Mixed Sentiment on BAC Pits Bulls Against Bears
by Andrew Wilkinson - December 4th, 2009 4:11 pm
Today’s tickers: BAC, XRX, XLF, CAR, XLU, BIG, SLM, TTWO, MRVL & TSN
BAC - Bank of America Corp. – Investors employed two contradictory option strategies in the February contract on Bank of America today. One trader initiated a large bearish risk reversal while the other put on a bullish call spread. BAC’s shares rallied 3.5% this afternoon to $16.30. The pessimistic investor appears to have sold 30,000 in-the-money call options at the February 15 strike for 1.74 apiece in order to purchase 30,000 puts at the same strike for 84 cents each. The reversal results in a net credit of 90 cents per contract to the trader. Perhaps this individual expects shares to decline beneath the $15-level by expiration so he may retain the full 90 cent credit on the trade. Bullish trading in the same February 2010 contract suggests shares are set to rally higher in the next few months. An optimistic investor purchased 10,000 calls at the February 17 strike for 89 cents each, and sold the same number of calls at the higher February 19 strike for 34 cents apiece. The net cost of the spread amounts to 55 cents per contract. Maximum potential profits of 1.45 are available to the investor if shares increase more than 16.5% from the current price to a new 52-week high of $19.00 by expiration in February.
XRX - Xerox Corp. – One investor utilized the risk reversal strategy in order to take a long-term bullish stance on Xerox. Shares moved 1% higher this afternoon to $7.85. It looks like the trader sold 20,000 puts at the January 2011 7.5 strike for a premium of 1.15 each to partially finance the purchase of 20,000 calls at the same strike for 1.60 apiece. The net cost of the reversal amounts to 45 cents per contract. The investor profits if shares surpass the breakeven price of $7.95 within the next 12 months to expiration.
XLF - Financial Select Sector SPDR ETF – Shares of the XLF rallied 0.75% in afternoon trading to stand at $14.46. Bullish options activity on the fund suggests shares are likely to appreciate within the next several months. Optimistic investors purchased 69,000 in-the-money call options at the March 14 strike for an average premium of 1.36 per contract. XLF shares must rise 6% from the current price before profits accumulate above the breakeven point at $15.35. Shares last traded above $15.35 back on October…
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Gold Mminers ETF Attracts Bullish Option Plays
by Andrew Wilkinson - November 10th, 2009 5:08 pm
Today’s tickers: GDX, CF, S, XHB, PCLN, XLF, CX, CAR, BZH, CRI & ERTS
GDX - Market Vectors Gold Miners ETF – Shares of the gold ETF that invests in shares of precious metals mining companies are up 0.5% to $49.53 with one hour remaining in the trading session. Option implied volatility has come down from 54% to 46% recently as gold’s price has surged. Nearer-term investors sought downside protection on the fund, whereas long-term traders initiated bullish plays. Investors hoping to lock in gains experienced during the recent run-up in the price of gold purchased 4,000 puts at the January 2010 47 strike for 3.05 apiece. Further along, at the March 2010 44 strike, another 6,000 puts were picked up for an average premium of 3.10 per contract. Finally, long-term bullishness took the form of a call spread in the January 2011 contract. It appears one investor purchased about 5,000 calls at the January 50 strike for an average of 9.52 each, marked against the sale of the same number of calls at the higher January 55 strike for 7.55 each. The net cost of the optimistic play amounts to 1.97 per contract. The trader stands to accrue maximum potential profits of 3.03 each if shares of GDX rally 11% over the current price to $55.00 by expiration in January 2011.
CF - CF Industries Holdings, Inc. – Bearish option plays appeared on the manufacturer of nitrogen and phosphate fertilizer products today after the firm rejected rival Agrium Inc.’s increased takeover offer of $4.52 billion. Shares of CF are currently trading 4% lower to $77.20. Investors purchased put options at the now in-the-money December 80 strike for an average premium of 6.70 apiece. Perhaps put-buyers are protecting long stock positions. Otherwise, they are hoping to accrue profits if shares of CF decline through the effective breakeven price of $73.30. Another trader unraveled a previously established bullish play in the January 2010 contract. The investor originally placed an extremely bullish 8,500-lot call spread at the January 90/100 strikes. However, the trader abandoned bullish sentiment today by closing out the spread. Option implied volatility on CF jumped 7.5% over Monday’s closing value of 52.9% to reach an intraday high of 55.9%.
S - Sprint Nextel Corp. – Shares of the wireless communications company surrendered a portion of gains experienced during yesterday’s 20% rally to an intraday high of $3.43. The stock rebounded due to news that Clearwire…
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Risk Reversal Pops Up on Biotech-Company, Life Technologies
by Andrew Wilkinson - November 3rd, 2009 4:08 pm
Today’s tickers: LIFE, FL, VTR, WFC, RRI, WFR, CAR, FRX, SWK, BNI & WFR
LIFE - Life Technologies Corp. – Biotechnology company, Life Technologies, popped up on our ‘hot by options volume’ market scanner this morning after one investor initiated a risk reversal in the December contract. Shares are relatively flat on the day at $47.58. The reversal is most likely the work of a bullish individual positioning for a rally in shares of LIFE by expiration next month. It appears the trader sold 5,200 puts short at the December 45 strike for an average premium of 1.30 apiece to finance the purchase of the same number of call options at the higher December 50 strike for 1.20 each. The investor receives a credit of 10 cents per contract on the transaction. The 10 cent credit is money in the bank as long as shares remain above $45.00 through expiration. Additional profits on the trade require the stock to surge to a new 52-week high of $50.00. Shares must rally 5% from the current price before the investor begins to accumulate profits. The 10,400 contracts exchanged in the spread represent about 23% of the total existing open interest on LIFE of 45,963 lots.
