Earnings Beat Spurs Lively Trade In Schlumberger Options
by Option Review - July 22nd, 2011 3:45 pm
Today’s tickers: SLB, BSX, PSS & IFF
SLB - Schlumberger Ltd. – Shares in the world’s largest oilfield-services provider shot up 3.6% to $94.28 today after the company revealed better-than-expected earnings for the second quarter. Schlumberger said profits in the quarter increased 64% on rising crude prices, which spurred more onshore drilling on U.S. soil. Options traders appear to be employing numerous strategies on the stock, from profit-taking to fresh bullish positioning, across several expiries. Trading traffic is heaviest in the front month, where at least one investor likely raked in substantial profits post-earnings report. It looks like the trader originally purchased a 2,500-lot August $87.5/$92.5 call spread at a net cost of $2.30 per contract on Wednesday when SLB shares were trading around $88.48. The sharp rally in the price of the underlying in the past couple of days sent call premium skyward, and it looks like the investor sold the spread today at a net $3.63 per contract. Matching up net premium paid initially against that received today yields net profits of $1.33 per contract or around $332,500 in just a few days. Meanwhile, an investor betting on continued gains in shares of Schlumberger through September expiration appears to have enacted a three-legged ratio spread on the stock. The trader sold 1,000 puts at the September $85 strike for a premium of $1.32 each, purchased 1,000 in-the-money calls at the September $92.5 strike at a premium of $4.75 apiece, and sold 2,000 calls up at the September $100 strike for a premium of $1.56 a-pop. The transaction cost a net $0.31 per contract and makes the most money for the trader if shares in SLB jump more than 6.0% to settle at $100.00 at September expiration. Options implied volatility on SLB is down 13.9% to arrive at 25.88% in early-afternoon trade.…
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DiggOptions Trader Eyes New Highs in Shares of Teck Resources, Ltd.
by Option Review - April 4th, 2011 6:30 pm
Today’s tickers: TCK, BSX, WPRT & AKS
TCK - Teck Resources, Ltd. – Options traders flocked to Teck Resources today as shares in the Canadian natural resources company rallied on reports that China’s Minmetals Resources, Ltd., extended a C$6.3 billion hostile takeover bid for Canada’s Equinox Minerals. Teck Resources also received an upgrade to ‘Top Pick’ with a 12-month target share price of $69.00 at Cormark Securities, helping shares in the Vancouver, BC-based company rise as much as 7.7% to secure an intraday high of $57.24. Near-term call options have been active throughout the first half of the trading day. Roughly 4.2 calls are changing hands on the stock for each single put option in action. Longer-dated options caught our eye after bullish player initiated a call spread in the August contract. It looks like the investor purchased 3,000 calls at the August $70 strike for a premium of $1.52 each, and sold the same number of calls up at the August $80 strike at a premium of $0.45 apiece. Net premium paid to establish the spread amounts to $1.07 per contract. Thus, the trader profits in the event that Teck’s shares jump 24.2% over today’s high of $47.24 to surpass the effective breakeven price of $71.07 by expiration day in August. Maximum potential profits of $8.93 per contract pad the investor’s wallet should shares in the natural resources company soar 39.8% higher in the next five months to surpass $80.00 by expiration. Shares in TCK reached their all-time high of $65.37 on January 12, 2011.
