The alert arrived by email with a link. Like last time, when I clicked the email it brought me to a advertisement for Cramer's Options Alerts and I had to look for the sign in link.
Once signed in I was able to read the alert. To my disappointment, it was a type of option trade which I am not a big fan of -- sell to open.
The suggested trade was for 10 contracts. The problem with this type of trade is you have to commit a lot of money to participate. This particular trade would require over $30,000.00 if you acted exactly as they suggest.
Like before there was a justification for the trade, a break down of the greeks, and his sign off.
The other problem I had with this trade is you are establishing a position very close to earnings. The good thing was your option position was not for the current month. There will be some erosion of premium which happens right after earnings come out.
There wasn't a lot of conviction with this trade among my fellow subscribers.
This option suggestion was almost in direct contrast to the first one I received with this service. This option had barely any Open Interest to speak of. Total open interest for both calls and puts for the first four months listed is less than 500 contracts. The other suggestion was for options that have tremendous open interest and thousands upon thousands of contracts traded on a daily basis.
After further review, there was a huge spread between the bid and ask on both puts and calls. I didn't get a chance to see how many option exchanges this trades on, but my guess is it isn't traded on all option exchanges. One thing I have seen with option trades is you get better pricing when it trades on at least four, preferably six, of the exchanges.
When you have stock options that only trade on one or two of the exchanges, you are usually asking for trouble. Some option traders call this scenario the roach motel. You can get in, but you can't get out.
With these you usually have to pay top dollar to get in and to sell you usually have to settle and get the lowest they will offer you. So you have a real uphill battle.
In the front month calls for the underlying stock, there is an 80¢ spread between the bid and ask for the in the money front month option. For the front month just in the money puts, there is a spread of 75¢.
This is not the backdrop for high percentage profitable trades.
I will keep track on whether this trade is a money maker or not. I simply feel that people that pay less than $35.00 a month for a recommendation service are not the inclined to drop over $30,000.00 on a trade suggestion.