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
The first trading session of the week is only halfway complete, yet options volume on Lumber Liquidators has already surpassed the stock’s average daily options volume of around 38,000 contracts amid continued vicious selling in the underlying. Shares in LL are down another 11% today and trading below $30.00, the lowest level since June 2012, as the stock continues to suffer in the wake of a 60 Minutes documentary and comments from short sellers. Options implied volatility is up more than 12% on the session at 115% as of midday.
Snapshots of option volumes and open interest across all expiries and striking prices on Lumber Liquidators reveals notable differences. Open interest in call options is heaviest in what are now far out-of-the-money contracts, notably the 65.0 strike calls, while put open interest is greatest in deep in-the-money contracts, namely the 60.0 strike puts.
Meantime, today’s action in LL options is dispersed across a wider swath of striking prices, perhaps as some traders look to position for further damage to the share price. March expiry put options at the 17.0, 20.0, 21.0 and 22.0 strikes are in play today, roughly 25-40% out-of-the-money versus today’s current share price.
Chart – LL open interest levels across expiries and striking prices
Options volume on Alibaba Group Holdings is poised to end at the session at approximately three times the average daily level, with volume in BABA contracts approaching 300,000 contracts versus average daily volume of 105,000 contracts and less than 30 minutes to go before the closing bell. Shares in BABA are down 3.0% as of the time of this writing to stand at $81.50, off the intraday and fresh 52-week low of $80.03 set earlier this afternoon.
Across all available expiries, the 80.0 strike put options are seeing notable activity, with cumulative volume in excess of 30,000 contracts. As for trading in BABA calls across available expiries, the 85.0, 87.5 and 90.0 strike contracts attracted the most action.
Chart – Above average day for Alibaba options volume
Stocks got off to a rocky start on the first trading day in December, with the S&P 500 Index slipping just below 2050 on Monday. Based on one large bullish SPX options trade executed on Wednesday, however, such price action is not likely to break the trend of strong gains observed in the benchmark index since mid-October. It looks like one options market participant purchased 25,000 of the 31Dec’14 2105/2115 call spreads at a net premium of $2.70 each. The trade cost $6.75mm to put on, and represents the maximum potential loss on the position should the 2105 calls expire worthless at the end of December. The call spread could reap profits of as much as $7.30 per spread, or $18.25mm, in the event that the SPX ends the year above 2115. The index would need to rally 2.0% over the current level of 2072.5 in order for the bullish trade to realize maximum possible gains.
By Andrew Wilkinson at International Brokers (originally published on Nov. 25)
It only took a few minutes to rack-up 100,000 option contracts in early trading as Apple’s market cap surged to a record. The shares touched $119.75 valuing the company in excess of $700 billion. After 15-minutes of trading, option dealers had traded more than 200,000 contracts with the most commonly traded strike of 120.0 accounting for a little over one-quarter of total volume. Around 50,000 call options at the 120.0 strike have dominated trading compared to only 8,000 puts. Bearish plays attracted far less attention across the board as bullish sentiment was maintained. Option implied volatility is up by 4% to 22.6% on Apple options.
Chart – Call option activity dominated as shares in Apple surged
A four-year low for the spot price of gold has had a devastating impact on Yamana Gold (Ticker: AUY), with shares in the name down at the lowest price in six years. Some option traders were especially keen to sell premium and appear to see few signs of a lasting rebound within the next five months. The price of gold suffered again Wednesday as the dollar strengthened and stock prices advanced. The post price of gold fell to $1145 adding further pain to share prices of gold miners. Shares in Yamana Gold tumbled to $3.62 and the lowest price since 2008 as call option sellers used the April expiration contract to write premium at the $5.00 strike. That strike is now 38% above the price of the stock. Premium writers took in around 16-cents per contract on almost 10,000 call options. Ahead of the session, less than half that number of call options were held among investors. The spate of call selling on the name contributed to around half the overall volume tally of 21,600 contracts, which is already above the 10-day average reading of 16,100 lots associated with the stock. Option implied volatility is up only marginally on Yamana Gold at 60.9% with the market value of the company halving in the past six-weeks. The most widely-held option across all strikes is the April 2015 6.0 strike put option where open interest remains at 44,000 contracts.
