by Phil Davis - January 5th, 2012 8:13 am
Our day is done, how’s yours?
That’s right, we already did our 3am trade where we caught the dead top of oil (and the dead bottom of the Dollar), where my 2:59 am comment to Members in Chat was:
Dollar at session low of 80.40 at 3am and oil back at yesterday’s high at $103.70 so oil (/CL) makes a nice short below $103.75 here but DANGEROUS pre-market trading as Iran could spout off at any moment and the trading is VERY THIN.
So that brings us back to the good old Dow (/YM) futures at 12,350 and they are just over that line at 12,351 but that’s the short of the moment as long as the Dollar is over 80.40 .
For the next hour, I did a blow by blow on the oil trade in Member Chat on the way down to $102.70 – a nice $1,000 per contract worm gotten by the early birds, where we took the money and ran ahead of likely morning manipulation back up to $103.50, where we can short it again on inventories (11am). The Dow slipped to 12,300 and paid a solid $250 per contract as well, paying for over 100 Egg Mcmuffins this morning by itself. If you want to see how we make decisions along the way down – it’s well worth going over this morning’s comments – there was also some good discussion of other topics this morning, including my pick for the best wide-screen TV.
We’re still just messing around with hit and run plays, waiting to see how the week pans out and next week we’ll be waiting to see how earnings pan out as well as what we expect will be a pretty major market pullback leading into the 10-year auctions next Wednesday at 1pm. Clearly the Fed freaked out and jumped in yesterday when TLT hit $118 so we are fairly comfortable with our prediction of a…
by Option Review - August 12th, 2011 3:38 pm
Today’s tickers: MSFT, ALL & INTU
MSFT - Microsoft Corp. – The June low for shares in computer-maker Microsoft at $23.65 remains the low-water mark despite a 14.6% slump over the last two weeks. The selling pressure stopped on Tuesday with buyers gathering at $24.03 to support the stock. Over the remainder of the week its shares have added a further $1.25 to trade at $25.28. So while the broad market suffered a far worse fate, Microsoft bulls were loading up to the gills. One option investor wanting to make sure he doesn’t miss the boat on Friday appears determined to do better over the next three months. This options trader sold 3,000 put options at the $25 strike price expiring in October at a premium of $1.45. Writing options conveys certain obligations. In this case the investor must pay $25 for shares in the company at expiration if the share price is below the strike price at the time. While that might seem risky given the proximity of the strike price to what buyers and sellers agree Microsoft is worth today, the $1.45 premium means that in the event of having its shares put to him, the investor is effectively setting a purchase price of $23.55 or 10-cents below the June low. The position will also benefit is the broad market stops its vicious gyrations and implied volatility continues to pare its gain. Already today Microsoft’s implied volatility reading slipped by about 10% to a reading of 32%.
ALL - Allstate Corp. – Shares in the giant-insurer missed out on a Friday rally that helped build investor confidence, but one sizeable options trade points to a recovery within five months for Allstate. Its shares were lower by 1% at $25.42 and within just 6% of its very recent 52-week low. At the start of May investors shared confidence in Allstate along with a bullish view of the broader market when both valuations reached a climax. Allstate at the time traded to $34.38. Undeterred by the…
by Option Review - May 21st, 2010 5:48 pm
Today’s tickers: GS, ACAS, EWZ, EEM, & ALL
GS – Goldman Sachs – Proving that option trading constantly offers opportunities for investors, today’s trade on actively traded investment banker, Goldman Sachs falls under the “did-you-know?” category. Of course we all know about the SEC’s recent clampdown on the banker and the embarrassing revelations about what Fabulous Fab’s emails to his girlfriend said, yet the share price remains buoyant at $142.54 and has rallied 4.7% in today’s activity. So the outlier trade involving a 2,000 lot spread in the January 2011 contract drew our attention. On the bold face of things the spread appears to be a bearish play just like any other put spread, but the investor plumped for the $50 and $25 strikes to play Goldman’s fortunes. But upon a review of time and sales data it appears that this investor wrote the spread by selling 2,000 puts at the $50 strike for $1.40 in exchange for 2,000 puts priced at $1.00 at the $25 strike. Assuming that Goldman’s shares don’t face a wipeout to the tune of 65% between now and expiration in seven months, this investor gets to keep $1.00 per contract for a total premium of $200,000. We didn’t know that. The elevated reading of options implied volatility – near 83% in the case of the $50 strike put – has clearly set this investor’s mind racing.
