By Sell Puts
Today was one of those days where we started off with some one off names trading such as BCRX SVA MTXX, which are all biopharm stocks. These names are speculative and rarely have any follow through considering their thin volume and lower market participation within the names. Once the speculative buyer gets his/her order filled the bid will collapse and shorts will come in, i see this the most in the options. Option sellers come in and usually sell the highest bid right before the underlying collapses, then everyone stuck long the strike will hit the bid. The shorts reap large fast rewards covering when the offers are very low.
As for the accelerated selling once we broke 1000 on the S&P500, it reminded me of Oct/Mar selling, where support points were all sold. AIG moved down around 9 bucks before reversing around 36, i got short around 40$ by way of the 31 put, i ended up pulling around 1.40 out of it. I think i left some money on the table by not buying the calls on the reversal, though you cant win them all. Above is the AIG chart i had up while trading, you can see how it failed to break above the stair stepping downward trend until support came in around 36. then it was straight back up. The vol in the options was all out of wack so it was really not worth trying to play the options, but if you got into the stock you did very well.