BSX - Boston Scientific Corp. – By the looks of trading patterns in Boston Scientific Corp. options today, investor appetite for puts on the medical devices maker has yet to be sated. Near-term puts were popular at the end of last week, and the contracts…
Bullish Smoke Signals Detected at Human Genome Sciences
by Option Review - November 11th, 2010 5:03 pm
Today’s tickers: HGSI, BSX, DFS, CSCO, LVLT, AMGN & IBB
HGSI - Human Genome Sciences, Inc. – Shares in Human Genome Sciences are up 8.9% to trade around $26.49 in the final hour of the trading session on speculation the firm could become an attractive takeover target if its lupus drug treatment, Benlysta, wins approval next month. Options traders sent up a number of bullish signals using January 2011 contract call and put options. Earlier this morning, one optimistic investor initiated a debit call spread, buying 3,000 calls at the January 2011 $27 strike for a premium of $3.90 each, and selling the same number of calls at the higher January 2011 $40 strike at a premium of $0.375 apiece. The net cost of putting on the spread amounts to $3.525 per contract. The investor makes money on the spread if Human Genome’s shares surge 15.2% over the current price of $26.49 to exceed the effective breakeven point at $30.525 by January expiration. The call spreader could end up taking home maximum potential profits of $9.475 per contract if the price of the underlying stock jumps 51.0% to trade above $40.00 by expiration day next year. The trader is well positioned to benefit from the rally in HGSI shares that would accompany Benlysta’s approval and/or continued takeover chatter. Another bullish sign that appeared in the same expiry involved put options. It looks like another investor unraveled a previously established bear put spread, selling 2,750 puts at the Jan. 2011 $20 strike and buying the same number of puts at the lower Jan. 2011 $15 strike, to take in a net premium of $1.25 per contract. It is possible the transaction is an opening credit put spread rather than a closing sale, but open interest levels at both strikes are more than sufficient to cover today’s volume. Either way, the trade is another sign of optimism on the biotechnology company ahead of the key drug approval decision. Options implied volatility on the stock is…
Homebuilder-Bull Constructs Colossal Call Position in XHB LEAPs
by Option Review - September 21st, 2010 4:04 pm
Today’s tickers: XHB, DHI, NVDA, RL, BSX, GCI, XRT & AMR
XHB – SPDR S&P Homebuilders ETF – Long-term bullish trading in call options on the homebuilders sector jumped today on news housing starts in the U.S. rebounded in August. Shares of the XHB, an exchange-traded fund designed to track the performance of the S&P Homebuilders Select Industry Index, increased as much as 1.6% this afternoon to touch an intraday high of $15.83 as of 2:40 pm ET. One bullish trader expecting the price of the underlying fund to appreciate substantially over the next 16 months scooped up approximately 50,000 calls at the January 2012 $16 strike for an average premium of $2.56 apiece. The call options position the investor to accrue profits should shares surge 17.25% over today’s high of $15.83 to surpass the effective breakeven price of $18.56 by expiration day. Shares last traded above $18.56 back on May 13, 2010.
DHI – D.R. Horton, Inc. – In contrast to the outright bullish trading observed in XHB LEAPs, homebuilding company, D.R. Horton, received nearer-term bearish bets that shares are set to decline ahead of expiration in January 2011. DHI’s shares rallied as much as 2.6% on the positive new housing starts data to secure an intraday high of $11.34 this morning. But, by midday, a put option feeding frenzy initiated by traders who appear to expect shares to reverse course had already gained momentum. It looks like traders bought roughly 30,000 puts at the January 2011 $10 strike at an average premium of $0.73 a-pop. Put buyers are poised to profit should shares of the underlying stock plummet 18.25% from today’s high of $11.34 to slip beneath the average breakeven point to the downside at $9.27 by January 2011 expiration.
NVDA – NVIDIA Corp. – Shares of the manufacturer of chips used in computer graphics cards jumped 7.1% this afternoon to reach an intraday high of $11.47 as of 2:50 pm ET after analysts with Pacific Crest Securities said NVDA’s shares are likely to rally up to $13.00 as inventory declines and demand stabilizes. Investors hoping to see the bullish momentum continue purchased some 6,150 calls at the October $12 strike for an average premium of $0.32 per contract. Call buyers make money if the price of the underlying stock increases another 8.65% over today’s high of $11.34 to trade above the average breakeven point on the calls…
Jobless Thursday – America’s Infrastructure Crisis
by Phil - September 9th, 2010 8:13 am
What a disaster!
Not only are our students failing to keep up with the rest of the World but America is close to getting a failing grade in Infrastructure. That’s right, what was once the World’s mightiest and proudest economy, this once great nation of builders has been given an overall grade of D in the American Society of Civil Engineers report on our Infrastructure.
