Bearish Spread On DuPont Suggests Shares On The Decline In 2012
by Option Review - December 9th, 2011 1:25 pm
Today’s tickers: DD, BCSI, JBLU & FCS
DD - EI du Pont de Nemours & Co. – Shares in the U.S. chemical maker dropped on Friday after the company lowered full-year earnings guidance by $0.10 a share to a range of $3.87 to $3.95 a share. The stock is off its lowest point of the session to stand 4.75% lower on the day at $44.31 just before 12:00 PM ET. Activity in DuPont put options expiring in January 2012 indicate some traders are positioning for the price of the underlying to extend losses in the near term. It appears one strategist initiated a ratio put spread, buying 2,250 puts at the Jan. 2012 $41 strike for a premium of $0.94 each, and selling 4,500 puts at the lower Jan. 2012 $38 strike at a premium of $0.48 apiece. The spread yields a net credit of $0.02 per contract and positions the trader add to profits in the event that shares drop 7.5% from the current price of $44.31 to breach the effective breakeven point on the downside at $41.00 by expiration. Maximum potential profits of $3.02 per contract are available to the investor should DuPont’s shares plunge 14.2% to settle at $38.00 at expiration day in January. The chemical company is scheduled to report fourth-quarter earnings ahead of the opening bell on January 25, after the Jan. 2012 expiry puts will have expired.
BCSI - Blue Coat Systems, Inc. – Investors that bought December expiry call options in the latter half of November saw the value of their positions sky-rocket overnight on news Blue Coat Systems, Inc. agreed to be purchased by an investor group for a reported $1.3 billion. Shares in the provider of Internet-security software jumped 44.5% to $25.27 in the first half of the trading session. Call open interest in the front…
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DiggButterfly Spread Calls For Target Rally
by Option Review - August 17th, 2011 2:57 pm
Today’s tickers: TGT, ALTR, BCSI & SHW
TGT - Target Corp. – Post-earnings options trading on Target this morning appears to be littered with profit-taking and fresh bullish positioning, among other strategies. Shares in the Minneapolis, MN-based retailer jumped 5.85% to an intraday high of $52.26 after the company posted better-than-expected second-quarter profits. The sharp rally in TGT shares has cooled somewhat, but the stock still stands 2.65% higher on the day at $50.68 as of 11:50 am in New York. In- and out-of-the-money call selling in the front month may be the work of traders taking profits off the table. It looks like investors sold more than 2,400 now in-the-money calls at the August $50 strike for an average premium of $1.94 this morning, and shed another 3,700 calls at an average premium of $0.34 each up at the August $52.5 strike. Substantial open interest in excess of 14,500 calls at each strike indicates traders could be selling-to-close positions. Alternatively, investors may be engaging other strategies such as covered call selling, or outright call selling ahead of expiration on the view that the options will expire worthless or nearly worthless on Friday as time erosion accelerates.
Longer-term activity in Target options suggests one strategist sees shares in the second-largest U.S. discount retailer soaring ahead of January 2012 expiration. It appears the bullish player purchased a call butterfly spread, buying 1,700 calls at the Jan. 2012 $57.5 strike, selling 3,400 calls at the $60 strike, and purchasing 1,700 calls up at the $62.5 strike, all at a net premium of $0.27 per contract. The butterfly spread positions the trader to make money should Target’s shares surge 14.0% in the next six months to surpass the effective breakeven price of $57.77 by January expiration day. Maximum potential profits of $2.23 per contract pad the investor’s wallet in the event that shares jump 18.4% over the current price of $50.68 to settle at $60.00 at expiration next year. The strategy selected greatly reduces premium required to…
Options Look For GM Rebound Down The Road
by Option Review - August 16th, 2011 1:50 pm
Today’s tickers: GM, BCSI, DSX & GME
GM - General Motors Co. – A couple of bullish bets in options covering automobile manufacturer, General Motors, may prove prudent investments for some strategists should shares in GM increase approximately 15.0% by January expiration. Shares in the Detroit, MI-based company are on the rise in early-afternoon trade, standing 0.45% higher on the session at $26.54 as of 12:10 pm in New York. It looks like options players initiated two ratio call spreads this morning. The larger of the transactions involved the purchase of 3,602 calls at the Jan. 2012 $26 strike at a premium of $2.82 each, against the sale of 7,204 calls up at the Jan. 2012 $30 strike for a premium of $1.22 apiece. Net premium paid for the spread amounts to $0.38 per contract, thus positioning the trader to make money should shares in the automaker exceed the effective breakeven price of $26.38 at expiration in January. The investor could rake in maximum potential profits of $3.62 per contract in the event that shares in GM rally 13.0% to settle at $30.00 at expiration next year. Meanwhile, the smaller and more optimistic of the trades engaged the purchase of 1,000 Jan. 2012 $27 strike calls for an average premium of $2.37 each, and the sale of twice as many of the Jan. 2012 $31 strike contracts at an average premium of $0.97 a-pop. The net cost of the spread amounts to $0.43 apiece, and therefore an average breakeven share price of $31.43. Maximum potential profits of $3.57 per contract are available on the trade should shares in the car maker surge 16.8% to settle at $31.00 at expiration day. Shares in GM last traded above $31.00 back in mid-July.