ACAS – American Capital Ltd. – Growing fears over a double-dip recession and what impact the strains to liquidity around the world’s credit markets have taken a hefty toll on American Capital. The company puts together employee and management buyouts using debt and equity financing. Arguably the company might suffer more than others if equity prices remain in the doldrums on account of a debt crisis in Europe. The recent recovery in its share price to $6.65 went up in smoke this week with shares slumping on Thursday to $4.37. One investor appears to have taken advantage the drop to place a bullish call spread using 7,500 call options in the November contract. The purchase of intrinsically valued $4.00 strike calls is matched against the sale of an equal amount of $5.00 calls. Resumption to normal business conditions would presumably see shares recover through this leaving the investor with a 55 cents per contract gain having spent a net 45 cents today to place this trade. Option implied volatility…
by Option Review - April 20th, 2010 5:07 pm
Today’s tickers: GS, MU, PEG, CX, XRX, IYT, EEM, HOG, HUM & ALL
GS – Goldman Sachs Group, Inc. – Posturing in out-of-the-money put options on Goldman Sachs today indicates some investors expect the investment banking firm’s share price could erode substantially ahead of May expiration. Goldman’s shares slipped 1.5% during the trading session to stand at $160.94 as of 2:30 pm (ET). One pessimistic player invested in a debit put spread in order to position for continued bearish movement in the price of the underlying stock through expiration next month. The trader picked up approximately 11,700 puts at the May $145 strike for an average premium of $1.91 each, and sold the same number of puts at the lower May $120 strike for $0.16 apiece. Net premium paid for the put transaction amounts to $1.75 per contract. The trader makes money if Goldman’s shares fall 11% to breach the effective breakeven point to the downside at $143.25. Maximum available profits of $23.25 per contract are available to the options player should the financial services firm’s share price plummet 25% to $120.00 ahead of expiration day in May. Other bearish players engaged in plain-vanilla put buying at the June $150 strike where at least 3,600 put contracts were picked up for an average premium of $4.73 each. Put-buyers at this strike stand ready to accrue profits if Goldman Sachs’ share price slips 9.75% lower to breach the average breakeven point at $145.27 by June expiration.
MU – Micron Technology Inc. – A large-volume short strangle play employed on the manufacturer of semiconductor devices today suggests one big options player expects Micron’s shares to trade within a specified range through expiration in October. Micron Technology’s shares are up 0.10% to $10.81 as of 2:50 pm (ET). It looks like one trader sold approximately 24,000 puts at the October $9.0 strike for a premium of $0.73 each, in combination with the sale of about the same number of calls at the higher October $12 strike for $0.98 apiece. Gross premium pocketed by the strangle-strategist amounts to $1.71 per contract. The investor keeps the full amount of premium received today as long as Micron’s shares trade within the boundaries of the strike prices described through expiration day. Short positions assumed in both call and put options expose the trader to losses in the event that Micron’s shares rally above the upper breakeven price…
by Option Review - March 9th, 2010 4:14 pm
Today’s tickers: AMR, AIG, C, GME, HD, XLP, ALL, CMC, QLGC & YUM
AMR – AMR Corp. – Bullish investors engaged in covered-call selling on AMR Corporation this afternoon after its subsidiary, American Airlines, revealed February passenger unit revenue increased between 6.5% to 7.5% as compared to roughly the same time a year ago. The so-called buy-write strategy took off amid an 11% rally in the price of the underlying stock to $9.93. Options traders sold approximately 16,300 calls at the March $11 strike for an average premium of $0.09 apiece, and simultaneously purchased an equivalent number of AMR-shares when the stock was trading at approximately $9.84 each. The net price paid per AMR-share amounts to $9.75 apiece because of the $0.09 per contract financing provided by the sale of the call options. Investors utilizing the buy-write strategy are positioned to accumulate maximum potential gains of 12.82% if shares rally through $11.00 by expiration day. The covered-calls provide an effective exit strategy for investors, who walk away with 12.82% profits if AMR shares rally to $11.00, and if the underlying shares are called from them at expiration.
