Our last short-term play was stopped out for a profit on the morning dip.

RIMM took a dive again this morning and knocked us out of the Dec $55 put at 40-cents. That gives us a profit of $1.07 on the position.

We were also knocked out of the OIH April put when the service sector dipped this morning. The option was bid at 12.60 when the OIH hit $134.25 to stop us out. That gives us a $3.40 profit on that position. We will be playing that strike again as soon as the price of oil cycles down slightly to give us another entry. I would not mind trading this position twice a month for $3-$4 each time.

The VM Ware position is much more secure today after one day of weakness. VMW rocketed higher by +$3 today and that was in a slow market. We have a Jan $90 strike and VMW closed at just under $88 today. I think the odds are good we will keep most of that $11.49 premium we collected.

How do you like the aggressive play concept? Click the email Jim link at the top of this page and let me know if you want to see more of these plays. I don't want to continue profiling them if nobody is going to play them.

I received an email from a reader today on the NOV exit on Tuesday at 10-cents. He claimed his broker Think or Swim did not fill his order at 10-cents. This is a common problem so I thought I would spend some time explaining.

There were 84 contracts traded on Tuesday from a low of 10-cents to a high of 13-cents. I have no way of telling how many traded at what price. The target price for the trade was 10-cents. When the option hits that target I close the trade. I have no control over how the brokers execute the trades. Since options trade on more than one exchange we can see trades at one price on one exchange and another entirely different price on another exchange. Some brokers, probably all if we really knew the answer, sell their order flow to the exchanges. In plain English they agree to route all their orders of a certain type to a specific or "primary" exchange in return for a fee for that order flow. It is more complicated than that in reality but you get the idea.

Let's say they have agreed to send all option orders to exchange ABC. Your limit buy to close order for 10-cents goes to that exchange and waits to be filled. Let's assume the current offer is 12-cents. Let's also assume that five other traders have orders to buy to close at 10-cents and a total of 50 contracts. The market maker does not want them so he lets the orders sit. During the day another trader decides to give up on his long position and dumps 30 contracts on the market. The first ten probably go to the market maker at 12-cents and then 20 more penetrate to the waiting offers at 10-cents.

Of the 50 buy-to-close contracts waiting at 10-cents, 20 have now been filled and for our purposes the position has been closed but for some traders they are still waiting to be filled. Most brokers will reroute stale orders to other exchanges if a better price appears and they have not been filled. This means the order to sell could have been sent to another exchange and of all the brokers holding orders to close only one or two got the orders rerouted in time to take advantage of the price. All of this happens in milliseconds so it is not like there is a human in the loop to slow it down.

In any Option Writer position we have to go on the reported prices. If the option is offered or trades at the target price then the position will close for reporting purposes even though some traders may not have gotten filled. We simply have no control over the number of contracts bid or offered and on what exchanges or through a specific broker. There will be instances where one person gets a better fill than what we report and times when they get a worse fill. But for reporting purposes we have to close the position if the numbers are hit.

Also, I run the price disclaimer text from time to time to cover the position rules. The SEC does not like newsletter writers to actually trade the plays they recommend. They automatically assume the writer is front running the trades and profiting from his recommendations. To avoid this we have a rule at Option Investor. Nobody can trade the plays they recommend. Period. We had an inquiry about 10 years ago and every writer had to produce all their trading statements for the prior year to prove they were not front running the trades. It cost me about $100K in legal bills and a years worth of government hassle. I do not want to do that again so we have the hard prohibition against it.

The futures are up strong tonight and it looks like another gap open day on Thursday. I am not going to recommend any plays tonight and we will try again tomorrow.

Jim Brown

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