The 2009 Grades include: Aviation (D), Bridges (C), Dams (D), Drinking Water (D-), Energy (D+), Hazardous Waste (D), Inland Waterways (D-), Levees (D-), Public Parks and Recreation (C-), Rail (C-), Roads (D-), Schools (D), Solid Waste (C+), Transit (D), and Wastewater (D-). Awful? Shameful? How about DANGEROUS? Deadly even…
For one thing, The number of high hazard dams—dams that, should they fail, pose a significant risk to human life—has increased by more than 3,000 just since 2007, when there were "just" 1,000 dams at risk and 3,000 to pro actively maintain but the administration refused to fund the project, now the costs have tripled as the situation deteriorates but that’s nothing compared to what happens if just a few of them break completely. 1,819 dams are now in the "high hazard" category and, with the current budget, for every one damn that is reparied, two more become an emergency.
In urban areas, roadway congestion tops 40 percent. According to the report, decades of underfunding and inattention have jeopardized the ability of our nation’s infrastructure to support our economy and facilitate our way of life. At risk of catastrophic failure besides the dams (including levees) are things like our drinking water, sewage systems, bridges, waterways, rail lines, airports, roadways (especially elevated ones) and, of course, our entire electrical grid. Additionally, 7 Billion gallons of clean drinking water is lost every day through leaking pipes – that’s 23 gallons per citizen per day WASTED for want of $11Bn in repairs – don’t bother worrying about it, the last Administration wouldn’t fund it in 2001 or 2006 so why bother now – 10 Trillion gallons later?
The ASCE calculates a 5-year $2.2Tn investment is needed to address the situation, that’s $500Bn (25%) more than it was 5-years ago, when they released their last report and nothing was done by the previous administration. So, rather than having invested in America, putting people to work and improving EVERYONE’s way of life, we spent over $1Tn fighting a war, another $600Bn a year on our regular military operations and gave over $1Tn worth of taxe breaks…
What Me Worry Thursday?
by Phil - May 13th, 2010 7:48 am
What a freakin’ recovery!
As I said on Monday: "It’s a paper tiger of a straw man we’re building for $1Tn but you HAVE to respect $1,000,000,000,000 – you just have to… Our 5% Rule series for the S&P over the 1,155 breakdown line is the very critical 1,170, followed by 1,185, 1,200 (critical), 1,215 and 1,230 and THEN we are on the way to recovery." Wow, that guy is AMAZING! Anyway, so here we are at 1,170, after two days of testing the 1,155 line as a bottom so now it’s onwards and upwards to 1,185 hopefully. I also said on Monday: "Below that, we’re not too impressed but it also won’t be very surprising if all $1Tn buys us these days is some moderate lift that isn’t strong enough to break our major technicals."
We have been casting a wide and bullish net since the crash, finally pulling some of our sideline cash for long plays on ABX, APPY, BAC, BIDU, BRK/B, BSX, C, CAT, DIA (3), DF, ERX, GOOG, LIZ, LVS, MEE, MON (3), RIG, T (2), TBT (2), TZA (shorting it), UNG and WFR. We’re hedging heavily, of course, but it feels good to have longs again after being in cash for a while. Our short-term bearish plays (mostly DIA and TZA) have been crushing us so far, which is good in a rally but yesterday was a bit much for us and we got a little more bearish but it looks like the G7 has adopted the "Better Red Than Dead" mantra as the World racks up astounding deficits to put off admitting that this little debt problem is not isolated to the PIIGS nations.
Nonetheless, the global markets are rallying in unison – even while the Pound ($1.47) and the Euro ($1.26) collapse and even the Yen jumped back up last night, falling off the very BS 93.63 to the dollar it hit at 3am to psych up the Nikkei exporters back down to 92.75 this morning. I noted weeks ago how the Yen knocked down for Japan’s open and then drifts lower into the US open virtually every night – it’s what currency traders call the "Goldman Trade" because you can bet it every single day and have a perfect quarter. Sure it’s blatant manipulation designed to fool an entire nation of investors but, what else is new – Fuggedaboutit…
So, a TRILLION Dollars down the rabbit hole in Europe – Fuggedaboutit! I pointed out to Members in yesterday’s…
Mega Earnings Monday – 1,000 Reports This Week!
by Phil - April 26th, 2010 8:21 am
What a crazy week this is going to be!
