profit etc.  So, in order to answer that, you have to do more than just look at current bid/ask.  I mean I guess that can give you some idea of the relationship in a static situation I guess.  

In his situation you would use beta as the amount the stock would move up or down. You use this to help you infer volatility and determine whether your trade is likely profitable over a period of time/trades.  The lower the better with your beta number — let’s say less volatile. The over/under is usually placed at or around 1 — but some stocks have inherently higher volatility.  But it can be a trade off right — because sometimes the more volatile the more potential upswing is available.  That is why the time is so important in the equation.  

As you point out, his is a very close one.  

But any of these terms you need help with — you can find on any good options forum or stock trading forum or online websites.  They will give you the definitions and give examples of practical use.  

Options are not for everyone.  But something nice to have in a trader’s tool bag for sure!

So not nitpicking your answer.  

I think now he is clear on bid/ask and trade pricing.

Just saying to determine his potential profit in the trade — he would have to do a tad more than just look at bid/ask and charts.  I think he understood the cost 4000x.23.  He just misunderstood it to be $980 instead of $98,000 is all.  

I took his question to be — what his potential profit would be if he bought the calls at that price AND the stock doubled by expiration. 

That is where he needs to understand fully.  

Hey Raiders. If you don't mind, whenever you buy a stock or make a trade, just post it here. I will just follow you. Your knowledge is simply beyond impressive. It makes me understand how much I have the potential to learn. 

You are either too kind or too funny and I am not sure which.  

I don’t really trade individual stocks that much right now.  I simply do not have the time to put the study into it.  I miss it — because I really enjoy it and it can be rewarding.  But you really have to put the time into it.  Especially with the day trading and options and commodities markets.  But there is always money to made somewhere in some market — just have to study and research...a lot!

I mostly have solid mutual funds going. They have been doing very well and I really don’t have to keep an eye on them.

From time to time I will do a trade here and there.  I think I have done 3 option trades this year. Swung and missed on two but one came through very nicely.  Think they were QQQ and BA and XON.

The only major move I have made lately was I moved a large portion of my holdings into a Russell 2000 fund — like a 1/3 of it.  A little over a month ago.  It is up 15.71% so far.  During that same time the S&P fund I have is up  9.33%.  Big difference.

YTD S&P -2.35%       R 2K -12.34

Last 3M S&P 30.99   R 2K 47.04

Last 5Y S&P 10.54     R 2K 4.2

The theory or reasoning behind this is simple.  Smaller stocks tend to come out of recessions quicker and faster than large-cap stocks.  So, I essentially tried to time the market.  You aren’t supposed to try to ‘time the market’ and I teach everyone that.  But to me this is a little different than timing it — in the sense of getting in and out of the market.  I am still in the market but just made an ‘educated guess’ based on past experience and study on what the market might/should do.  I have done this a few times in past down markets.

I made like 40%+ with an R 2K fund after the last recession. I don’t expect to get that ‘lucky’ again.  But it looks very good so far.  Obviously, hindsight being 20-20 — I should’ve done this a bit before I did.   And in the future there will be a time to switch out of the R 2K fund.  I am sure I will get out a tad late also.  But it is what it is.

I am not saying you should put a portion in right now.  But...if — as everyone keeps saying/hoping the market comes back down.  Then I would consider keeping this in mind and maybe putting some in this type of fund — or add to it if you already have one.

But the knowledge is acquired through time and study and listening to others.  Once upon a time it was my background.  So, I had to go through the hard knocks and get up to speed in a quick, fast hurry at a time when the market was not so friendly and computers were not so handy. 

I always listen to what you guys have to say on here.  You, Rush, WSC and a few others have great insight.  

And, quite obviously, you have done very well.  So when you talk about WMT — I listen.  In fact, we should all listen to folks like you more. 

I am always pushing the younger folks, that are investing, into the better mutual funds for longterm investing.  Or, even making a diverse group of their own so they don’t have the fees, etc.  That gives them some understanding, experience, and lowers the risk.  Amazing what a handful of nice diversified, dividend-paying stocks can do for a portfolio.  But since I still like to gamble from time to time with stock options or buying a lone stock — and understand the fascination with doing this — I will let you know if I ever see a trade I like.  I will also look at following you on WMT. But I want to wait on that one or Kroger until at least mid-summer no matter what. 

At any rate. Good luck with it when you decide to buy it.  Like I say, people have to eat.  And they still have the best one-stop model going.  

Raiders. I was completely serious. This site needs more minds like you. 

In regard to WMT, I am in ultra "patience" mode. I'm waiting on the markets to come back to reality. It will happen eventually. Patience is so terribly underrated in investing. I have a friend that sold 80% of his stocks at the Coronavirus lows back in March, bought back in a few weeks ago at the high and then sold some off last week. I keep advising him that investment decisions should be made in small % amounts but he's moving all in and out like a yo-yo making emotional decisions. 

