Call Activity in Citrix Systems (CTXS) – Don’t Be So Quick to Interpret
When evaluating a trade, some investors look at the volume in the underlying stock as well as open interest, the bid/ask spread, and option volume in order to ascertain if liquidity is adequate. Some stocks tend to have more robust options volume than others, but “heavier” options volume does not necessarily mean the stock is of higher quality. Sometimes, we come across a stock that has seen notably heavy volume at one strike compared to another.
Wednesday, in Citrix Systems (NASDAQ: CTXS), the June 50 calls saw about 14,000 contracts hit the tape by noon central time. With open interest of just 3,200, this volume likely traded to open and appeared to be initiated by buyers. Volume at this one strike was six times more than all of the volume across all other call and put strikes combined.
At first glance, one might think this is a reason to get into a trade. After all, if someone was confident enough to buy 14,000 of the June 50 calls, the stock must be going higher. This assumption can be dangerous, because there is of course no way of knowing for sure which way a stock will move … or when.
Before making any assumptions, be sure you know the facts surrounding the trade and all of the possible reasons a trader would initiate this type of trade. Just because something looks a certain way on the surface doesn’t always mean the details are the same.
“Misinterpretation” can happen frequently when traders see a large options trade get printed. In the case of these CTXS calls, certainly it is a bullish trade standing alone, but the 14,000 contracts could be bought against an even larger short stock position or another trade that involves short calls or long puts, netting more of a neutral-delta position. Of course the trader could have just nakedly bought the 14,000 calls because he or she believes that CTXS is going to be way above 50 by June expiration (risking 100% of the premium if it is not above the breakeven), but that is not known.
Regardless of this trader’s reasoning, it is probably not a great strategy to make options volume your only deciding factor when selecting a stock and deciding whether to go long or short.
Photo credit: Baer Tierkel
Share and Enjoy:
Related posts:
The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