AIG – American International Group, Inc. – Insurance firm, American International Group, already reported plans to sell two units for $51 billion, but speculation that it may sell additional assets sparked rampant options trading activity on the stock this afternoon. Shares surged more than 18% to $34.34 at times during afternoon trading. Options investors exchanged more than 224,000 contacts on AIG as of 2:30 pm (ET), and traded more than two call options on the stock for each single put option in play. Two-way trading traffic in out-of-the-money call options is evident, but it looks like – in most cases – more calls are being purchased than sold. The nearest-to-the-money March $35 strike had more than 37,000 calls trade today versus that strike’s previous existing open interest of just 12,297 contracts. More than 12,300 calls were purchased for an average premium of $0.89 apiece. The higher March $40 strike had 12,900 calls picked up by bullish individuals who paid an average $0.25 premium per contract. Finally, the March $45 strike attracted buying interest in the amount of 3,200 calls for an average premium of $0.18 each. More than 7,000 contracts changed hands at the March $45 strike, which trumps existing open interest of just 2,489 lots. It is likely that a large portion…
by Option Review - February 12th, 2010 4:37 pm
Today’s tickers: MOT, ALL, BWLD, BONT & X
MOT – Motorola Inc. – The Shares are almost 8% higher at $7.20 on the news that the company will split into two with networks on one side and mobile devices on the other. Shares are on the move because this probably reflects management’s confidence in the turnaround for mobile devices. It appears that one option investor is looking for further upside and placed a 20,000 lot call option spread when shares were trading at about $6.95 this morning. The spread involved the purchase of now in-the-money April call options at the $6.00 strike, which cost $1.12. The buyer sold the same amount of $9.00 strike calls expiring at the same time for 7 cents to reduce the breakeven to $7.05 in two months. It is likely that this investor wants to take a stake in the company now that it’s announced this corporate split and as long as Motorola’s shares stay north of $6.00 in April, he will be able to exercise that option.
ALL – Allstate Corp. – Looks like a substantial amount of call option buying in the home and auto insurer today as its share price holds up relatively well in the face of a 1% loss for the major market averages. At $29.36 shares are off by just a nickel, possibly still sheltered by a 22.7% surge in revenue and earnings that exceeded investor hopes earlier in the week. Call option buying at the April expiration $31 strike has so far totaled more than 22,000 contracts. Buyers paying around 65 cents per contract for rights to get long of shares in the insurer should they rally by more than 5.6% in the next nine weeks are clearly banking on a rebound to the January peak above $31.50. Implied volatility has slumped in the aftermath of earnings further eroding the premiums today.
