Satyam Computer Attracts Bullish Option Strategies

by Option Review - August 31st, 2009 5:22 pm

Today’s tickers: SAY, UNG, DVN, BJS, AXP, & IP

SAY - The global IT solutions provider popped up on our ‘hot by options volume’ market scanner this afternoon after bullish call activity was observed in the near-term September contract. Shares of the firm have rallied higher by more than 16% during the session to stand at the current price of $6.37. Investors appear to have purchased approximately 4,000 calls at the September 7.5 strike for an average premium of 35 cents apiece. Shares of SAY would need to surge 23% higher in order for traders long the calls to begin to amass profits above the breakeven price of $7.85. Bullish sentiment spread to the October 7.5 strike where another 1,600 calls were scooped up for a premium of 51 cents. Option implied volatility on Satyam has exploded upwards from an intraday low of 74% to the current reading of 120%. We note that the 15,000 contracts exchanged on the stock today represent more than 54% of the total existing open interest on SAY of 27,735 lots. – Satyam Computer Service Limited –

UNG - Shares of the natural gas exchange-traded fund have slipped 4.4% lower today to reach a 5-year low of $10.64. Despite the present weakness in UNG, one investor was seen making far-term bullish bets on the fund by targeting the April 2010 contract. It appears that the trader established a bullish reversal play by shedding 3,000 puts at the April 10 strike for 1.85 apiece in order to purchase 3,000 calls at the higher April 11 strike for 1.82 each. The trader receives a net credit of 3 pennies per contract and has positioned himself to add to his gains if shares rally higher than $11.00 by expiration. The short put position indicates that the investor is happy to have shares put to him at an effective price of $8.15 in the event that the put options land in-the-money by expiration. Shares need only remain higher than $10.00 for this individual to retain the 3 cent credit indefinitely. – United States Natural Gas ETF –

DVN - The independent energy company appeared on our ‘most active by options volume’ market scanner following contrarian options activity in the January 2011 contract. Shares of DVN may have slipped more than 2% lower to $61.15 today, but did not deter one option trader from initiating a bull call spread on the stock. Hoping…

Tags: AXP, BJS, DVN, IP, SAY, UNG

No Comments »

 Email This Post Facebook Twitter LinkedIn del.icio.us Digg

Weekend Wrap-Up, Ripping Through the Top or Topping and About to Tip?

by Phil - July 25th, 2009 12:34 pm

What a week this has been!

In last week’s 600-Point Weekly Wrap-UP, I said it would take some spectacular earnings results next week to keep the rally going and it seems like we got them this week as roughly 85% of the companies reporting this week beat expectations with 42 of this week’s reporting companies guiding up and only 18 guiding down.  While people like Richard Bernstein may make very good arguments for why we shouldn’t focus too much on quarterly earnings surprises, I have to say I am somewhat swayed by the preponderance of evidence we’ve gotten this week that, by and large, the vast majority of our companies are weathering the storm far better than analysts have expected.  

"It’s pretty amazing what passes for good news these days," remarks Barry Ritholtz on his blog, The Big Picture (www.ritholtz.com.) "Beating dramatically lowered earnings forecasts on cost-cutting and layoffs — rather than top-line growth — seems to be the order of the day.  The irony is that the Wall Street analyst community overestimated earnings at the top of the cycle — pure extrapolation of trend to infinity. They seem to be doing the same thing now, only extrapolating falling earnings to zero. What that produces is not true upside surprises, but merely jumping over a dramatically lowered bar," he says. 

It’s interesting Barry says this now because it sounded familiar and I went back to my May 2nd Weekly Wrap-Up, where the sentiment was very similar and I said at the time: "With 2/3 of the S&P 500 weighing in, earnings have been 70% positive.  I had warned earlier in the week that we are only beating a very low bar but we are beating nonetheless.  As you can see from the above chart, even if we do keep moving up, we are heading into some very serious overhead resistance that may not prove futile this time.  With the added pressure of the old "sell in May, go away" adage – there will be a lot of obstacles to overcome this week and next so we will remain on guard but we have also trained ourselves not to think and simply go with the flow, letting our levels guide us and, so far, our levels keep saying yes – despite our common sense saying no."

More importantly, with…

Tags: AMZN, AXP, BKC, CHSI, DIA, DUG, ERY, GLD, GS, IGT, IWM, LDK, MA, MSFT, MTXX, PGF, PGH, SKF, SNKD, SONC, SPXU, UGL, USU, VIX, VNO, WFC, ZION

Join Member's Chat - 19 Comments Here »

 Email This Post Facebook Twitter LinkedIn del.icio.us Digg

Friday Already – Now We Get The Buffett Boost!

by Phil - July 24th, 2009 8:23 am

Warren speaks at 8:30 on CNBC.

