CEO Pick for J.C. Penney Sends Options Traders Into Overdrive
by Option Review - June 14th, 2011 4:11 pm
Today’s tickers: JCP, CROX, CSCO & KR
JCP - J.C. Penney Co., Inc. – Frenzied options trading ensued following reports that Ron Johnson, head of retail at Apple Inc., was named CEO of J.C. Penney Co. The news drove shares in the department store operator up 19.5% to $35.97by 1:40 pm in New York. The number of options in play on JCP today is approaching 171,000 contracts in afternoon trade, topping overall open interest on the stock of 160,338 contracts.Johnson’s appointment to JCP seems to have injected traders with a renewed sense of optimism on the department store owner. The previous four weeks were not kind to shares in J.C. Penney, which declined 27.3% since mid-May to $29.82 this past Friday.
Investors are exchanging roughly 1.6 call options on JCP for each single put option in action. June and July contract calls are the most active with in- and out-of-the-money call buying a seemingly popular strategy amongst traders. Investors who picked up calls a few hours ago at the start of the rally paid far less than the current asking price on the options in most cases. June $30 strike calls, for example, were purchased around 1,100 times earlier in the session for an average premium of $1.79 each. The now deep in-the-money calls currently tout a hefty price tag of $5.90 per contract. Trading traffic in options expiring this Friday ballooned during the session. Call volume at the June $32strike, the most at any single strike in the front month, is greater than 12,500 contracts against previously existing open positions of 3,818 contracts. Early-birds paid an average premium of around $0.46 per contract for those calls, which now have an asking price of $3.90 a-pop. July contract calls drew crowds, as well. The July $35 and $36 strike…
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DiggTesty Tuesday – Dow 12,000 or Dow 11,500?
by Phil - June 14th, 2011 8:26 am
Are we "still too heavy"?
That was what I said about valuations back on May 4th, when we set new watch levels. $96 was our goal on oil, we hit that and went long yesterday. Of course, in our upside-down Wonderland Market, falling oil prices are somehow BAD for the Transports and we thought we accounted for that with our 2,448 target but they failed that last week and fell another 125 (5%) since then. Similarly (easier to write than say), the Nasdaq blew through our 2,700 line and bottomed out at 2,639 yesterday (-2.25%) but the Russell has been the biggest surprise, leading us all the way down to 773 in yesterday’s action before bouncing back to lucky 777.
As we expected yesterday, the Dollar was sacrificed on the altar of keeping the markets from going to Hell in a handbasket – dropping all the way from 75.20 to 74.80 (0.5%) which gave us only a flat market but the 74.60 line held in overnight and we’re back to 74.80 and now the pre-markets are wondering why they gained 0.75% in overnight trading. Oil popped all the way back to $97.80 before failing spectacularly back to $96.50 but we have stayed on the sidelines so far, waiting to see if we can establish a new (hopefully lower) range to trade in.
We did take a poke at higher oil prices with the USO July $39 calls at $1.10 and they finished the day right at $1.10 so very dull so far but we figured oil might be good for a pop into Wednesday’s inventories. We also shed most of our bearish bets on yesterday’s dip and flipped fairly bullish but we haven’t done a lot of bottom fishing yet as our main plan is to use a fake market rally to cash out the longs we have left and flip short into the holiday weekend. As the moment though, I have noticed that the Dow has been holding up much better than it’s peers and we have that lovely 12,000 line to use as a stop so let’s construct a short hedge that pays big bucks below 12,000:
Notice how the Dow is holding up better than the other indices. Part of that is a flight to safety as several Dow components are considered "safety stocks" like KFT, MCD, JNJ… But, in the long haul, they all fall down eventually so we…
Wild Weekly Wrap-Up (Part 1) – Our Billion Dollar Oil Shorts!
by Phil - June 11th, 2011 6:08 am
That’s how much money our oil futures trade ideas generated over the past two weeks and I certainly hope everyone got a piece of theirs but, out of curiosity, how did our other trade ideas do in this terrible market? We track our virtual portfolios but we have many trade ideas during members chat on both sides of the fence so let’s take some time to review what worked and what didn’t work as the Dow dropped 500 points since the holiday.