BWLD – Buffalo Wild Wings Inc. – An earnings miss earlier in the day from the Minneapolis-based restaurant operator attracted option investor attention today. The activity is curious simply because it’s contrarian. The share price slumped more than 12% earlier to $41.28 before steadying to $43.00. The decline in options implied volatility to 37% is twice the decline in the share price and is perhaps behind investors willingness to write almost 2,000 put options at the soon to expire February $40 strike. Premium sellers, who…
by Option Review - September 28th, 2009 4:42 pm
Today’s tickers: UNG, QCOM, PXP, XRX, ALL, AMAT, MU & CMCSA
UNG - Shares of the natural gas exchange-traded fund are currently off by more than 1% to $11.80. One investor has picked up some serious downside protection on the fund today by purchasing a large chunk of put options in the April 2010 contract. We believe the trader is likely holding a long stock position in the UNG. It appears the trader purchased 31,000 puts at the April 9.0 strike for a premium of 75 cents per contract. The net cost of the put options amounts to $2,325,000. Shares of UNG would need to decline 30% from the current price before downside protection kicks in beneath the breakeven point at $8.25. Perhaps the put buyer expects the fund to reach a new 52-week low by expiration in April. The current 52-week low of $8.94 was attained on September 3, 2009. We note that it is always possible the trader is essentially shorting the stock and placing a large bearish bet on the ETF in order to profit from downward movement in the share price. – United States Natural Gas ETF –
QCOM - A tech-sector rally fueled by an analyst upgrade of Cisco Systems (CSCO) this morning helped boost shares of QCOM 2.5% during the trading session to $45.82. The manufacturer of wireless network products attracted optimistic option traders to the November contract. We observed plain-vanilla put selling at the November 42 strike where it appears 5,000 lots were sold short for an average premium of 92 cents apiece. Investors shorting the contracts will retain the full 92 cent premium as long as shares of QCOM remain higher than $42.00 through expiration. But, if the November 42 strike puts land in-the-money, investors short the contracts will have shares of the underlying put to them at $42.00 each. Finally, a sold strangle was initiated through the sale of 1,200 puts at the November 43 strike for 1.07 apiece, in combination with the sale of 1,200 calls at the higher November 50 strike for 81 pennies each. Investors ‘strangling’ QCOM receive a gross premium of 1.88. The full premium is retained by these individuals as long as the stock trades within the confines of the strike prices described through expiration in November. Traders face losses in the event that shares swing 13% higher to surpass the upper breakeven point at $51.88, or if…
by Phil Davis - June 17th, 2009 4:36 pm
Today’s tickers: FXI, KRE, WFC, FDX, JWN, HUM, ALL & MSFT
FXI– The Chinese ETF is higher by less than 1% to stand at $37.35, but we noticed a number of investors getting long of protective put options in the July contract. It appears that approximately 50,000 puts were purchased at the July 34 strike price for an average premium of 1.25 per contract. Due to the large size of the trade, it is likely that the investor was either already long shares of the underlying or perhaps bought shares of the stock today. The puts provide downside protection beginning at any share price below the breakeven point at $32.75. Additional put buying was observed at the nearly at-the-money July 37 strike price where about 5,000 puts were picked up for 2.53 each. Later this afternoon a large straddle has been sold at the July 38 series involving 15,000 calls and puts on each side for a combined premium of 4.35. The investor doesn’t want shares to stray above a share price of $42.35 or fall beneath $33.65 ahead of expiration. – iShares FTSE/Xinhua China 25 Index Fund
KRE– The regional banking fund has declined less than 1% to $18.97. The KRE ticker symbol leapt onto our ‘most active by options volume’ market scanner after a burst of activity in the July contract. One investor took profits today by selling to close a long put position. He originally purchased 30,000 puts at the July 22.5 strike price for 3.30 apiece back on June 2, 2009. Today He sold all 30,000 lots for 4.10 per contract. The profit on the trade amounts to 80 cents or $2,400,000. Hoping to see similar gains in the future, the same individual appears to have enacted a repeat performance by purchasing another 30,000 puts at the lower July 20 strike price for an average premium of 2.15 each. The trader will once again pocket profits if he can manage to sell to close at a price higher than the premium paid today. – SPDR KBW Regional Banking ETF