I'm not a huge James Cramer fan, but he is on the money when he recommends moving in and out in small percentages.....especially now when trades are virtually zero cost with tight bid/ask spreads. 

Hey Raiders.. We discussed KR a few months ago during the throes of the crisis, but it wasn't really any in depth analysis.. more an observation on all the hoarding behavior going on at the time in the grocery stores.  I concluded grocery chains were pulling their sales forward and there would be a trough in later quarters.  But there was more going on that we overlooked  (at least I did anyway), and that was that people "had" to buy food from grocery stores and the like, since no one could eat out at all for a few weeks.  (I read recently that the average family spends about $6k annually eating out)    I don't know how on earth I overlooked that basic point about people needing to buy more food than usual (on top of the hoarding behavior), but I'm sure most grocery chains had great Q2 numbers, and will likely have good Q3 results, too..   But, now, that's all old news. 

KR just announced today that they will not provide new guidance, citing "uncertainties regarding the coronavirus pandemic."   I read into that that  they will benefit again when/if we have a big second wave in infections and eateries shut down again, or their numbers will return to normal if people can continue eating out again.   To me, KR has no real catalyst right now.. 

WMT has a few things going for it that we've discussed, and I like your description of it as a "one stop shop" for consumers.   Heck, I even buy my synthetic motor oil and oil filter there that saves me a bunch of money (I'm a car geek, so yes, I change my own oil .  Lol)  ..   And given that people will be pinching pennies once these unemployment benefits wear off, I'm sure people will steer to the  lowest cost grocer , and WMT is king of that. 

So Kroger LOSES 3% despite beating estimates?  Investors wanted MORE guidance they say.   Who the hell could answer that question right now when it comes to when or if this “second wave” will hit?  This gal on fast money says grocery chain margins are razor thin so she wouldn’t be a buyer of KR.  Guy adami liked it.  but this things gotta bounce back up tomorrow right ?  I’m contemplating calls on KR and Carmax For tomorrow’s close but can’t find a coin to flip 

It's all about expected earnings in the future when pricing stocks today.  The Q2 results were already priced into the stock.  

My guess is they,Kroger, are so far behind in the digital race part of their business that they got slapped!

Wow, what at topsy , turvy day on the Markets, today.  The big news with Apple re-closing a number of their stores in hot spot areas.  Orlando is among these hotspot areas.   How soon before the NBA concludes this attempt to restart the season is futile ??  Remember, DisneyWorld in Orlando is the designated area to restart the season , and less than 6 weeks away.  Regardless of fans or not, the attempt to quarantine players amongst this backdrop may prove too much for league.   On a related note,....  DIS is wayyyyyy overvalued at this point.  They will take a big leg lower, as their ESPN network and themeparks were counting on a re-opening..  They are only firing on one of 4 cylinders right now with their themeparks, ESPN live sports, and movie production all still virtually shut down.  Their saving grace ?  Disney+, which they only started less than a year ago.   

Thanks Rush51 for all your time & knowledge that you put in to Forums. 

Well my first “trade” didn’t go as planned 

APT was my stock which makes masks for covid.   I placed 21 calls at .43 and the strike price was 17.   opened at 16.  Was up to 17.17 with half hour to go then plummeted under 17. Lost just over $905   Yet again I’m new help I need to understand this.   

so let’s say it did close at 17.17   Would this be the profit? 

17.17-16 = 1.17 - .43 * 2100 shares = $ 1,554     

wouldn’t have been too bad for my first trade 

once again I do sports so this would’ve been +165ish or so on my $ 

Need more info, were your calls expiring next months or what? I hope it wasnt expiring today.

If your calls are next month then you have a month of premium (time value) in it and depending on that big word beta you might have some good premium in those but if not then you wont.

If the strike was 17 and it went to 17.17 then your intrinsic value of the option is .17 only and the rest is that big word beta and time value, thus the question about which option month you purchased.

If you bought the 17 strike when the stock was at 16 today then you really have nothing but time value and beta, you are intrinsically underwater by a buck relative to the strike. 

Ive been trading options for like 30 yrs and man I hate seeing people make difficult decisions about buying option. I would highly highly suggest developing a system first, paper trade for like six months as if it was real money...then have a discipline in place about buying at least three months out and in the money...if not you are really doing nothing more than highly leveraged sports betting, and the odds are massively stacked against you.

Thanks for the response.   And yes it was today.   Total market value of securities is about 52 bucks and I lost the $905 As I stated.  Since the option expired.  What in the hell do I do with this $52       It says I have holdings lol.  Yet I can’t sell them since they’re expired ? 

Please be careful you guys... especially you newbies in playing the options market.  The Robinhood trader that recently committed suicide because he was down over -$700k is unreal.   I frankly don't understand how they could allow an individual to be so overleveraged.   Listen to guys like Wall and Raiders that know way more than I do about this stuff... 

I realize people are substituting their Sports gambling for the stock market, but this options stuff is dangerous if you don't know what you're doing.