What are the odds he says SELLSELLSELL?  It would be a perfect bookend to a rally that started two weeks ago when CNBC’s guest was Meredith Whitney, who’s upgrade of the financials sparked off the biggest market rally in almost 20 years.  After bailing out even on our $1.20 QID $29 calls yesterday morning (thank goodness!), we had the nerve to go for the QID $28 calls into the close for $1.15.  We thought we hit that one out of the park with both AMZN and MSFT disappointing investors.  After all, doesn’t MSFT alone make up 7.9% of the  Nasdaq?  Little did we know they had Buffet on deck and we all know he can knock it out of the park anytime.

We were otherwise wishy-washy into the close.  We broke out of our watch level on the NYSE and it was what we like to call a "Free Money Day" as the market headed up and up and up all the way into the close so it was hard to go bearish, even though we are now at the top of our expected range, with the Dow testing (and failing) our 9,100 5% rule.  I’ll be drawing up a new Big Chart Review this weekend but my statement to Members in our 3:42 alert was: "Japan is very likely to break 10,000 tomorrow and the HSI should move up too.  Europe ran out of time or they would have gone higher so it’s not likely we go down first thing tomorrow."

Even with the disappointing results from our tech leaders, both the Nikkei and the Hang Seng made good efforts with Japan finishing the week at 9,944 (up 151 points, 1.5%) and the Hang Seng just failing to hold 20,000 and up another 0.8% to finish the week with a neat 1,000-point gain (5%).  As I said in yesterday’s morning post: "the market’s WANT to retrun to the 33% off (the highs) level."  We did make it "through the roof" yesterday and today’s question is going to be – can we hold it?

As you can see from Trader Mike’s S&P chart, we have a rapidly rising trendline that is very exciting if we hold it but also means we have very little tolerance for failure.  This is what I sometimes refer to as an "air…

Tags: AMZN, AXP, BIDU, IGT, LYG, MSFT, QID, SO, SRS, WFC

Join Member's Chat - 136 Comments Here »

 Email This Post Facebook Twitter LinkedIn del.icio.us Digg

Option Bulls Order Calls with a Side of Fries

by Option Review - July 22nd, 2009 4:43 pm

Today’s tickers: WEN, JNPR, VIX, CLX, BBY, AAPL & AXP

WEN – Despite the 2% decline in shares to $4.59 today, WEN was flooded by investors looking for bullish call options in the September contract. Approximately 9,000 calls were coveted by fans of the Frosty at the September 5.0 strike price for an average premium of 32 cents apiece. Investor’s long the calls are hoping the stock rises at least 16% through the breakeven point at $5.32 by expiration. The 10,861 option contracts exchanged on the stock today represents more than 66% of the existing open interest for WEN of 16,325 lots. We note that Wendy’s/Arby’s Group shares have not traded higher than $5.32 since April 29, 2009. – CBOE Volatility Index

JNPR – The network-equipment maker jumped onto our ‘most active by options volume’ market scanner today after a four-legged bullish trade was initiated in the near-term August contract. Shares of the firm are off by more than 2% today to stand at $25.27 perhaps on news that IBM plans to sell Juniper switches and routers under its own brand name. It appears that the investor responsible for the transaction is expecting JNPR to rebound as he was seen selling put options on the stock to fund the purchase of a call spread. The sale of 9,300 puts at the August 22 strike price for about 35 cents each, in combination with the sale of 9,300 puts at the lower August 21 strike for 25 cents apiece, yielded the trader a gross premium of 60 cents. The bullish investor then looked to the August 27 strike price where he purchased 9,300 calls for an average premium of 1.10 per contract spread against the sale of 9,300 calls at the higher August 30 strike for 25 cents each. The net cost of the call spread, after factoring in the sale of the put options, amounts to just 25 cents. Thus, the individual responsible for the transaction stands to bank maximum potential profits of 2.75 if shares of JNPR can rally up to $30.00 by expiration. The stock must rally higher by about 8% before the investor begins to accumulate profits starting at the breakeven share price of $27.25. – Juniper Networks, Inc.

