By Lawrence G. McMillan

AMC Entertainment Holdings shares are once again exploding, having been caught in a short squeeze.

The stock’s realized and implied volatilities are soaring. AMC at one point today more than doubled. There are two options strategies, below, to try to capitalize off this uncommon move. (Note that the data in this article are as of the close of trading June 1.)

We have written about Peabody Coal (BTUUQ) a couple of times previously – amazed at the rapid advance and short squeeze that occurred there.  That stock had a second surge, post-election, as did many other coal stocks.  But the action there pales in comparison to what’s happened in the “Water Transportation” stocks this week.  These include the big oil tanker companies and the general shipping of things on the ocean.  The whole sector has been very strong, but the “king” is Dry Ships (DRYS).

Did you miss Larry McMillan at the Traders Expo Dallas 2011?  Well if you did, you're in luck because you can view a recording of Larry's "Using Option Data as a Forecasting Tool" seminar for free at Moneyshow.com.  All you have to register for the site and you will gain access to Larry's talk along with videos from many of the other speakers at the event.

By Lawrence G. McMillan

For the first time since January 7, 2009, the CBOE Equity-Only Put-call ratio is above 1.00.  On Friday (June 10th), nearly 880,000 puts traded, while slightly less than 860,000 calls traded.  This is a rare occurrence -- as evidenced by the fact that there hasn't be a daily reading above 1.00 in 29 months. 

An increase in the trading of a stock's options over the normal daily volume is often a precursor of movement by the stock itself.  This is especially true in advance of news items, such as earnings reports or takeovers.

On Friday, May 6th, the total put-call ratio (ALL options traded) was above 1.00.  That is quite unusual, and when it occurs during a declining market phase, it is normally a strong buy signal.  The last time this happened was March 15th and 16th.  The market then rallied from 1256 to 1335 over the next month.  There are nuances to this, of course, which will be discussed in our newsletters, but this is usually a sign that "too many" people have become bearish and -- by contrarian analysis -- the market should be bought.

The rumor mill is running overtime lately, with takeover talk on the upswing in the markets. Most rumors don't lead to signed and sealed deals, and actual transactions aren't much discussed in advance. But mere talk about deals can lead to heavy and potentially profitable option activity, especially as one can attain a large amount of leverage if there is a big jump in a stock's price.