Here's Pete Najarian's report.
I’m Pete Najarian, the “Pit Boss,” and I’m standing in front of the Chicago Board Options Exchange where it all began. If you think options are only for the experts or veteran traders like me, think again. Options are one of the greatest tools out there today and the reason is leverage.
A lack of options knowledge in 1987 during the crash, as well as during the 2000 dot com era, really hurt the options markets for an extended period of time. But options are back, and they’re back with a vengeance.
I’ll give you an example: In March this year, we have averaged 3.8 million contracts per day. That is a 58% increase since last year’s March.
So options are certainly back and the options markets with electronic trading have a lot more upside. We are just at the tip of the iceberg as to what is going on with options.
Dylan Ratigan explains that option traders watch volume closely – and asks the guys how to tell when an explosion in volume is worth trading?
Tim Strazzini says if a stock seems undervalued and then speculation surfaces that’s it’s being taken over.. that seems like an options trade to him. He adds one telling sign is when the stock isn’t moving, but the option price is exploding because of the option demand.
He also says there was speculation today that Pride International (PDE) is being taken over. But he cautions investors to understand the trade before they even think of buying options. It’s a difficult game to play and investors can lose a lot of money.
Dylan asks Pete Najarian for his best trade.
Pete says he’s watching Paychex (PAYX). He explains there’s currently a high volume of buying of the “April $37.5 calls”. Based on that buying, Pete believes there’s someone out there, who expects something positive will happen with this company in the future.