I hope you have saved your $500 by now. Don’t be tempted to spend it on something crazy. The VIX has been going up and down, and with Congress unable to arrive at any sort of agreement on budget, sequestration and debt ceiling, the future has been unpredictable. The paradox of course is that the VIX should have stayed up around 15-16, but instead, has been reflecting a clam outlook. This is insane.
In fact, there’s nothing calm about the near future in the markets. There are too many geopolitical events taking place. In fact, when I saw the VIX close at 11.34 the other day, I thought it would be a good time to sell a put at around 10 or 11 and cash in the premium. Unfortunately, because the VIX is so low, the premium would have been small and the money required to sell even one contract would have been around $1134.
The next day, the VIX shot up to 17, which would have been a goo chance to buy the contract back. But in these waters, even the fish can drown.
If you’re like me, you’ve been watching the cheater report for some time and wondering if the opportunity will ever present itself topiggy-back on a jiucy cheater trade.
Unfortunately, the SEC is getting a new director, and Mary Jo White has a reputation for being tough on cheaters. I don’t see too many cheaters willing to take the risk of going down the Martha Stewart path.
Yet, some of them have immunity, if they’re Congressmen or Senators, – and here’s the reason for this post – or if they’re a congressman on an FDA panel.
I looked this morning at the cheater report, with a VIX that dropped back down to $12 yesterday, thanks to Mr Bernanke’s dose of Greenspan reassurance that our house isn’t burning, right after the cheater report showed a large number of options contracts closing.
I expected very few stocks to show anything, and in fact most of them are momentum trades. Yet one stood out: KERX.
In the calm of these waters, this open interest would probably have gone unnoticed, but as you know, it’s easier to hear far away in the calm of the night than during a day’s chaos.
KERX is NOT a momentum trade. There is no pattern I recognize that would explain someone entering a large long put position on this cheap stock. And, it’s a pharmaceutical.
It’s up to you, but my plan is to buy an out of the money put, perhaps the $7 strike, unless the stock opens with a gap down. In that case I’ll stay out. But if after 12 today, the stock is still hovering around $7, I would enter a long put below the current price. I expect news will come out that will trash this stock down to pennies.
Again, be careful, only buy $100 worth on this theory.
— Well, as a follow up on this, I now see that this is also nothing more than a play on the possible class-action lawsuit that will hit this company. Disregard.