Options as a gauge
In talking with Bob yesterday about his interest in Beazer, he shared that he decided to get on board because he had heard some information about Beazer options with a June strike price of $5. It was worth paying attention to because Beazer stock was in the mid $2 range at the time and it caught Bob’s attention. Upon further investigation, he noticed the was an overwhelming number of contracts at the $5 price and only a few option contracts at a $2 price. Bob thought it sent a clear message that a number of traders were thinking Beazer stock was on the way up…significantly. My question to Bob was, what if we started researching stocks with that same kind of discrepancy. What if we based some of our trading decisions on stocks with an overwhelming opinion on one side or the other. If a stock has an overwhelming number of call options higher, then it might be a buy. If the stock has an overwhelming number put contracts out there, it’s probably a short. It might be a good way of getting information about what traders are thinking before the market reacts to the information. We’re going to try and research this and come back with an analysis. Stay tuned.
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