Pre-Market we’re hearing from BLK, CAT (are we building stuff?), EXP, HTZ, HUM, LO, TUES and TZOO and later we will hear from BSX, CHH, OLN, RSH, RCII, TXN (major) and my "friendbuddypal" Cramer’s TSCM (if they are not delayed). Revenues at The Street have crept back up this year in a recovery that pretty much mirrors the market. The company does pay a nice 2.6% dividend, which works out to a nice $200,000 bonus on Jimmy’s 2.1M shares (6.7% of the company) so you know that bonus will be a priority for the company. Cramer was BUYBUYBUYing his own stock at $2.41 in January but sadly they have no options to hedge… They might make a nice pick-up after earnings if they disappoint and head back to $3 or less.
I’m full of useful information on hundreds of stocks right now because I’ve been researching our new Buy List but I’m not pleased with what I’ve been seeing so far and this week’s tidal wave of earnings, with 1,000 companies reporting means we’re in no hurry to dip our toes in the water. I told Members this morning I should probably be working on a Sell List, as it’s much easier to find companies I want to short than ones I want to buy. Even in the Weekly Wrap-Up, we featured a 1,900% downside hedge on the Russell to offset the 566% plays and other bullish plays we’ve begun to reluctantly take, just so we don’t feel too silly in this runaway market.
If you have never watched Jim Cramer discussing the sleazy, manipulative ways he used to game the markets – you really must take 10 minutes and watch this video, where Jim explains how any immoral bastard with $10M can yank the entire futures market around at will. He prefaces one of his favorite strategies with "this is blatantly illegal but.. I think it’s really important… these are things you MUST do on a day like today and if you are not doing it, maybe you shouldn’t be in the game." Are you playing the game or are you being played?
The biggest game ever played may be unwinding as we speak. Bloomberg reports that foreign-exchange profits from carry trades are disappearing as differences in central bank interest rates fail to increase fast enough to compensate for swings in…
Weekly Wrap Up – Cash Out Edition
by Phil - March 21st, 2010 5:20 pm
How did I reach my breaking point on Friday?
Well, I haven’t been happy about the action for the whole month of March and this week was simply the last straw, where I feel the risk of being long now outweighs the likely rewards. Even all the bullish analysts in 12 of 13 of our beloved IBanks are "only" projecting the S&P to gain another 7.5% for the year. That’s not even 1% a month so excuse me if I decide it’s time to take a 7th inning stretch after we’re already up 70% of 77.5% projected over 2 years. As I said when reviewing our Buy List, where we are closing out 22 of 37 stocks – you just aren’t supposed to make an average of 28% with 64 winners on 66 picks in 6 weeks – it gets to a point where it’s just foolish not to cash out and take a rest.
Make sure you check out our latest round of Disaster Hedges as well, "5 Plays that Make 500% if the Market Falls" is a good way to keep your toes in the water! In last Weekend’s Wrap-Up I was "Still Trying to Get Bullish" and I was wrestling with killing the Buy List then - doing the full review this week is what killed it for me because - if I go over the fundamentals of 37 of my favorite stocks and can’t see more than 15 plays I’m enthusiastic about keeping – then it’s a good bet I’m not going to be too wild about the rest of the market either.
If I were a real bear, this would be great and I’d just be running around yelling SELLSELLSELL but I am, believe it or not, a generally bullish guy who prefers to play an up market but I am also realistic enough not to fall so in love with my positions or bullish premise that I don’t know when it’s time to give things a rest. We haven’t had a proper pullback, we haven’t had good volume to the upside (Barron’s raised that concern this weekend) and we haven’t addressed many, many problems that are still out there.
Monday Morning – Moody’s Makes More Negative Noises
Moody’s got us off to a fun start on Monday morning, saying the US and UK are "substantially" closer to losing their AAA credit ratings as the cost of servicing their debt rose – a statement…
Fortune Brands’ Shares Trade at New 52-Week High, Bullish Players Covet Call Options
by Option Review - March 15th, 2010 4:10 pm
Today’s tickers: FO, STJ, XLB, BSX, BIDU, VRSN & MNKD
FO – Fortune Brands, Inc. – Shares of the holding company with subsidiaries such as Beam Global Spirits & Wine, Inc., which manufactures Jim Beam whiskey and Maker’s Mark, and Acushnet Company, the producer of Titleist golf products, rallied 2.35% during the session to reach a new 52-week high of $48.45. The increase in Fortune’s share price inspired bullish options trading on the stock today. Approximately 1,000 calls were picked up at the April $50 strike for an average premium of $0.66 apiece. But, the real action took place at the June $50 strike where nearly 15,500 calls were purchased for an average premium of $1.68 per contract. Investors holding the June $50 strike call options stand ready to amass profits only if Fortune Brands’ shares rally another 6.65% from the current day’s price to breach the breakeven point on the calls at $51.68 by expiration day in June.
