Yesterday, Cisco Systems breifly halted after triggering a circuit breaker according to the Nasdaq, causing a 10% move in 5 minutes. Brian gave his theory of what caused this issue yesterday on the Fast Money Final Call. Brian explained what dark pools do and what people don’t understand about them. Basically, traders belong to a brokerage group and they send their order in, the dark pool attempts to match the order up with someone else on the opposite side at the same time and then the order is put up on the exchange. Brian explains the old style way where there was one central specialist creating liquidity on both sides but now there is dislocation because nobody knows exactly where the best bidder offer is coming from. He feels that we need to have one central location because everybody knows and understands where the order is coming in, which gives us more liquidity. Brian feels the stock market could get a nice rally if that were to happen because investors would feel more confident if we improve the system. There needs to be some sort of liability, you should be obligated to bid or ask at some certain level where you can’t just pull away from the market if something doesn’t look right. This way, we are obligated to provide liquidity.
Later, Brian has a trade on FCX using a great overwrite strategy. The top end of the range price target for FCX is around $80 a share. Brian wants to give himself an exit point to the stock so he sells the Jan. 80 call for $4.75, if Freeport gets above $80 he is willing to be out of the stock. Here you will collect $4.75 which is about 6.5% of the value of the stock, you will collect a nice dividend or premium and lower the value of where you own the stock. Brian also mentions that in todays times, traders need to establish entry and exit points.