VIX – Investors were found wading through molasses today helped by better earnings from Apple, but disappointed by financial companies, where the sector exemplified the view that…

Tags: AAPL, AXP, BBY, CLX, JNPR, VIX, WEN

No Comments »

 Email This Post Facebook Twitter LinkedIn del.icio.us Digg

American Express Investor Trades Puts for Calls

by Phil - July 21st, 2009 5:42 pm

Today’s tickers: AXP, EFA, XL, LXK, AVP, WERN, ISRG & CHK

AXP – An investor hoping for a medium-term rally in AXP put on a bullish reversal in the October contract. Shares of the global payments and travel company are currently trading a wee-bit higher, up 0.25% to $28.94. The reversal involved the sale of 7,500 puts at the October 26 strike price for a premium of 1.45 each spread against the purchase of 7,500 calls at the higher October 31 strike for 1.85 apiece. The investor paid a net 40 cents for the transaction. He will realize profits on the trade if shares can rally 9% higher to breach the breakeven point at $31.40 by expiration. Interestingly, we essentially observed the antithesis of the trade we just described, last Friday July 17, 2009. Rather than getting long call options, an investor last week sold calls at the October 30 strike to buy put options at the October 25 strike. The direction in which the price of the underlying moves over the next few months will determine whether today’s bullish reversal or last week’s risk reversal result in profits to those individuals responsible for the trades. – American Express Co.

EFA – Shares of the exchange-traded fund have dipped 0.25% to stand at $47.63 this afternoon. The EFA caught our attention after a couple of bullish reversals were established in the December and January 2010 contracts. One investor sold 5,000 puts at the December 49 strike price for a premium of 3.90 apiece in order to purchase 5,000 calls at the same strike for 2.72 each. The trader received a net credit of 1.18 per contract for the transaction. Additional profits are available if shares rally above $49.00 by expiration at the conclusion of 2009. Another bullish-reversal was enacted at the January 49 strike price, although the trade involved the sale of 1,100 puts against the purchase of 1,100 calls for a net credit of 1.53 to the investor. – iShares MSCI EAFE Index ETF

XL – The provider of insurance and reinsurance coverage edged onto our ‘hot by options volume’ market scanner after a large-volume transaction was initiated in the January 2010 contract. Shares of XL are currently off by 2% to $12.53. At first glance, the 20,000 put options purchased at the January 5.0 strike price for 35 cents apiece, smells of bearish. However, it appears that…

Tags: AVP, AXP, CHK, EFA, ISRG, LXK, WERN, XL

Join Member's Chat - No Comments Here »

 Email This Post Facebook Twitter LinkedIn del.icio.us Digg

Canadian Energy Bulls Seek Call Options in Suncor

by Option Review - July 17th, 2009 4:24 pm

Today’s tickers: SU, EEM, IBM, AXP, MOS, GE, YHOO & MMM

SU – The Canadian energy company appeared on our ‘most active by options volume’ market scanner today following a frenzy of bullish call buying activity in the August contract. Suncor’s shares climbed more than 4% during the trading day to $30.61, leading stocks in Canada higher on the rise in price of oil and the unexpected increase in June housing starts. Option-bulls purchased more than 17,000 calls at the August 31 strike price for an average premium of 1.56 apiece. Shares of SU must rally higher by about 6% in order for investors to begin to amass profits beyond the breakeven point of $32.56. Traders expecting an even sharper rise in the price of the underlying were seen picking up 5,300 calls at the higher August 32 strike for 1.00 per contract. These individuals are hoping shares breach $33.00 by expiration next month. – Suncor Energy Inc.

EEM – The emerging markets exchange-traded fund attracted one trader to initiate a bullish reversal amid a slight 1% rally in shares today to $33.61. The August 33 strike price had 20,000 puts sell for an average premium of 1.28 apiece spread against the purchase of 20,000 in-the-money calls at the same strike for 1.65 apiece. The net cost of the bullish play amounts to 37 cents to the investor responsible for the transaction. Selling the put options reduced the cost of buying the calls such that the trader has already amassed profits. Shares are currently 24 cents higher than the effective breakeven point of $33.37. Continued upward movement in the price of EEM will fatten this investor’s wallet through expiration. – iShares MSCI Emerging Markets Index

IBM – The world’s largest computer-services provider reported second-quarter earnings of 2.32 per share, putting average analyst estimates of 2.02 per share to shame. Shares of the firm have enjoyed a more than 3% rally today to $114.35, following the bullish earnings report. Option traders in the August contract have provided some guidance as to where the stock may be trading through expiration next month. The initiation of a sold strangle indicates this investor wants shares to remain at or about where they currently stand, yet has a decent amount of latitude into expiraiton. About 2,000 puts were sold for an average premium of 97 cents apiece at the August 105 strike price in…

Tags: AXP, EEM, GE, IBM, MMM, MOS, SU, YHOO

No Comments »

