On Tuesday, OptionPitTrading.com COO Mark Sebastian was interviewed at Bloomberg TV’s “Market Makers,” and discussed his options play for First Solar, Inc. (NASDAQ:FSLR), amongst other issues. Let’s take a look at some of the highlights.
The VOLATILITY S&P 500 (INDEXCBOE:VIX) index remains low, and this certainly opens up opportunities for options plays within the various ETFs in the market. “One of the things to recognize is that, in a really low volatility market, which is what we are in (we are in a historically low volatility market, the last 21 days have been the slowest in terms of volatility for the S&P 500, in probably the last 10 years) […] you get what I call this little ‘explosions’ of activity” –Mr. Sebastian stated. Last week, we could witness massive call buying, upside call buying, in the utilities segment, in companies like Consolidated Edison, Inc. (NYSE:ED), The Southern Company (NYSE:SO) and Exelon Corporation (NYSE:EXC).
Yesterday, First Solar, Inc. (NASDAQ:FSLR) saw similar call buying activity. Today, it was Ford Motor Company (NYSE:F). But, with no particular news triggering the activity, what is causing these spikes?
Mr. Sebastian attributed these explosions of volume to traders that are “just desperate to find somewhere to make money.” However, he considers the option of very big news (of which we do not know) coming ahead. So, piggybacking when very big trades take place is not a bad idea, he said, admitting having done it himself with some Ford call options this morning.
Regarding First Solar, Inc. (NASDAQ:FSLR), he explained:
“Yesterday, the June [call option] expiring this week absolutely exploded. Volatility went from the low 40’s, up to over 55, and now its back to 50, which is still elevated. Volatility, again, in the slow market just gets completely thrown out of whack. So, I think First Solar is going to creep higher; a trade I like is the June expiring this week, versus the August $72.50 call spread, paying about $2.65. What I will do is, on Friday, when the June is expiring, probably worthless, I will look to buy back that June and probably sell the week behind it against it. So, I am going to end up kind of in this rolling call long-calendar-spread.”
Disclosure: Javier Hasse holds no position in any stocks mentioned