WFC– Shares of the large TARP-recipient bank have slipped more than 3% today to $23.67 amid Standard & Poor’s revision of WFC’s counterparty credit rating down to AA-/A-1+. The outlook from S&P Ratings Services is reportedly negative and options activity on the stock today suggests some investors expect continued bearish movement on the stock through expiration…
by Option Review - May 18th, 2009 4:15 pm
Today’s tickers: EEM, VALE, CSCO, ALL, IBN, STT & XLE
EEM– Shares of the emerging markets ETF have jumped 5% today to stand at $31.58. Ignoring the current bullish movement in the underlying share price, one option trader looked to the December contract to initiate a ratio put spread in the expectation that shares may decline by expiration. The investor established the trade by purchasing 5,000 puts at the December 31 strike price for 3.71 each spread against the sale of 10,000 puts at the December 25 strike for a premium of 1.51 apiece. The net cost of the transaction amounts to 69 cents and yields a maximum potential profit of 5.31 to the trader if shares were to fall to $25.00 by expiration. – iShares MSCI Emerging Markets Index ETF
VALE– The metals and mining company has experienced a share price rally of more than 6% to $18.49 amid reports from Vale’s CEO, Roger Angelli, that the company will likely invest $10.5 billion down from the previous estimate of $14 billion due to lower costs and a weaker Brazilian real. Option traders expressed mixed sentiments in the near-term June contract where the majority of option contracts exchanged hands. One investor got long of some 18,000 puts that appear to have been purchased for about 25 cents each at the June 15 strike price. Perhaps he is long the stock and is looking to protect his position from potential erosion of the share price through the breakeven point on the trade at $14.75. The in-the-money June 18 strike price saw 9,000 calls sold for an average premium of 1.17 apiece. It is possible that investors are selling premium on the share price rally and, like the put-buying bear above, see shares giving back gains by expiration. Traders will retain the full premium enjoyed on the sale if the June 18 calls land out-of-the-money by expiration. We note the possibility that approximately 7,500 of the calls sold at the June 18 strike price are part of a covered call by an investor who bought the stock and sold the calls to effectively lower the price paid per share by 1.17. If this is the case, the trader will have the underlying shares called away from him if the calls remain in-the-money and are exercised by expiration. – Companhia Vale do Rio Doce ADS
by Option Review - May 7th, 2009 4:21 pm
Today’s tickers: CVC, CX, ALL & VALE
CVC Cablevision Systems Corporation – Shares of the cable operator have climbed by more than 2.5% to $18.84 after reporting that first-quarter revenue increased by 10.6% to $1.903 billion. We observed bullish activity on the stock by investors looking for continued upward movement in share price. The May 20 strike had some 4,900 calls coveted for an average premium of 97 cents apiece. Further up at the May 22.5 strike price, about 1,300 calls were bought for 29 cents per contract. Finally, individuals looking for near-term downside protection targeted the May 15 strike price to pick up about 1,400 put options for an average premium of 22 cents each. Option implied volatility on the stock surged from 53% at the start of the trading day up to as high as 71% before dropping of a bit to the current value of 69%.
CX Cemex SAB de CV ADS – The provider of ready-mix cement and other construction materials has declined by more than 3.5% to $10.00. One bearish investor sees shares continuing to decline in the medium-term and today established a ratio credit spread in the July contract in the magnitude of two-to-three. It appears that he sold 17,500 calls at the July 7.5 strike price for a premium of 3.30 apiece and simultaneously purchased 24,500 calls at the July 10 strike for 1.65 each. The investor retains the credit as long as shares remain below $10.00 by expiration. Since he is long more calls at the July 10 strike than he is short at the July 7.5 strike, should shares rally hard the position will effectively leave him long of calls. Thus, if shares should rally rather than fall by expiration, he would begin to profit on the upside on the 7,000 lot call position.
ALL The Allstate Corporation – The insurance giant’s shares have jumped more than 8.5% to $28.00 ahead of its first-quarter earnings report set for release after the market closes this evening. The bullish rise in shares is on the heels of stronger than expected earnings reported by its competitor, Prudential (PRU). ALL leapt onto our ‘most active by options volume’ market scanner after one investor initiated a large-volume calendar spread. It appears that the individual sold 30,000 calls at the October 35 strike price for 1.35 in order to finance the purchase of 30,000 now in-the-money…