Keene on the Market: Trade to Win Using Unusual Options Activity, Volatility, and Earnings

CHAPTER 18

Andrew Keene's OCRRBTT Trading Plan

In options trading you not only need to be well versed in choosing the probable direction of the stock, but you also need a good sense of timing. Once you have somewhat mastered your forecasting directional movement, or lack thereof the stock will go, you can use implied volatility to help you predict the expected range of the stock movement for a given timeframe.

■ Story of the OCRRBTT Trading Plan

The OCRRBTT is my proprietary trading plan that I took upstairs from the trading floor and trade with on a daily basis. I literally go through every step very quickly to see if I want to take a trade. When a floor broker comes into the trading pit he has an order, sometimes for a spread. This technique has a learning curve that took me some time to properly master. Every trade is different. Let's talk about floor brokers first. They come into the trading pit representing a firm such as Goldman Sachs, Merrill Lynch, or Morgan Stanley. We know whom they work for, but we never know who their customer is. The big question is: Does their customer hold a position in the stock, or is he speculating with just options? We would know what the floor brokers wanted to do, but not necessarily if their stock position was against an options trade. So with every options position that comes into the trading pit, I wonder: Are they representing their actual position or are they disguising it against a stock position that I do not know about? Is the customer ...