Chart – Open interest highest at 6.0 strike puts expiring in April
There is lots of action in Southwest Airlines Co. November expiry call options today ahead of the air carrier’s third-quarter earnings report prior to the opening bell on Thursday. Among the large block trades initiated throughout the trading session, there appears to be at least one options market participant establishing a call spread in far out of the money options. It looks like the trader purchased a 4,000-lot Nov 37/39 call spread at a net premium of $0.40 apiece. The trade makes money if shares in Southwest rally 9.0% over the current price of $34.32 to exceed the effective breakeven point at $37.40, with maximum potential profits of $1.60 per contract available in the event that shares jump more than 13% to $39.00 by expiration. In September, the stock touched a more than 15-year high of $35.55. Shares in LUV last traded near $39.00 in 1994.
Can you refuse service to gays and lesbians? You can in Indiana thanks to the "Religious Freedom" Bill. Indiana Governor Mike Pence has signed a bill that would allow businesses to refuse service to gay and lesbian patrons on the grounds of “religious freedom”, even as some of the state’s largest business interests oppose the measure.
Mr Pence, a potential 2016 presidential contender, said he signed the bill because “many people of faith feel their religious liberty is under attack by government action”. Proving that he cannot think, Pence quipped "If I thought it legalised discrimination in any way in Indiana, I would have vetoed it."
And what about religious freedom for atheists, Muslims, ISIS? Can they...
Forget Pyrrhic victories, the more Greek tongues that wag, the clearer it becomes that no one appears to have a clue what is going on. The contradictory tone from various Syriza members has allowed the opposition to sit quietly by (with the odd jab from Samaras) and watch the collapse unfold. The more threats and promises Tsipras makes, the more cornered he becomes as cash outflows accelerate and cash demands loom. It appears all over bar the printing as both sides are now just posturing for who bears the blame for the ultimat exit, as one wit noted, "once you remove walking away from a deal as an option, you are no longer negotiating."
The Dow had the best of the action, with higher volume buying to close the day out. The index closed above the 20-day and 50-day MAs. The next challenge is to push above 18,100; which is the 'bull trap' and the recent spike push to 18,205.
The S&P didn't quite enjoy the same relative gain as the Dow, and today's volume was lighter than yesterday. However, it did manage a close above 20-day and 50-day MA.
The Nasdaq also pushed higher volume accumulation. It's probably still a ...
Former Federal Agents Charged With Bitcoin Money Laundering and Wire Fraud
Agents Were Part of Baltimore’s Silk Road Task Force
Two former federal agents have been charged with wire fraud, money laundering and related offenses for stealing digital currency during their investigation of the Silk Road, an underground black market that al...
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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...
Well, it didn’t take long for the bulls to jump on their buying opportunity, with a little help from the bulls’ friend in the Fed. In fact, despite huge daily swings in the market averages driven by daily news regarding timing of interest rate hikes, the strength in the dollar, and oil prices, trading actually has been quite rational, honoring technical formations and support levels and dutifully selling overbought conditions and buying when oversold. Yes, the tried and true investing clichés continue to work -- “Don’t fight the Fed,” and “The trend is your friend.”
In this weekly update, I give my view of the cur...
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. Shar...
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PSW Members - well, what a year for biotechs! The Biotech Index (IBB) is up a whopping 40%, beating the S&P hands down! The healthcare sector has had a number of high flying IPOs, and beat the Tech Sector in total nubmer of IPOs in the past 12 months. What could go wrong?
Phil has given his Secret Santa Inflation Hedges for 2015, and since I have been trying to keep my head above water between work, PSW, and baseball with my boys...it is time that something is put together for PSW on biotechs in 2015.
Cancer and fibrosis remain two of the hottest areas for VC backed biotechs to invest their monies. A number of companies have gone IPO which have drugs/technologies that fight cancer, includin...
This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible. Feel free to contact me directly at firstname.lastname@example.org with any questions.
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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