Keep in mind this is just virtual performance and I’ll do my best to not miss anything and I’m going to include the Friday before the holiday weekend so we can review what our mind-set was as we set ourselves up for the long weekend as well as how we handled the moves since in both our daily posts and our Member Chat. I’m not going to narrate each day, that’s what Stock World Weekly is for – I’ll just make quick comments on the trades when appropriate. Keep in mind, with all options trading, once you make a quick 20%, you should be looking for the exits (see our Strategy Section) by setting stops (and we also stop out with a 20% loss of course) – we are just lucky when we happen to do better.
TGIF – Dollar Done Diving or Destined to Drop?
In the main post (main post trade ideas can be read daily by Report Members or higher – the rest are in our Private Member Chat), I discussed shorting oil futures off our $101.90 (at the time) target. We didn’t like waiting for $102 because sometimes it failed. Oil finished at $99 this week but was as low as $97.24 as we put pressure on the NYMEX pump crew by accepting their bogus offers to buy oil over $101 per barrel. This post was the first one where I decided to go public with what we were doing, hoping to break the back of the market manipulators at the NYMEX by letting as many people as possible in on the trade. This is also where I laid out our bearish fundamental case for oil so good for review. My comment in the morning post was:
As I mentioned yesterday, this week’s action is
…
Technical Tuesday – Twelve Thousand Two Hundred or Bust!
by Phil - June 7th, 2011 8:11 am
Our winning streak continues!
With 335M barrels of oil still on fake order at the NYMEX, yesterday’s early morning short play at $100.60 gave us a ride back to $99 and that was good for as much as $536M pre-market. In the morning post, I said "hopefully we’ll get another crack at shorting oil at $100 or higher" and we did – right at the open – and that was good for a ride back to $99 for another $335M of potential gains (just following through with last Thursday’s plan to break the NYMEX speculators).
We took the money and ran on those USO June $40 puts at $1.40 (up 22%) in Member Chat at 10:53 but the next rebound in oil didn’t quite get to $100 ($99.88) and we missed the run down to $98.50, which is where it’s sitting this morning.
Of course, we don’t only short oil… In my 9:58 Alert to Members I, of course, reminded them that oil was at $100 and shortable again but we also grabbed the QQQ weekly $56 puts for .33 and those finished the day at .55 for a 66.6% gain (the mark of the Blankfein), which is not bad for 6 hour’s work (or so I am told). We also had a more complicated spread with DDM offsetting SPY as a sort of arbitrage on two spreads.
Thanks to David Ristau’s guest appearance in Member Chat pre-market, where he mentioned he was jumping on our short oil bandwagon, we selected HAL for a short trade in Member Chat at 10:10 along with our planned PCLN short play (mentioned pre-market in the morning post) and both of those were, of course, huge winners already so thanks for HAL David!
It wasn’t ALL bearish, we went long on XLF as it hit $14.90 with some short put sales along with a very long-term bull play on HOV but we took a loss bottom-fishing on IWM as the June $79 calls stopped us out after falling from $2.07 to $1.95 (down 5.8%) but we had to try something long to get a little balance or risk being too bearish. Our bullish sentiment didn’t last long though and we decided to short the Nasdaq futures at the 2,300 line at 11:42, those gave us a spectacular run down…
Strangle-Strategist Targets Boeing
by Option Review - May 25th, 2011 4:27 pm
Today’s tickers: BA, CSCO, TIN & TEVA
BA - Boeing Co. – Boeing’s shares may be headed for the stratosphere or ready to crash and burn over the next few months according to the buyer of a sizable long strangle on the producer of commercial jetliners today. Shares in the Chicago, IL-based company are up 0.90% at $76.27 in early-afternoon trade, recovering up from earlier losses following disappointing April durable goods data. The strangle-strategist it seems is at least looking for implied volatility on the stock to climb if not the actual price of the underlying shares. The trader purchased approximately 7,500 calls at the August $85 strike for a premium of $0.56 each, and purchased the same number of puts at the August $65 strike at a premium of $0.88 a-pop. Net premium paid to initiate the strangle amounts to $1.44 per contract, thereby preparing the trader to make money should the stock swing sharply in either direction away from the current price. Profits are available on the