There has been a lot of chatter about the prospects of Blackstone Group (BX, $8.22, up $0.41) this week and judging by the stock’s option activity, shares could be headed above $10 quickly. The company is a private equity firm that that could be a key player on how well the selling of the toxic mortgages off bank balance sheets evolves.
Left for dead since September, this stock closed at $6.30 on Friday and had fallen from a high of $20. The stock added $1.50 on Monday and traded as high as $9.19 on Tuesday. I took a look at the option activity from Tuesday and there was a slew of buying all the way out until January 2010. Take a look:
April 7.50 calls (BXDU, $1.29, up $0.09), High: $2.05, volume: 3,500 contracts.
April 10 calls (BXDB, $0.30, unchanged), High: 70 cents, volume: 2,900 contracts.
May 10 calls (BXEB, $0.65, up $0.25), High: $1.10, volume 1,275 contracts.
January 2010 10 calls (KJLAB, $1.75, down $0.10), High: $2.45, volume 5,900 contracts.
Notice the action in the January 2010 call options? These call options are 9 months away and for pigs and giggles, let’s say the stock is at $20 by then. If so, these calls will be worth $10 apiece of 5x their current value.
I also like the April 10 call options as a cheap “out-of-the-money” play but be careful of your entry prices, especially at the open. For those of you new to the blog, we like to wait 20, if not 30 minutes, after the market opens before initiating positions.
If the “bid” and “ask” spread for the call options is 10 cents or more, always remember you can put in a “limit order” to buy options in between these prices. Sometimes they get filled, sometimes they don’t if there is strong demand. If the “bid” for an option is 40 cents and the “ask” is 50 cents, then do a “limit” order for 45 cents.
DO NOT enter market orders. Period. Always enter “limit orders” when you “buy to open” an option contract and when you “sell to close” a contract. If you are having trouble buying the options right that second and don’t want to wait to get filled, then do a “limit order” at the current asking price or else you could get filled at even hire prices.
These technique alone will save you hundreds if not thousands of loot to your bottom line. I would do the “I’m not Geico but I just saved you a bunch of money..” bit on you again but please remember this rule when you start trading options. You control the money and you control the price you are willing to buy and sell an option (to a degree) so take advantage of it.
These are very high risk/ high reward plays.
Rick Rouse
Rick@OptionsMentoring.com