BCSI - Blue Coat Systems, Inc. – Call options on Blue…
Demand for Blue Coat Systems Call Options Pops
by Phil - April 15th, 2011 4:13 pm
Today’s tickers: BCSI, BHP, KFT & MOBI
BCSI - Blue Coat Systems, Inc. – Speculation and unconfirmed rumors that Cisco may be interested in acquiring rival Blue Coat Systems sent shares in Sunnyvale, CA-based Blue Coat up as much as 8.0% this afternoon to an intraday high of $28.85. Investors flocked to the May contract to buy out-of-the-money call options on the stock in case the there’s any element of truth driving the takeover chatter, or simply to benefit from rising call premiums that result from the higher implied volatility and share price that’s likely to accompany continued speculation. Options traders exchanged more than 4,500 calls at the May $29 strike on open previously existing open interest of just 150 contracts. It looks like bulls purchased the majority of the calls for an average premium of $0.71 apiece. Call buyers stand prepared to profit in the event that Blue Coat’s shares rally another 3.0% to surpass the average breakeven price on the upside at $29.71 by May expiration. Investors purchased another 1,000 call options up at the May $30 strike, paying an average premium of $0.57 a-pop. Higher-strike call buyers make money if shares in Blue Coat Systems increase 6.0% over today’s high of $28.85 to exceed the average breakeven share price of $30.57 in the time remaining to expiration. Options implied volatility on the stock jumped 21.8% to 50.04% on Friday afternoon, and continues to climb in the final hours of the trading week.
BHP - BHP Billiton Limited – Put players initiated diverse bearish options strategies on the natural resources company today, with shares in BHP Billiton slipping 0.65% to $99.79 on speculation China may do more to combat the faster-than-expected rise in inflation. The bulk of volume generated in BHP’s options appears to be the work of one…
Options Traders Position for Pullback in S&P 500 Index
by Option Review - January 20th, 2011 4:57 pm
Today’s tickers: SH, APC, BCSI & SNV
SH - ProShares Short S&P500 ETF – Call buying on the ProShares Short S&P500, an exchange-traded fund that seeks daily investment results that correspond to the inverse of the daily performance of the S&P 500 Index, indicates options traders expect the pullback in the market to continue through February expiration. The massive run up in stocks since September 2010 drove the ProShares Short S&P500 ETF to a 52-week low of $42.63 last Friday. But, shares in the fund have started to climb with rising fears over dampening economic growth, pushing the price of the underlying up 0.55% today to $43.21 as of 12:15pm in New York. Bearish players picking up call options foresee shares in the fund rising, and consequently the S&P 500 Index falling ahead of February expiration. More than 6,790 calls changed hands at the February $45 strike on open interest of just 978 contracts. It looks like the majority, or roughly 5,140 of the calls, were purchased for a premium of $0.20 a-pop. Investors purchasing the call options make money if shares in the fund rally another 4.6% to surpass the effective breakeven price of $45.20 ahead of expiration day next month. Total volume in options traded on the ProShares Short S&P500 has climbed to 9,083 in early afternoon trade today, which is substantial compared to the 14,880 lots of overall previously existing open interest on the fund. Options implied volatility on the ETF has inched up 5.1% to 16.14% as of 12:20pm.
APC - Anadarko Petroleum Corp. – Shares of the oil and gas exploration and production company are currently down 1.90% to stand at $75.00 as of 11:10am in New York, but it looks like one optimistic options player is taking advantage of the pullback by placing a bullish bet on the stock in May contract. Anadarko is scheduled to report earnings for the fourth quarter after the market closes on January 31, 2011. The debit call spread strategy employed on APC this morning…
Three-Legged Bears Tackle Emerging Markets Options
by Option Review - January 19th, 2011 4:14 pm
Today’s tickers: EEM, MRVL, BCSI & XRT
EEM - iShares MSCI Emerging Markets Index ETF – A number of large-volume spreads on the emerging markets fund this morning signal investor pessimism on the sector through February expiration. Shares of the EEM, an exchange-traded fund designed to measure equity market performance in the global emerging markets, fell 0.50% to $47.62 by 12:20pm in New York. Three-legged bearish spreads, wherein investors sold out-of-the-money calls to partially finance the purchase of put spreads, are popular with strategists populating the EEM today. The larger of two similar bearish plays involved the sale of 15,500 calls up at the February $52 strike for a premium of $0.05 each, purchase of the same number of puts at the February $47 strike at a premium of $0.96 apiece, and the sale of 15,500 puts at the lower February $43 strike for premium of $0.19 each. The net cost of the transaction amounts to $0.72 per contract and positions the responsible party to profit should shares in the EEM decline another 2.80% from the current price of $47.62 to breach the effective breakeven point to the downside at $46.28 ahead of February expiration day. Maximum potential profits of $3.28 per contract are available to the trader should shares in the ETF drop 9.7% lower to trade below $43.00 before the contracts expire next month. A like-minded tactician established a similar spread, but sold call and put options at closer-to-the-money strikes to further reduce the premium required to take a bearish stance on the fund. This options player sold 14,000 of the February $50 strike calls, picked up 14,000 puts at the February $47 strike, and sold the same number of puts at the February $43 strike. The trader paid a net premium of $0.24 per contract and breaks even on the spread if the EEM’s shares decline 1.80% to trade below $46.76 ahead of expiration. Maximum potential profits of $1.76 per contract pad the investor’s wallet should shares dip below $45.00 at expiration next month. Selling calls at the February $50 and $52 strikes reduces the cost of the bearish spreads, but is not a riskless tactic to employ. Investors are on the hook to deliver…
Contrarian Player Plants Bull Call Spread on Seed Maker Monsanto Co.
