Sunday, March 28, 2010

IWO in Action Follow up Post (SBUX)

I am not sure I am convinced with only looking at 1 day of volume to see how many people might be following IWO's trade recommendations. First like you said most of the volume takes place at or around the ATM options. Also SBUX has had a great run over the last few months and you can see that its first level of support was around 24 from its bull flag breakout highlighted in the chart below:

So this was a natural place in my opinion for people to buy puts to protect their gains. This is illustrated well if you look at a daily chart for the 24 put for the past few days (See Below). Notice how it traded almost 2x the amount just 2 days prior when SBUX started to breakdown on the daily chart above.

You might even be able to go as far as saying the people who put protection on 3/24 for .10 might had realized by 3/26 when IWO sent out the alert that 24 support looked like it was going to hold and the majority of the volume could be attributed to them cashing in on some profits from their hedge. I don't know but its a possibility. Now if we did not see the increased volume 2 days prior than your observation might be more probable to me but looking at the volume for the 24 put kind of just tells me that it was a coincidence that that particular strike did more volume than anyone else and IWO happen to send out a trade alert that same day. To me it did the most volume because technically in the short term that is the most important price level.


  1. It sounds like you are assuming people were buying puts for protection, how do you know it wasn't people selling puts from the IWO recommendation? Or selling puts because of technical analysis and the might not even know about IWO. The volume number never tells you the reason behind the trade. Common sense would tell me that volume was a mixture of both, but you don't know the skew.

    I was just mildly curious as to how many people might be acting on his plays, but using my own logic, volume would never conclusively tell me that either.

  2. I think with LiveVol you probably can now see what volume went through on the bid vs the ask. I guess that isn't really confirmation either because paying the ask doesn't necessarily mean you are getting long, you could be closing out a short position.