upside at expiration if the stock is trading above the upper breakeven point at $86.44, while profits on the downside require shares trade below the lower breakeven point at $64.56 at expiration. Boeing’s shares would need to jump 13.3% higher, or drop 15.4%, from the current price to break-out of either point in the next few months. But, as mentioned previously, the stock need not move at all for the buyer of the strangle to benefit from the position. What is required are rising expectations of turbulent days ahead for BA’s shares, in other words, higher implied volatility. The combined value of the call and put options should increase if implied volatility on Boeing climbs going forward. The investor may be able to sell the strangle ahead of expiration for more than the $1.44 per contract required to purchase the position today given favorable moves in the level of volatility on the stock. Boeing reports second-quarter earnings on July 27 ahead of the opening…
Bullish Player Initiates Three-Legged Spread on Cisco Systems
by Option Review - March 18th, 2011 4:20 pm
Today’s tickers: CSCO, CECO, SPG & GE
CSCO - Cisco Systems, Inc. – Shares in the world’s largest maker of networking equipment increased as much as 2.5% during the session to secure an intraday high of $17.42 after the company announced it will pay its first ever cash dividend on April 20, to shareholders of record on March 31, 2011. Cash-rich Cisco Systems said the dividend will amount to $0.06 a share. Shares in the San Jose, CA-based manufacturer of switches and routers are still hovering around their lowest level since April 2009, and fell to a new 52-week low of $16.97 earlier this week. But, it looks like one big option strategist is looking for the price of the underlying to rebound ahead of January 2012 expiration. The investor initiated a three-legged bullish play, selling puts to partially finance the purchase of a call spread, in order to position for brighter days in CSCO’s future. The trader sold 40,000 puts at the January 2012 $15 strike at a premium of $0.95 each, purchased the same number of calls up at the January 2012 $17.5 strike for a premium of $1.72 per contract, and sold 40,000 calls at the higher January 2012 $22.5 strike at a premium of $0.42 apiece. Net premium paid to initiate the spread amounts to $0.35 per contract, thus positioning the investor to make money in the event that Cisco’s shares rally another 2.5% over today’s high of $17.42 to surpass the effective breakeven price of $17.85 by expiration. Maximum potential profits of $4.65 per contract are available to the trader should shares in CSCO jump 29.2% to exceed $22.50 ahead of expiration day next January. Shares in the name last traded above $22.50 back in November 2010.
CECO - Career Education Corp. – Put options on…
Technical Thursday – The Needle and the Damage Done
by Phil - February 24th, 2011 6:33 am
I’ve seen the needle
and the damage done
A little part of it in everyone
But every junkie’s
like a settin’ sun. - Neil Young
Come on Bennie, give us another hit!
We’re hurting man, we need the good stuff. The markets love to get high and, just when we thought the trip was never going to end – we crash hard! Big Ben and his Central Banking buddies fed our commodity addiction with a flow of easy money and the speculators got so hooked that they have now overdosed and the price of commodities is now killing the host (the Global Economy).
Gee, who could have ever seen that coming?
Oh yeah, right, it was me. Well, very good then… I guess. There’s nothing like a good correction to make some fast money. In yesterday’s post (and Tuesday’s) I mentioned our TZA and EDZ hedges and thank goodness we dumped XLE as they flew back to $78 on the oil madness (more on that later). In yesterday morning’s Alert to Members we added IWM $83 puts at $3 and they finished the day at $3.93 (up 31%) but we were done with them earlier as we flipped bullish when they pulled back to $3.75 and grabbed the IWM weekly $80 calls at 1:03 at .66 and we flipped out of those at .93 (up 40%) for a nice, quick gain.
We also lost .20 on an SSO trade, trying to catch one more bear wave that didn’t come but, on the whole – Wheeeeeeeeeeeeeee! This is the best ride EVER!!! We love a volatile market, especially when it gooses the VIX (something we were also long on) as that gives us better and better prices for the options we sell to suckers who think they are smarter than the market. Yes, we buy them too – but look how fast we dump them. Options are great for momentum trading and for controlled leverage but the REAL MONEY is made BEING THE HOUSE – not the gambler and what we really love to do is SELL options, not buy them.
