DRYS Options Plays

[netwrangler]

Dry Ships Inc., [DRYS] is a marvelously volatile stock that presents an idyllic playground for the option trader.
The Beta is 2.89 according to Google Finance
The Historic Volatility is ~70%, according to Peter Hoadley's software.

This volatility is far too high for the more conservative covered call trader.
That said, and with an average volume of 5.62m and a PE of 5.81, it's hard to imagine a better candidate for option trading.
Here is a chart to work from:



I'm going to do 'something' here before the June 21st expiry.
I hope others will join me.

[zozozo333]

Originally Posted by netwrangler

Dry Ships Inc., [DRYS] is a marvelously volatile stock that presents an idyllic playground for the option trader.
The Beta is 2.89 according to Google Finance
The Historic Volatility is ~70%, according to Peter Hoadley's software.

This volatility is far too high for the more conservative covered call trader.
That said, and with an average volume of 5.62m and a PE of 5.81, it's hard to imagine a better candidate for option trading.
Here is a chart to work from:

I'm going to do 'something' here before the June 21st expiry.
I hope others will join me.

So are you hoping it'll bounce off the resistance/support level? I'm still relatively new to options, so that chart says to me calls sound good. With my luck though, I should choose the opposite .

[Riddicks]

This stock is def volatile and even though it has its support around $88-$90, its resistance right now is at $95-$96, you can make some money day trading this stock but I am new to options also. I would love to know what you guys think.

Me I am personally thinking of June $105 calls and if it gets to $110-$115, I would def get some puts on this baby.

[netwrangler]

Originally Posted by Keventerprises

....
So, are higher premium calls usually only on Volatile stocks (Beta>1+)?? Is a high Premium expressing more than just confidence in the stock going past the strike price, such as Volatility or Risk/Reward???

The premium of a call can be separated into two parts:

1. The 'intrinsic value' is the amount that the strike price is below the PPS of the underlying stock.
2. The 'time value' is the rest of it. [NOTE: If the strike price is above the PPS of the underlying stock, then the entire premium is considered to be 'time value'.]
   
   The time value is determined by several factors:
   • The volatility of the stock - as you suggested, the higher the volatility, the higher the premium. This is not an expression of faith, but simply probability theory in action. If the stock bounced around a lot in the past, it is reasonable to expect it to bounce around a lot in the future.
   • The difference between the PPS of the underlying stock and the strike price - The time value of a call tends to be at its maximum at-the-money — that is, when the PPS and the strike price are the same.
   • The time left to expiry - the more time that is left, the higher the time value.
   • Other factors - anticipated news about the stock, the sector, or the economy can skew the premium value. Some investors look for this kind of skew as a tip-off that 'something is afoot'.

And given these factors:

As the stock approaches SP, two pressures occur. Time pushing it down, and the bouyancy of the stock. Past the SP it Bob's up!

Well, time is certainly eroding the value of the call. As for the buoyancy of the stock, that [as the lawyers say] assumes a fact not in evidence. The stock may or may not be buoyant. That's more dependent on fundamentals and current news.

There is a behavior called 'pinning', however, which occurs near expiry. Pinning describes the tendency of the PPS to be closer to a strike price at expiry than would be expected by chance. Note however:

• That is 'a' strike price, not necessarily the one you have in mind;
• 'Closer than expected by chance' is a relative term. You could be talking $0.25 closer here.
• It could be above or below the strike price. Indeed, studies show that it tends of oscillate around the strike price.

This last behavior is particularly vexing to a covered call holder trying to determine whether or not the CC position will be assigned.

[netwrangler]

Originally Posted by zozozo333

So are you hoping it'll bounce off the resistance/support level? I'm still relatively new to options, so that chart says to me calls sound good. With my luck though, I should choose the opposite .

Originally Posted by Riddicks

This stock is def volatile and even though it has its support around $88-$90, its resistance right now is at $95-$96, you can make some money day trading this stock but I am new to options also. I would love to know what you guys think.

Me I am personally thinking of June $105 calls and if it gets to $110-$115, I would def get some puts on this baby.

I'm really not sure how this will go, which is why I posted it.
Keventerprises called this stock to my attention.
I think it is a good candidate for trading - both now and in the future.

I'm going to do some Fundy analysis to see if that helps 'set the scene' here.
In the meantime, I'm hoping some of the option and/or chart experts will post their thoughts.

[Rich]

Wow Net, this is honestly beyond me! I thought you were just a common folk like myself, next I'm going to see 'Esquire' in front of your name!!

I've JUST started reading about options, and according to the book and what WSE told me months ago, its actually a safer haven than owning stock if you play things correctly.

I'll read this thread you started again in about a month and hope it makes sense then.

I wonder how many people here are as confused about options as I am.

Rich

[aiki14]

While I realize this is not a strategy for most people, I am selling the Jun 90 puts. Yesterday was a better day for it, but today was ok, and tomorrow will be as well.

[wallstreetsedge]

good post net, the insane volatility coan mae this stock swing either way... 70 or 140.. who knows lol

i gave it some thought, and weighed some pros and cons... it couldnt make a recent low and it still trades under fair value which is around the 130 range. to play this one i would either...

play using the 200 sma as my safe guard and buy the 80 calls 13.90/14.20 and short the 90's for 6.80/7.00... you end up protecting yourself for about 50% and a max reward of about 20%

or

play the delta and buy the 85 for 10/10.20 and short the 95 4.20, protecting yourself at about 40% and max profit of about 40%

[netwrangler]

I know I posted I would do some 'fundy' analysis on DRYS.
But I also said [in the chat room] that I would check out Schwab's chart analysis capability.
I did the latter first, and came up with a find.

Bottom line:
If you had followed an ARSI14/Price-cross strategy with DRYS for the last 6 months, you would have doubled your money.
This is especially significant since the entry PPS, last December, was $89.03 and the closing price today was $93.09.
So much for "a rising tide lifts all ships."
This is a total victory for the trading strategy!
No, I wasn't in the stock in December. This is a back-test. [Wudda/cudda/shudda]

Here is the six month chart:



The strategy is simple:

• When the price crosses the Adaptive RSI on the way up, you buy.
• When the price crosses the Adaptive RSI on the way down, you go short.
• At each cross, you close the prior position.

The test assumed a $10,000 stake.
Each trade is for 100 shares.
The bottom line [last column] on the trade table is profit.
You still have your $10,000.
Here is the [back-test] trade history:



Holy Guacamole! That is really great performance! This was a swing/channel trader's dream!

So [cooler heads prevail] what happens next?

Two obvious alternatives are:

• short now and ride the stock down to the next ARSI14/Price cross
• wait until the next ARSI14/Price cross and go long.

Going beyond the this one test, the obvious questions are:

• Will this strategy work again?
  Well, I'll bet on the champion.
  You only lose once.
  
  
• Will this strategy work with other stocks?
  I think that's a Fundy question.
  What was it that made DRYS get into those long up and down swings?
  Other stocks that behave like that might well work with this strategy.
  Sounds like something to scan for.

Well, I still need to do some Fundy research.
This could be fun.

[netwrangler]

uhh, the obvious question is:

What is a swing trading analysis doing in the middle of the options forum?

I suggest that if you can figure out the swing trading pattern of a stock, your option trade decisions will be a lot simpler to make, and a lot more profitable.

It's like, "Well, if you know the stock is going up/down, there are lots of ways to make money."