Trading a high volume, big percentage move sans news...
Nothing is more unsettling than seeing one of your stocks surge higher, on strong volume, absent any headlines. This is especially true if the uptick comes during a general market sell-off.
What does someone else know that you don’t? Is this a suckers’ rally to be sold or is it a harbinger of a much bigger advance? Why are normally sleepy call options trading actively on out-of-the-money strikes?
The March 13 gap-down opening on Calamos Asset Management (CLMS, Financial) was clearly due to a brokerage firm’s downgrade. Clients who sold into that advice got the worst prices of the past two weeks. The shares rebounded 4% to 5% within a couple of days, then marked time until March 25.
On Monday, CLMS opened quietly then took off on high volume, rising 7.44% from $11.41 to $12.26 in just minutes. The shares then sold off slightly, rebounded to near the high, then tapered off to close at $12.03. Trading totaled about three times normal. At 4 p.m. EST, the DJIA was down 0.43%. CLMS had gained 5.25%.
There were no headlines on Calamos and no rumors circulating. CLMS call options, which rarely trade at all, changed hands for the April, May, June, August and November expiration months. Contracts moved on the August $12.50 strikes totaled 1,570, and 41 of the November $15 strikes were bought.
August $12.50s went as high as $0.85 per share. The November $15s touched $0.37 per share. Those are significant numbers considering the 52-week range for CLMS has been $9.24 to $13.35.
I lacked any information on why the stock and options were moving. I owned a large position. What did I do? When the shares were at $12.08 I sold some August $12.50 covered calls for $0.75 /share on about 22% of my position. This commits me to selling at $13.25 per share net if CLMS is above $12.50 on expiration date. It also provided me with a 6.2% downside cushion from today’s elevated quote if the stock cooled off again or simply remained around current levels.
What went into my decision? If I could have sold at $13.25 today I would have been satisfied to let some shares go. Why not get paid a couple of grand upfront on part of my holdings? If CLMS continues higher I’ll be happy for my other 78%. I won’t have missed anything on the covered 22% until it passes $13.25.
Will I regret today’s move later? Perhaps. Taking a partial hedge was the best I could figure to do without additional knowledge of why CLMS was on the move.
In real-world investing we all face uncertainty every day. There are worse fates than capping part of a position at what would be a very nice gain. Time will tell if I made a bonehead move by writing calls or simply by not selling into strength. If I hadn’t been paying attention intra-day I wouldn’t have even seen the opportunity.
Disclosure: Long CLMS shares, short CLMS calls
Nothing is more unsettling than seeing one of your stocks surge higher, on strong volume, absent any headlines. This is especially true if the uptick comes during a general market sell-off.
What does someone else know that you don’t? Is this a suckers’ rally to be sold or is it a harbinger of a much bigger advance? Why are normally sleepy call options trading actively on out-of-the-money strikes?
The March 13 gap-down opening on Calamos Asset Management (CLMS, Financial) was clearly due to a brokerage firm’s downgrade. Clients who sold into that advice got the worst prices of the past two weeks. The shares rebounded 4% to 5% within a couple of days, then marked time until March 25.
On Monday, CLMS opened quietly then took off on high volume, rising 7.44% from $11.41 to $12.26 in just minutes. The shares then sold off slightly, rebounded to near the high, then tapered off to close at $12.03. Trading totaled about three times normal. At 4 p.m. EST, the DJIA was down 0.43%. CLMS had gained 5.25%.
There were no headlines on Calamos and no rumors circulating. CLMS call options, which rarely trade at all, changed hands for the April, May, June, August and November expiration months. Contracts moved on the August $12.50 strikes totaled 1,570, and 41 of the November $15 strikes were bought.
August $12.50s went as high as $0.85 per share. The November $15s touched $0.37 per share. Those are significant numbers considering the 52-week range for CLMS has been $9.24 to $13.35.
I lacked any information on why the stock and options were moving. I owned a large position. What did I do? When the shares were at $12.08 I sold some August $12.50 covered calls for $0.75 /share on about 22% of my position. This commits me to selling at $13.25 per share net if CLMS is above $12.50 on expiration date. It also provided me with a 6.2% downside cushion from today’s elevated quote if the stock cooled off again or simply remained around current levels.
What went into my decision? If I could have sold at $13.25 today I would have been satisfied to let some shares go. Why not get paid a couple of grand upfront on part of my holdings? If CLMS continues higher I’ll be happy for my other 78%. I won’t have missed anything on the covered 22% until it passes $13.25.
Will I regret today’s move later? Perhaps. Taking a partial hedge was the best I could figure to do without additional knowledge of why CLMS was on the move.
In real-world investing we all face uncertainty every day. There are worse fates than capping part of a position at what would be a very nice gain. Time will tell if I made a bonehead move by writing calls or simply by not selling into strength. If I hadn’t been paying attention intra-day I wouldn’t have even seen the opportunity.
Disclosure: Long CLMS shares, short CLMS calls
