This took a few days to play out but the DAILY chart was looking a little double toppy along with lower volume at this new top. That was all the analyis I did and checked news. I entered on 3/11 and bought the April 12.50 puts at 1.60. A few days later 14.50 was hit and the options were losing value BUT I was still thinking this thing was going to pull back because of the lower volume posting on thise updates. These April puts had about 35 days to expiration so there was 'time'. Lower volumer on new highs tells me not as much interest at this top per the previous top so maybe a pullback will happen soon.

The vertical line is the entry day and the horizontal line is the 12.50 level where the strike for the put is. ADXS began to pull back and finally fell hard today. However, options on penny stocks can have low volume and low open interest. Open interest is how many puts or calls (or contracts in the futures world) that are currently owned by someone or some entity. Volume is how many contracts or options have been traded during the day.

I went with the 12.50 puts because  thought the 10's were too far away (even with the volatility with ADXS) and the next strike was the 15 ( which were already ITM) and were about double the cost of the 12.50 so I went the cheap route.

When ADXS started tanking I was watching the option quote screen and the 12.50 puts were not moving = there was not a trade yet. The 15 had gained .50 during the day but still no movement in the 12.50. One thing about TOS (Think Or Swim) is, is Level 2 quotes for option quotes also. I initially had a sell order in at about 2.15 becuase I was thinking these things had to trade at some point and the move could be ig. BUT, the Level 2 screen was telling me that even the 2.00 sell orders were not getting filled. I wanted out because even after 11.80 on ADXS was hit there was still no trade. I forgot what time of day it was when I took the options quote screen but there are a few things to note here. The horizontal yellow box shows the put strikes and the vertical box shows the open interest and volume. There were 456 put options owned (or held) but ZERO volume..they had not traded yet even with ADXS now at 11.60. Even with the 12.50 put almost $1 ITM, still not movement.

I wanted out because there was money on the table. the Level 2 screen was showing lots of Asks at 2.00 but none getting filled. So your boy had to 'cut in line' and try to make this thing print a quote so I entered a sell of 1.99 and got filled a few moments later for the first fill of the day. After that the 2.00 sells got hit. ADXS ticked up a little and the 12.50 ended down a little from that at 1.80. Sometimes you have to be the bully and cut in line.

So, bought at 1.60 and sold at 1.99 for a little over a 20% gain on the trade. All of this sounds like a lot of work but it's not much different then trading the underlying outright. There are many options strategies out there but buying puts and call is the simplest of them.

I'm still under the PDT rule for now so options are another tool available to make a few $. Gotta expand to other avenues to take advantage of opportunities.

 

A few notes to note ;)

- Option quotes to not print well when the market is closed. The BID/ASK can be way off so the best time to look at premiums is when the market is open.

- You MUST look at the volume and OI for that option strike. Low volume and low OI = higher spreads and tough to get filled and exit.

- Not all penny stocks have options. The stock must trade with considerably good daily volume to have options. I'm not sure of the specifics but the stock must be liquid enough.

- There aren't srikes available at all levels per price. A lot depends on the price of the stock. Epecially penny stocks.

- If a stock is in a very tight range then the option will move very little. Look for stocks that are volatile = they actually move.

- ITM options are less expensive for penny stocks because they are lower priced stocks. The option will move more in tandem with the stock (this is the DELTA of the option but not getting into that here) so consider options that are closer to the actual price of the stock.

- I can't count how many times I have been correct about market direction but my timing is off enough for me to exit a trade with a loss only to see it move the way I thought it initially would. Options can give you a little more staying power but ya still gotta be right about the direction.

I'll answer what I can so feel free.....L2 quote screen for the option in next post. Can only post one image per???