 Email This Post Facebook Twitter LinkedIn del.icio.us Digg

Bullish Motorola Play In Options Action

by Option Review - July 2nd, 2009 4:22 pm

Today’s tickers: MOT, AXP, JOSB & ILMN

MOT – A large-volume bullish reversal initiated in the October contract on MOT today suggests some investors are positioning for a rally. Currently shares are off by more than 3% to stand to $6.25. Perhaps traders are anticipating that Motorola’s new lineup of phones, based on Google’s Android operating system, will boost sales for the firm. It appears that approximately 15,000 puts were sold at the October 5.0 strike price for 14 cents apiece in order to partially fund the purchase of 15,000 calls at the October 7.0 strike for 34 cents per contract. The net cost of the bullish stance amounts to 20 cents. Thus, shares of MOT would need to rev upward by 15% from the current price to $7.20 in order for investors to profit by expiration. Interestingly, it appears that today’s reversal has been added to similar bullish positioning as seen in the open interest at each of the strike prices described. Today’s activity could be the work of an investor who is merely adding to a position. Or, perhaps we are seeing traders hopping on the bull-bandwagon. – Motorola, Inc.

AXP – The global payments and travel company edged onto our ‘most active by options volume’ market scanner after one bearish trader dug his claws into the August contract. AXP shares are down 1% to $22.75. It appears that the investor has sold 5,000 puts at the deep in-the-money July 25 strike price for 2.54 apiece in order to get long of 7,500 puts at the closer-to-the-money August 23 strike price for 2.03 each. The trader likely took profits on the sale of the near-term put options and proceeded to reestablish a position in protective put options at a lower strike with more time to expiration. – American Express Company

JOSB – The designer of men’s clothing and accessories has surrendered more than 6.5% to stand at $32.44 today. Traders expecting further declines initiated interesting trades involving put options. It appears that about 3,000 puts were sold short at the deep in-the-money July 35 strike price for a premium of 2.19 apiece and spread against the purchase of some 3,000 puts at the more bearish August 30 strike price for 1.39 per contract. The net credit received from the transaction amounts to 80 cents. Writing puts in the near-term July contract leaves traders exposed to…

Tags: AXP, ILMN, JOSB, MOT

No Comments »

 Email This Post Facebook Twitter LinkedIn del.icio.us Digg

NetApp option implied volatility jumps as call demand surfaces

by Option Review - April 8th, 2009 5:01 pm

Today’s tickers: NTAP, AXP, MOS, SEPR, GM, JNPR, ROK, VIX, TGT & TCK

NTAP NetApp, Inc. – Option implied volatility has skyrocketed from yesterday’s value of 56% to the current reading of 74% as merger fever has set its sights on the company. Shares have jumped more than 10% to $16.47 today, attracting many a bullish option trader hungry for some hot call action. Option volume has risen above 103,000 contracts on the day, with 3.65 calls traded for each put in action. The April 17.5 strike price saw some 10,700 calls purchased for 32 cents each while calls as high up as the April 22.5 strike were coveted for 5 cents per contract. More volume was seen building on the call side in the May contract with 9,100 calls bought at the May 17.5 strike for an average premium of 79 cents. Again, the most bullish traders selected the May 22.5 strike and picked up 3,700 calls for 16 cents apiece. Shares would need to continue to rally by 38% in order for the 22.5 strikes to land in-the-money by expiration. When looking for downside protection, investors clustered at the April 16 strike price and scooped up 7,400 puts at an average premium of 58 cents per contract.

AXP American Express Company – The global payments and travel company has enjoyed a 3.5% share price rally to $15.54 after it received an upgrade from Citigroup yesterday following Goldman Sachs’s decision to remove AXP from its ‘conviction sell’ list on Friday. Investor bullishness was apparent at the April 17 strike price where about 5,200 calls were purchased for an average of 20 cents apiece. Other optimists were observed picking up 1,000 calls at the April 19 strike price at a price of 5 cents per option contract. Volatility on the stock is on the rise, up from the low for the day of 82% to the current value of 89%.