FL - Foot Locker, Inc. – A long-term bullish play in the January 2011 contract pushed the global retailer of athletic footwear and apparel onto our ‘hot by options volume’ market scanner this afternoon. Shares are currently up nearly 1% to $10.25. It looks like the trader initiated a bullish risk reversal by selling 3,500 puts at the December 7.5 strike for 1.10 each, and by buying the same number of calls at the higher December 12.5 strike for 1.10 apiece. The investor put on the trade for free and hopes to see shares rise above $12.50 by expiration in 14 months. Profits begin to accumulate if the stock rallies 22% over the current price to surpass the breakeven point at $12.50. We note that shares of FL have traded beneath $12.50 since November 11, 2008.
VTR - Ventas, Inc. – Shares of the real estate investment trust edged slightly higher by less than 0.25% to $40.56 during the trading day. An investor expecting shares to appreciate by expiration in December put on a bullish risk reversal strategy. The trader sold 3,000 puts at the December 35 strike for 60 cents premium and simultaneously purchased the same number of calls at the December…
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Monday Market Movement - Pattern Recognition
by Phil - November 2nd, 2009 8:24 am
Here’s a scary chart pattern for you from our Chart School:
Elliot Wave Trends points out that the S&P has fallen into a fractal patten that may be repeating the behavior of the great drop of ‘08, right here, right now. Of course patterns do SEEM to repeat themselves all the time - until they don’t - but it will be interesting this week and next to see if we follow-through with a flatline, followed by a drop to 1,000 from which we falsely back to 1,050 and then plunge to our doom as Santa foresakes us and we run all the way back down to our lows.
That’s where they lose me. Charts are fun and all but I see no basis for going back to our lows as our lows were ridiculous and caused by panic-selling in a doomsday scenario. Hard to imagine things will fall apart that badly between now and Jan earnings although I do believe we will have a rough time — just not that rough!
Barron’s surveyed Money Managers this weekend and they don’t seem to think things will be rough at all. 52% of those surveyed think there is NO WAY we will have a double dip recession. 76% believe that the decline in corporate profits has ended and 68% believe our GDP wil grow more than 2.5% in Q4 while just 10% believe it is possible for commodity pricing to fall in the next 6 months. You know what they say about when everyone is on the same side of a bet of course!
These are the people we give our money to - the biggest and "brightest" of hedge fund managers who control over $1Tn of assets under management. Favorite stocks in the group are: MSFT, ABT, BAC, BRK.A, CVS, GE, GS, LEG and QCOM. Stocks that are considered overvalued are: AIG, AAPL, GOOG, CAT, AMZN, C, GE, GMCR, VZ and YHOO. Ony 7% think Asian stocks are heading lowed, just 1% less than 8% who feel oil is going down; 92% don’t feel oil will go down.
Everybody likes Tech (just 0.9% think it will be the worst performing sector) and nobody likes the Financials (22.5% think it will be the worst performing sector) followed by Consumer Cyclicals (20.7%) and, oddly, Utilities (15.3%). The sectors picked as the best performers for the next 6-12 months are Tech (18.9%), Energy (17.1%) and Health Care (17.1%). Only 1.8% of those surveyed thought Transportation and Utilities would be leading…
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Brocade Options Hyperactive
by Andrew Wilkinson - October 8th, 2009 4:34 pm
Today’s tickers: BRCD, WYN, CAR, TGT, CBST & KMB
BRCD - Shares of the telecommunications equipment provider continue to rally today. The stock gained more than 6.5% during the session and reached a new 52-week high of $9.65. The BRCD ticker symbol catapulted to the top of our ‘most active by options volume’ market scanner as investors exchanged more than 235,000 option contracts on the stock by lunchtime. It appears one investor executed a massive bull call spread in the November contract. The transaction involved the purchased of about 65,000 calls at the November 12 strike for an average premium of 37 cents each, spread against the sale of approximately 65,000 calls at the higher November 13 strike for 20 pennies apiece. The net cost of the trade amounts to 17 cents per contract for an approximate total price tag of $1,105,000. The investor stands to make 83 cents per contract for maximum potential profits of $5,395,000 if shares of BRCD rise 35% to $13.00 by expiration in November. – Brocade Communications Systems, Inc. –
WYN - Shares at the hotelier broke nicely to the upside earlier in the week and stand 3% ahead of a congestion zone at $18.00. Yesterday Goldman Sachs raised the stakes with an upgrade and a 12-month price forecast of $26 per share. With earnings scheduled for October 28, it appears that one investor has used a call option combination to target a move higher in WYN today. Option implied volatility remains high at 67% but is not rising as the shares surge. There was an outright buyer of 15,000 November 22.50 strike calls purchased for 45 cents, while the 20/25 call spread traded about 9,000 times at a net of 75 cents. To break even the share price needs to accelerate by a further 15% to $20.75 ahead of expiration. – Wyndham Worldwide –
CAR - The global car rental company’s share price contracted 4.5% this morning to $11.93 after firm announced the pricing of its offering of $300 million of 3.50% convertible senior notes due 2014. Despite the decline in shares, one investor utilized options in the January 2010 contract to take a bullish stance on the stock. It appears the trader financed the purchase of a call spread by selling out-of-the-money put options. The three-legged transaction involved the sale of 2,200 puts at the January 10 strike for 1.15 apiece, spread against the purchase of 2,200 calls…
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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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