Delta calls active as spread play indicates further bullish move
By Andrew Wilkinson
Overall option volume on Delta Air Lines Inc. (Ticker: DAL) by 11:45am ET on Monday of 50,000 contracts is already in line with the typical 10-day average reading. The stock is trading higher at $46.63 (+1.00%) and stands in the middle of a $10.00 range tracked during the past three months. Implied volatility on its options is about 2.5% higher at 31.4%. Much of today’s option activity results from a call spread involving 10,000 contracts at the 48.0 strike expiring in September, while the opposing leg involved the same-size sale at the 55.0 strike. At the individual strike prices it appears that implied volatility is slightly higher on the nearby strike and lower at the higher strike. The 7-point wide call spread appears to have taken place shortly after the market opened and at a net premium of $2.07. From the Strategy Performance Graph below we can see the turning points associated with the transaction. The breakeven for the trade expiring in 130-days is $50.07 while the maximum profit would occur should Delta’s share price reach $55.00, at which point the investor stands to max out the gain of $4.93 per contract.
Chart – Strategy performance plot for September 48/55 call spread
Ralph Lauren Put Options In Play Ahead Of Earnings
By Caitlin Duffy
Ralph Lauren shares are on the rise ahead of the company’s fourth-quarter earnings report on Wednesday. RL is up roughly $0.60 or 0.45% Monday morning to trade at $135.00, but the stock has had a rough first half of 2015, with shares down nearly 30% since reaching a 52-week high of $187.49 back on December 31, 2014. A ratio put spread initiated on the stock this morning suggests one trader may be positioning for shares to dip following the quarterly report midweek. It looks like the trader purchased 1,000 of the May 130.0 strike puts at a premium of $2.15 each and sold 2,000 of the May 125.0 strike puts at a premium of $0.85 apiece. Net premium paid for the position amounts to $0.45 per contract. The spread makes money in the event that shares in Ralph Lauren…
Not surprisingly, Apple options are active ahead of the company’s second-quarter earnings report after the bell on Monday. Shares are in rally mode, up almost 1.1% on the day at $130.06 on Thursday afternoon. Volume as of the time of this writing (3:30 pm ET) is approaching 786,000 contracts, which is approximately 105% of the average daily options volume traded on AAPL of around 750,000 contracts. Much of the volume changing hands during today’s session is in the Apr24 ’15 expiry weekly calls, which expire ahead of the company’s earnings release. But, a review of open interest on Apple reveals interesting patterns. Open interest is largest by far in 130.0 strike call options across all available expiries. There are approximately 505,000 open call positions at the 130.0 strike on Apple at present. Much of that open interest, roughly 20% of it, is in the regular May expiry 130.0 calls.
Traders exchanged more than one million option contracts on Apple (Ticker: AAPL) today amid a 1.2% dip in the price its shares. The 1.04 million contracts traded so far in the session compares to an average daily options volume for Apple over the past 10 days of roughly 750,000 contracts. The below snapshot displays the day’s option volume split out into call and put options across active strike prices. The chart includes monthly expiration options, while excluding weeklys. The 125.0 strike April 17 ’15 expiry calls and puts are most active today, but cease trading as markets close out another week this afternoon.
Implied volatility on the S&P 500 Index (Ticker: SPX) popped Friday morning amid a more than 1.0% decline in the index to the lowest level since April 9. The roughly 12% move higher in the reading of IV on SPX is perhaps the motivation for sellers of iron condors in the April 24 expiry options contracts. The trades were of different sizes and at different striking prices. One of the trades was constructed through the sale of the Apr 24 ’15 1875/1975 put spread against the sale of the Apr 24 ’15 2140/2210 call spread at a net premium of $0.55 per contract. The 1,500-lot trade makes maximum potential gains of approximately $82,500 as long as the SPX trades above 1975 and below 2140 at expiration next week. The smaller of the two condors yields a net credit of $0.50 per contract and involved the sale of the 1885/1985 put spread against the sale of the 2150/2210 call spread. The seller of the 500-lot iron condor stands ready to bank maximum possible profits of around $25,000 in the event that the index trades above 1985 and below 2150 at expiration. The chart below displays a one-week chart of the VIX, which rallied roughly 14% this morning to 14.44.