by Option Review - September 29th, 2010 6:23 pm
Today’s tickers: MON, EWZ, XLB, HPQ, V, BCSI & SLB
MON - Monsanto Co. – Shares of the maker of genetically modified seeds seemed to be recovering at the start of the current session following Tuesday’s horrendous performance wherein the stock fell as much as 9.80% from an intraday high of $52.64 to a low of $47.50. MON’s shares managed to rebound 4.50% off Tuesday’s low of $47.50 to briefly touch an intraday high of $49.62, although the rally proved to be short-lived and shares are down 1.00% at $48.25 as of 3:15 pm ET. Though MON was unable to keep hold of earlier gains, one contrarian player is optimistic that Monsanto’s shares will reverse course and head back up by November expiration. The investor purchased a call spread, buying 5,000 calls at the November $55 strike at a premium of $0.85 each, and selling the same number of calls at the higher November $60 strike for a premium of $0.27 apiece. Net premium paid to establish the transaction amounts to $0.58 per contract. Thus, the investor is ready to make money should Monsanto’s shares surge 15.20% over the current price of $48.25 to surpass the effective breakeven point on the spread at $55.58 by November expiration. Maximum potential profits of $4.42 per contract are available to the bullish player if MON’s shares jump 24.35% to trade above $60.00 by expiration day.
EWZ - iShares MSCI Brazil Index ETF – Investors are placing near-term bearish bets on the Brazil fund this afternoon by selling calls to finance the purchase of put spreads in the October contract. The large pessimistic plays could be the work of traders hedging long positions or the mark of outright bearish bettors expecting the price of the underlying fund to slip lower ahead of expiration next month. Shares of the EWZ, an exchange-traded fund designed to replicate the price and yield performance of publicly traded securities in the aggregate in the Brazilian market – as measured by the MSCI Brazil Index, rallied…
Staples Firm – Proctor & Gamble Options Suggest Further Upside
by Option Review - November 6th, 2009 4:53 pm
Today’s tickers: PG, CTXS, LINTA, HIG, CVS, UUP, VIX, AONE, SWKS, CLX, BCSI & NVDA
PG – The Proctor & Gamble Co. – Bullish action on Proctor & Gamble today suggests one investor expects shares to continue to rally ahead of expiration in November. Shares are currently trading 1% higher to $61.13. The trader purchased 10,000 calls at the now in-the-money November 60 strike for 1.39 each, and simultaneously sold 10,000 calls at the higher November 62.5 strike for 26 cents apiece. The net cost of buying the call spread amounts to 1.13 per contract and yields maximum potential profits of 1.37 each if shares rally up to $62.50 by expiration. Shares need only rally another 2.2% from the current price to reach the $62.50-level.
CTXS – Citrix Systems, Inc. – Software developer, Citrix Systems, attracted bullish option traders to the November contract today amid a 1% increase in shares to $38.80. Investors displayed optimistic sentiment on the stock by selling approximately 10,600 puts at the November 35 strike for 10 cents premium apiece. Put-sellers retain the full dime-per-contract as long as shares remain above $35.00 through expiration this month. Shares of CTXS have traded above $36.00 since September 4, 2009.
LINTA – Liberty Media Corp. – Shares of the broadcasting and entertainment company rallied 1% during the trading session to $12.14. Plain-vanilla call buying action on the stock today suggests some investors expect shares to rise significantly by expiration in January 2010. Traders purchased about 11,800 calls at the January 15 strike for an average premium of 25 cents apiece. Call-buyers will accumulate profits if shares surge at least 26% from the current price to surpass the breakeven point at $15.25 by expiration.
HIG – Hartford Financial Services Group, Inc. – Medium-term investors placed bearish bets on the insurance and financial services firm today. Shares are currently trading less than 0.25% higher to $24.16 after suffering significant erosion throughout the week. One pessimistic trader initiated a bearish risk reversal in the January 2010 contract. The investor sold 4,500 calls at the January 27 strike for an average premium of 78 cents apiece to partially finance the purchase of the same number of put options at the lower January 21 strike for 1.68 each. The net cost of the transaction is reduced to a more palatable 90 cents per contract, but does leave the investor exposed in the event of…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
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