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the Zacks Rank
As a derivatives trader of 17 years,
it’s hard for me to
ignore the underlying trends in the options markets. Options
are often where the “smart money”
does a great deal of its trading because they can operate with a
At the same time, the Zacks Rank
system is one of the most
efficient ways to gauge smart money sentiment on the fundamental side.
In this new column I intend to
integrate big option trades
and trends along with the Zacks Rank to help verify if a bullish or
trend in the options is in agreement with the fundamental trends that
seeing here at Zacks. I will also do my
best to research news developments as well as incorporate analyst
Remember that this is not a
guarantee, nor should you go and
fire off a trade without conducting your own due diligence.
Just because someone buys 5,000 call
options doesn’t mean
that they are bullish on the stock.
Those calls could be purchased as a hedge to a very large short
or they could be only a part of a bearish spread that the trader is
into. The trader could also be closing
out an existing BEARISH position!
By combining options action with
solid fundamental data, it
helps stack the odds in our favor of targeting the real direction and
of the big volume option players.
This is the classic case of a big
option trade that misleads
investors. Today, my searches brought Dole Food Co. (DOLE)
to the top of the list of having high
option volume relative to the average.
DOLE is a stock that doesn’t
typically trade much option
volume. Although the stock volume is
good, DOLE tends to trade about 300 options per day, which is almost
nil. Most stocks that are under $10 in price tend
to have less option volume because their low stock price makes them
Today, someone traded about 2600 of
the October 12.5 calls;
another 200 put options traded, bringing the grand total to roughly
options traded on the day, 1228% more than normal. At first take, one
think that this is a bullish trade, because it seems those calls were
but when you look closer, I don’t think that’s the case.
Let’s look at the stock and the
trades themselves and it all
DOLE is a Zacks Rank #5 Strong Sell,
takes it off my list as a stock that I would want to buy.
Next when you look at a chart of the stock,
you see the extremely bearish pattern that it has been in over the past
months. There are also no bullish
catalysts in the news that might cause a trader to take such a bullish
(DOLE is currently trading around $8.65) that would send it 44% higher
Finally, when you look at the
volatility of the options
along with the open interest in those October 12.5 calls you will see
is a trader that has most likely been short these calls and is taking
profits. The current open interest is
4,373; if that number drops by 2500 or more tomorrow, we will have
that this was just a trader taking profits on his trade.
For now, DOLE should remain on your
Do Not Buy list!