Option activity on Smith & Wesson Holding Corp. suggests some traders may have pulled the trigger on bullish positions on the firearms maker today. SWHC shares are soaring, up nearly 15% at $14.93 as of the time of this writing, after the company updated guidance for the fourth quarter and full fiscal 2015 year (ending April 30, 2015), stating that orders through the fiscal fourth quarter were stronger than previously expected. The company upped its guidance for the quarter, pushing shares in the name to the highest level since June 2014 and sparking heavier than usual options activity. With little more than 60 minutes remaining in the trading session, traders have pushed options volume on SWHC to more than 5,600 contracts as compared to the stock’s average daily options volume of around 400 contracts. The bulk of the activity is in call options, notably the May 15.0 strike contracts. Roughly 2,500 of the 15.0 strike calls have changed hands against zero open interest. Most of the volume appears to have been purchased at a premium of $0.45 each. Buyers of these options stand ready to profit at May expiration in the event that SWHC shares continue to rally, specifically if the stock tops an average breakeven price of $15.45. Smith & Wesson fourth-quarter earnings are estimated for release in the back-half of June.
Chart – SWHC 15.0 strike options most active, specifically May expiry calls
Heavy trading volume in shares of industrial conglomerate General Electric (Ticker: GE) caused its price to surge by 9.1% to $28.08 on Friday on news of further divestiture and a stock buyback program. Gains have accelerated in the afternoon following heavy option positioning earlier in the session. Some 225mm shares had traded by 2pm ET in comparison to typical volume of around 30mm. The share price jumped straight through the June high of $27.53 after call buying in the June series hinted of further gains. Some 49,000 call options have changed hands on Friday at the 29.0 strike price at an average premium of about 40-cents. The breakeven price for buyers of $29.40 implies a further gain for its shares of 4.7%, where the company last traded in April 2008. More recently, the stock peaked in December 2013 at $28.13 before arresting its decline at $23.41 in January. Before trading on Friday, investors held less than 3,000 open positions at the 29.0 strike for June expiration.
Chart – June 29 strike calls were the most actively traded contract as General Electric gains 9.1%
Bullish trades abound in Cypress Semiconductor options today, most notably a massive bull call spread initiated in the July expiry contracts. One strategist appears to have purchased 30,000 of the Jul 16.0 strike calls at a premium of $0.89 each and sold the same number of Jul 19.0 strike calls at a premium of $0.22 apiece. Net premium paid to put on the spread amounts to $0.67 per contract, thus establishing a breakeven share price of $16.67 on the trade. Cypress shares reached a 52-week high of $16.25 back on Friday, March 13th, and would need to rally 4.6% over the current level to exceed the breakeven point of $16.25. The spread generates maximum potential profits of $2.33 per contract in the event that CY shares surge more than 20% in the next four months to reach $19.00 by July expiration. Shares in Cypress are down 1.0% at $15.54 as of the time of this writing.
Chart – Three-month chart of CY (magenta line: b/e point, blue line: max profit)
With stories and analysis pointing to fewer and fewer physical places to store crude oil coupled at the hip with an ever-strengthening dollar, it’s hard to get optimistic on the outlook for energy prices. The cost of a barrel of WTI for April delivery has fallen again ahead of the Fed’s March meeting by 3.4% to $43.33 helping drive down shares in the United States Oil Fund (Ticker: USO) to a fresh 52-week low.
Since the start of March the price of USO shares have fallen from above $19.00 to $16.18 (-15%). Option traders posturing for even lower oil prices appear to be riding the crest of a wave. The number of open positions in bearish strike prices from 16.0-19.0 in the USO has increased by 44% to 1.33 million in the past two weeks and compares to bullish open interest at the same strikes of 370,600 contracts. Bears have built positions of 300,000 at the 15.0, 16.0 and 17.0 strikes as the slide in crude oil prices has picked-up its pace. Since the rebound ran out of steam on March 4, implied volatility in the April series has jumped from 42% to 54% today. In the options market, that implies traders currently expect the USO to land within a price range of $14.90 and $18.10. By the same token, May expiration crude prices, where implied volatility is running at 57%, currently dictate a price range covered by $37.75 and $50.25 for the cost of a barrel of crude.
Chart – Bearish USO put option open interest has surged to 1.3 million at strikes from 15.0 to 19.0
Shares in Lumber Liquidators (Ticker: LL) continue to rebound and last traded higher by 11.2% at $36.40 following the company’s investor call on Thursday. Implied volatility on its options has fallen by 12.1% to 87.7% having reached 127% as a result of the recent scandal. Option volume of 61,000 contracts is evenly split between calls and puts as implied volatility at higher strikes continues to soften faster than at lower strikes. The following chart from the IB Volatility Lab compares implied volatility readings in the April 17 expiration across available strikes with the volatility structure of one week ago. Under normal conditions, the cost of a 10% out-of-the-money call should be around the same as a 10% out-of-the-money put. Last week, downside volatility of 99.2% was 3.2-points higher than upside volatility. As the entire volatility structure softens in response to a rising share price, option traders are softening the volatility level at higher strike prices, forcing the difference to widen to 4.2-points. As the chart shows, downside volatility remains elevated at increasingly lower strike prices.