MOS The Mosaic Company – The producer of potash and animal feed has made a comeback since this morning with its shares currently up 5% to $45.15 after having fallen 4% in pre-market trading. Shares started down due to disappointing third-quarter results, which revealed that profits declined dramatically to just 13 cents a share as compared with $1.17 per share one year ago. The company’s CEO, James T. Prokopanko, is looking for Mosaic’s financials to improve in the fourth quarter.…

Tags: AXP, GM, JNPR, MOS, NTAP, ROK, SEPR, TCK, TGT, VIX

No Comments »

 Email This Post Facebook Twitter LinkedIn del.icio.us Digg

American Express bulls play calendar spread

by Option Review - March 3rd, 2009 5:33 pm

Today’s tickers: AXP, JNPR, GE, XLF, JPM, WFC, DNA, COP & XOM

AXP – American Express Company – Shares of the global payments and travel company have rallied by 7% to $11.83, an upward move which is likely due to the news that AXP’s fourth quarter earnings were favorably revised yesterday because of an accounting error. Adjustments boosted earnings per share to 21 cents from the previously recorded 15 cents for the quarter, and net income for the year amounted to $2.7 billion up from $2.63 billion originally. Option traders welcomed the unexpected news and established bullish positions on AXP today. One indication of bullishness was the rash of put selling in the March contract. March 10 and 12.5 strikes were heavily sold. Juxtaposed with the near-term bullishness observed is one far-term optimist on AXP, who sees shares doubling by January 2011. In the January 2010 contract at the 20 strike price 10,000 calls were sold for 95 cents each. Using the 20 strike price in January 2011, 10,000 calls were purchased for 1.95 apiece. For this calendar spread to come good, shares would need to nearly double from the current level. We have to think that this spread is already or will be coupled with underlying stock with the risk that the investor is left deficient of shares in the event of a break through $20.00 ahead of expiration.

JNPR – Juniper Networks Inc. – Shares have remained relatively flat today, having fallen just 0.15% to $13.46. The assured and secure Internet Protocol networking solutions company caught our attention due to its high call-to-put ratio which is currently favoring calls 11 times to every single put in play. But, the majority of the calls traded today were sold, indicated an overall bearish picture of the stock. At the March 13 strike price, 3,300 in-the-money calls were sold for 88 cents apiece – perhaps profit taking by investors exiting existing positions at that strike. At the March 14 strike 3,500 calls were shed for 42 cents apiece. The same trend was observed in the April contract where the April 12 strike price had 4,000 calls sold for 1.96, the 13 strike price saw the sale of over 5,100 calls for a premium of 1.28, and the 14 strike had more than 3,600 calls sold for 80 cents per contract. Implied volatility has come off since yesterday reading of 60% to…

Tags: AXP, COP, DNA, GE, JNPR, JPM, WFC, XLF, XOM

No Comments »

 Email This Post Facebook Twitter LinkedIn del.icio.us Digg

Hartford covered call writer strikes gold, albeit rather early in the game

by Option Review - February 24th, 2009 5:19 pm

Today’s tickers: HIG, ORCL, LDK, AXP, MS, JNPR, RIO & BWA

HIG – The Hartford Financial Services Group, Inc. – The roof is on fire at HIG after shares sky-rocketed up by over 23.5% to $8.25. But, one investor appears to have jumped the gun today by initiating the sale of over 17,000 calls at the January 2011 7.5 strike price for a premium of 3.90 at which point the tinder was aflame, but the roaring blaze was yet to come. We believe the sale was part of a covered call in which the underlying shares were purchased simultaneously. The investor appears to have been selling volatility which was 130.3% at the 7.5 strike when shares were at $6.65. It is likely that he was happy with the 3.90 in premium coupled with the hope inherent in this trade of a 13% rally in shares to $7.50. The investor was likely thinking that if shares rose to meet the strike price, the underlying stock would likely get called away from him at expiration. However, in hindsight it seems the timing of his trade was poor as premiums have since soared to 5.20 and shares have exited the building (so to speak).

ORCL – Oracle Corporation – Shares of the software and services company have increased by roughly 3% to stand at $16.35. ORCL caught our attention due to a number of noteworthy options trades that played out today. A sold strangle was initiated in April by selling 7,500 puts at the 14 strike price for a premium of 50 cents, and by selling 7,500 calls at the April 18 strike for a premium of 53 cents each. The gross premium pocketed by this investor amounts to 1.03 on the trade. Thus, it appears that this trader does not see much by way of recovery for Oracle in the next couple of months, rather seeks experience maximum retention of the 1.03 premium if shares remain within the borders set by the April strikes selected. If shares were to swing outside the strikes, this investor would experience losses beginning at $12.97 on the downside and at $19.03 on the upside. Looking past April showers, a number of bulls were observed scooping up calls in June. Purchases were made at a number of strikes and settled as far up as the June 22 strike price, where 6,000 calls were bought for 15 cents…

Tags: AXP, BWA, HIG, JNPR, LDK, MS, ORCL, RIO

No Comments »

 Email This Post Facebook Twitter LinkedIn del.icio.us Digg