STJ – St. Jude Medical, Inc. – The manufacturer of cardiovascular medical devices experienced a sharp 8.45% rally in its share price today to $40.67 on news its rival, Boston Scientific Corp., suspended sales of its implantable heart defibrillator this morning. Options players initiated bullish transactions on the stock by selling 2,100 puts at the March $40 strike for an average premium of $0.60 apiece. Put-sellers keep the $0.60 premium per contract as long as St. Jude’s shares trade above $40.00 through expiration on Friday. However, put-players are obliged to have shares of the underlying stock put to them at an effective price of $39.40 each should the put options land in-the-money at expiration. Optimistic investors scooped up 3,100 call options at the July $45 strike by paying an average premium of $0.77 per contract. Call-coveters are positioned to profit only if shares rally another 12.5% from the current price to breach the breakeven share price at $45.77 by expiration day in July.
XLB – Materials Select Sector SPDR – Shares of the XLB, an exchange-traded fund that tracks the performance of the materials economic sector of the S&P Composite Stock Index, declined 0.30% today to $33.19. Trading in long-dated options on the fund, however, suggests one individual is bullish on the sector through expiration in January 2011. It appears the investor sold 10,000 put options outright at the January 2011 $27 strike for a premium of $1.32 per contract. The…
Vanda-Pharm Receives a Dose of Covered Call Selling
by Option Review - February 11th, 2010 4:13 pm
Today’s tickers: VNDA, PFE, S, ZION, GDX, PBR, BSX, AIG & PEP
VNDA – Vanda Pharmaceuticals, Inc. – The biopharmaceutical company, which specializes in the development of drug candidates for central nervous system disorders, attracted covered call selling in afternoon trading. It looks like one bullish individual purchased shares of the underlying stock in combination with the sale of 10,000 calls at the September $12.5 strike for an average premium of $1.13 per contract. Vanda’s shares – at the time of the transaction – were trading at $10.80 apiece. Thus, the investor effectively paid a net $9.67 per share because of the financing provided by the sale of the call options. The covered call strategy positions the investor to accumulate maximum potential profits of 29.25% if Vanda’s shares rally above $12.50 by expiration in September. This is because the short call stance provides an exit strategy for the trader which dictates gains of 29.25% on the appreciation in value of the underlying shares from the purchase price of $9.67 up to the $12.50 price at which the shares will be called from him – should the calls land in-the-money – at expiration in seven months. Vanda is scheduled to reveal its fourth-quarter earnings report before the opening bell on Tuesday February 16, 2010.
PFE – Pfizer, Inc. – Shares of the global pharmaceutical company commenced the current session in the red, but rallied in afternoon trading, rising 0.85% to $17.89 with forty-five minutes remaining in the trading day. Long-term optimistic trading patterns emerged in the January 2012 contract where one investor initiated a bullish risk reversal on the stock. It looks like the trader sold 5,000 puts at the January 2012 $17.5 strike for a premium of $3.20 each in order to purchase 5,000 calls at the same strike for $2.60 apiece. The investor pockets a net credit of $0.60 per contract on the reversal play, which he keeps in his piggy bank if Pfizer’s shares trade above $17.50 through January 2012 expiration. Additional profits amass to the upside as shares increase above the stated strike price of $17.50.
S – Sprint Nextel Corp. – Massive strangles plays on the communications company today indicate investors expect shares of the underlying stock to remain range-bound through expiration in May. Sprint’s shares fell significantly yesterday afternoon and continued lower by 2% to $3.28 today following disappointing fourth-quarter sales, which fell 6.7% to…
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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...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
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