Chart – Time lapse skew on Lumber Liquidators options
ADR shares in Brazil’s state-controlled oil and gas giant Petrobras (Ticker: PBR) continue to jump around following the recent announcement that investigations were underway connecting politicians with payouts from company officials. How that goes, nobody knows. The revelation is further bad news for investors who have seen PBR shares slump in the last six months from almost $21.00 to $5.28 on Wednesday. Around a month ago, when the shares stood at $6.45, investors plowed into bearish options in a big way, taking on a position of 107,000 puts expiring in July. At the time the positions were made, shares in Petrobras would have needed to fall by a further 22% to land at the 5.0 strike price. Option implied volatility that day at 67% has increased today to 72% as uncertainty grows. Meanwhile, the options have gained in value, boosted by rising volatility and stand today at 71-cents. We figure that without the volatility boost, the options would be worth 8-cents less. Still, that’s a healthy gain from the initial 42-cent premium paid back in February.
Chart – Despite a rebound, implied volatility continues to reflect uncertainty
In 1968, Paul Ehrlich released his ground-breaking book The Population Bomb, which awoke the national consciousness to the collision-course world population growth is on with our planet's finite resources. His work was reinforced several years later by the ...
NEW YORK – The problems with China’s economic-growth pattern have become well known in recent years, with the Chinese stock-market’s recent free-fall bringing them into sharper focus. But discussions of the Chinese economy’s imbalances and vulnerabilities tend to neglect some of the more positive elements of its structural evolution, particularly the government’s track record of prompt corrective intervention,...
readtheticker.com is primarily a Richard Wyckoff logic site, however through our research into Wyckoff logic the three indicators below make us very lazy in applying Richard Wyckoff logic.Why? Because if these indicators look handsome together then it most likely the Wyckoff logic is working very well.
These three indicators are NOT a trading system, but they do help with finding excellent well support accumulated stocks that show Mr Market is supporting them. Of course when indicators look ugly they will show stocks in a breakdown, thus less support by Mr Market.
If the large market plays are accumulating the stock then they will control the range of BID and ASK and not let th...
This chart looks at the Thompson/Reuters Commodity Index on a monthly basis for the past 50 years
The index took off in the early 1970’s and rallied over 200% in a little over a decade at (1). Then it created a potential double top. What followed at (2)? An unwinding of the rally that lasted nearly 20-years, taking it to the bottom of its rising channel.
In the early 2000’s, the index took off again, gaining over 250% in a decades time at (3) and the rallied looks to have ended in 2011, as it was hitting the top of this long-term rising channel.
Since hitting the top of the channel the index has been pretty soft,...
As oil prices tanked, hedge-fund managers and other large speculators increased bullish bets on Treasury securities to the most in two years, even as the Federal Reserve moves closer to raising interest rates.
In this weekly update, I give my view of the current market environment, offer a technical analysis of the S&P 500 chart, review our weekly fundamentals-based SectorCast rankings of the ten U.S. business sectors, and then offer up some actionable trading ideas, including a sector rotation strategy using ETFs and an enhanced version using top-ranked stocks from the top-ranked sectors.
Corporate earnings reports have been mixed at best, interspersed with the occasional spectacular report -- primarily from mega-caps like Google (GOOGL), Facebook (FB), or Amazon (AMZN). Some of the bul...
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Baxter Int. (BAX) is splitting off its BioSciences division into a new company called Baxalta. Shares of Baxalta will be given as a tax-free dividend, in the ratio of one to one, to BAX holders on record on June 17, 2015. That means, if you want to receive the Baxalta dividend, you need to buy the stock this week (on or before June 12).
Back in December, I wrote a post on my blog where I compared the performances of various ETFs related to the oil industry. I was looking for the best possible proxy to match the moves of oil prices if you didn't want to play with futures. At the time, I concluded that for medium term trades, USO and the leveraged ETFs UCO and SCO were the most promising. Longer term, broader ETFs like OIH and XLE might make better investment if oil prices do recover to more profitable prices since ETF linked to futures like USO, UCO and SCO do suffer from decay. It also seemed that DIG and DUG could be promising if OIH could recover as it should with the price of oil, but that they don't make a good proxy for the price of oil itself.
Kim Parlee interviews Phil on Money Talk. Be sure to watch the replays if you missed the show live on Wednesday night (it was recorded on Monday). As usual, Phil provides an excellent program packed with macro analysis, important lessons and trading ideas. ~ Ilene
The replay is now available on BNN's website. For the three part series, click on the links below.
Part 1 is here (discussing the macro outlook for the markets)
Part 2 is here. (discussing our main trading strategies)
Part 3 is here. (reviewing our pick of th...
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Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
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