When the VIX is low, selling options is much less fun but, when the VIX goes up, so does the amount of money people will pay us…
Which Way Wednesday – Topping or Popping?
by Phil - January 19th, 2011 8:30 am
When we first began following the Alpha 2 TradeBot pattern on Jan 3rd (see Stock World Weekly for current chart) back on Jan 3rd, I said: "Let’s assume we get that extra 2.5% between Friday’s close and expiration day – that’s going to take us to Dow 11,850 and S&P 1,285." Yesterday the Dow hit our 11,850 mark, 2 days ahead of schedule! If we break higher here (and the S&P is already at 1,295 – see David Fry’s chart) then we are "off the charts" and possibly running a whole new series – which is very possible as last year the IBanks didn’t have $25Bn worth of POMO a week to feed into their machines – that has to be worth something right? At least 10 S&P points…
If, on the other hand, S&P 1,300 becomes a hard stop and the Dow can’t hold 11,850, let alone break up over 12,000 – then the second part of my prediction was that we would pull back to Dow 10,900 and S&P 1,188 – a test of the 200 day moving averages. If we get that pullback and those levels hold, THEN we will be happy to get on the bullish bandwagon – we just want a test!
Not, of course, that we are waiting around doing nothing. We already had our "Secret Santa Inflation Hedges" and, at this point, you either have them or you shouldn’t even look as they are up well over 200% already and the market is "only" up 2.5% since then. We were waiting patiently for Russell 800 to confirm our Breakout 2 levels and we not only got that but we got several nice tests since then so we’ll have to put that one in the "win" column as well for the bulls.
While I don’t like chasing the MoMo stocks higher, AAPL and IBM show us that there are some solid fundamentals underlying the big boys and I mentioned in the Morning Post of the 6th that I did like CSCO ($20.77 at the time) and GLW ($18.98 that day) as solid, go-forward positions. Even without our option plays, they are both up nicely in less than two weeks – certainly a higher percentage (5% for GLW, 2.5% for CSCO) than AMZN, which is up $3.50 (1.8%) or NFLX, which is up $6 (3.2%), who I cautioned…
Fickle Friday’s Jobs Report
by Phil - January 7th, 2011 8:29 am
I don’t know what the Jobs will be but I’m betting on disappointment.
I had said to Members yesterday that I liked the Jan QQQQ $56 puts at .77 and the Weekly (next week, not today) QQQQ $56 puts at .53 as good ways to play a jobs miss. My comment in Member Chat was that I felt the ADP figures pushed expectations up significantly higher and now we would be much more likely to disappoint with almost any number short of 250,000 jobs added.
The key is the seasonal adjustments but there was already some very disturbing jobs numbers in the Gallup Poll, which came out last night and showed unemployment RISING from 9.3 to 9.6% in December and, even worse, the number of Underemployed workers shot up from 18.5 to 19%, just 0.5% lower than we were in January of last year.
Gallups Job Creation index showed no improvement in December but it is holding +10, which is the best net level we’ve had since October of 2008. So we have ADP going one way, yesterday’s unemployment numbers were flat and Gallup says things are getting worse. 8:30 will be very interesting indeed.
While we wait for the number, let’s take a look at last week’s post to see how things are tracking. Monday morning I mentioned we liked FCX short at $120 (a trade that was reiterated Tuesday morning) as we felt the run in copper was overdone. It was a rough week but FCX is down at $116 now so we’re on track at the moment of course we took a spread in chat, which was the Feb $119/110 bear put spread at $3.60, selling the Jan $120 calls for $3.60. That spread is now $4.60 and the calls have dropped to $2.30 for a nice net $2.30 gain already.
I said that $90 was already ridiculous for oil and we shouldn’t go any higher. We picked up the USO Feb $40 puts on Tuesday morning in Member Chat at $2.10 and those are now $3.70 so a nice $1.60 gain there, which is about the same as if we had just shorted the stock as it dropped from $39 that morning to $37.68 now. That’s where puts are very useful, you don’t have to commit as much as a short on the stock, you limit…
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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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