Optimistic Trader Initiates Call Spread on ConocoPhillips
by Andrew Wilkinson - January 29th, 2010 4:29 pm
Today’s tickers: COP, EEM, DE, SIRI, JPM, FCX, T, PCS, MSFT & EK
COP – ConocoPhillips– Oil and gas company, ConocoPhillips, attracted an optimistic options player to the January 2011 contract today. Shares began the trading day on the up-and-up, but reversed direction in the latter portion of the session, falling slightly by 0.20% to $48.26. The long-term bullish strategist purchased a debit call spread to position for upside gains in the underlying share price by expiration next January. The spread involved the purchase of 5,000 calls at the January 2011 $50 strike for an average premium of $3.91 apiece, marked against the sale of the same number of calls at the higher January 2011 $65 strike for about $0.60 each. The net cost of the transaction amounts to $3.31 per contract. The investor responsible for the trade stands ready to accrue maximum potential profits of $11.69 per contract if COP’s shares gain 35% over the current price to reach $65.00 by expiration day. Shares must rise at least 10.5% from today’s price before the call-spreader breaks even on the transaction at $53.31.
EEM – iShares MSCI Emerging Markets Index ETF – Shares of the MSCI Emerging Markets exchange-traded fund fell less than 1% in afternoon trading to stand at $38.47. September contract options trading suggests one investor is positioning for continued downward movement in the price of the underlying stock by expiration. The pessimistic trader established a bearish risk reversal on the fund by selling 5,300 out-of-the-money call options at the September $45 strike for a premium of $1.35 apiece, spread against the purchase of the same number of put options at the September $33 strike for $1.77 each. The investor paid a net $0.42 per contract for the transaction. Profits to the downside accumulate only if shares of the EEM slump another 15.3% from the current price to breach the breakeven point at $32.58 by expiration in the next eight months. We note that the fund’s share price has remained above the $33.00-level since July 15, 2009.
DE – Deere & Co. – Shares of agricultural equipment maker, Deere & Co., are trading 1.80% higher to stand at $52.03 in the first half of the trading day. Notable options activity appeared in the January 2011 contract where one investor initiated a long-term protective play using put options. The trader established a put spread by purchasing 10,000 puts at the January 2011 $50 strike for…
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ACE Call Options in Demand - Option Implied Volatility Explodes
by Andrew Wilkinson - December 1st, 2009 4:17 pm
Today’s tickers: ACE, EFA, HAL, AMAT, WHR, DE, JTX & WCG
ACE - ACE Limited – The surge in demand for call options on the insurance company today drove option implied volatility up 19.75% to 28.67%, while shares gained more than 2% to $49.78 during the trading day. Investors populating the December contract exhibited bullish sentiment on ACE by selling puts and buying calls. Approximately 3,000 puts were shed at the December 50 strike for an average premium of 1.51 apiece, while some 2,100 calls were purchased at the same strike for roughly 89 cents each. Call volume at the January 50 strike sky-rocketed to 21,666 contracts – on previous existing open interest of just 1,402 calls – as traders scooped up about 20,000 lots for a premium of 1.42 per contract. Investors long the January contract call options are positioned to accrue profits if ACE’s shares trade above the breakeven price of $51.42 by expiration.
EFA - iShares MSCI EAFE Index ETF – The exchange-traded fund, which includes stocks from Europe, Australasia and the Far East, attracted bearish option players despite the 2.5% rise in shares today to $56.88. One investor, who may hold a long position in the underlying stock, unfurled a ratio put spread in the January 2010 contract. The trader purchased 10,000 puts at the January 55 strike for an average premium of 1.39 each, and sold 20,000 puts at the lower January 52 strike for about 70 cents apiece. The investor pockets a net credit of 1 penny per contract on the trade and establishes downside protection in case shares of the EFA decline ahead of expiration. The 1 cent credit is ‘free money’ for the trader as long as the shares remain above $55.00 through expiration in January.
HAL - Halliburton Co. – Options activity on the oil and gas company today suggests at least one investor is bracing for potential share price erosion through expiration in January. Halliburton’s shares rose 1% during the session to $29.57. The trader responsible for the bearish ratio put spread is likely holding a long position in the underlying stock. If this is the case, today’s transaction provides downside protection for the investor. It appears 5,000 puts were purchased at the January 29 strike for an average premium of 1.24 apiece, spread against the sale of 10,000 puts at the lower January 24 strike for 18 pennies each. The net cost of the ratio…
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Bank of America Call Options Fly Off the Shelves
by Andrew Wilkinson - November 24th, 2009 4:09 pm
Today’s tickers: BAC, GE, SEED, EWZ, DE, STLD, LCC, SEED & DLTR
BAC - Bank of America – Long-term Bank of America bulls are out in full force today, scooping up call options like they’re going out of style. BAC’s shares are off slightly by less than 1% to $16.19. Plain-vanilla call buying in the January 2011 contract indicates investors expect shares to surge over the next 13 months. A large chunk of 50,000 calls were picked up at the January 25 strike for an average premium of 86 cents apiece. Shares must rally 60% from the current price to breach the $25.86 breakeven point on the trade. Twice as many calls were coveted at the higher January 30 strike where 100,000 calls were purchased for 45 cents each. The investor responsible for the massive position breaks even if shares jump 88% to $30.45 by expiration. Finally, another BAC-optimist established a ratio call spread in the same contract. The investor purchased 20,000 calls at the January 20 strike for 1.95 apiece, spread against the sale of 40,000 calls at the higher January 30 strike for 46 cents premium each. The net cost of the spread amounts to 1.03 per contract and positions the trader to profit if shares exceed $21.03 by expiration in January of 2011. Maximum potential profits available on the transaction amount to 8.97 per contract. Option implied volatility on Bank of America is currently 38.65% – a scant 2.93% above the 52-week volatility low of 35.77% – attained back on October 20, 2009.
GE - General Electric – A massive bullish bet on General Electric today indicates one investor expects shares to surge 43.8% in the next 13 months. Shares are currently up just under 1% to $16.16. It looks like a staggering 131,500 calls were purchased at the January 2011 22.5 strike for a premium of 76 cents per contract. The trader is apparently expecting GE’s shares to jump at least 43.8% to the breakeven point at $23.26 by expiration in January of 2011. Option implied volatility on General Electric is down to a one-year low of 29.46%.
SEED - Origin Agritech Ltd. – Frenzied options activity continues today on Beijing-based seed producer, Origin Agritech, following yesterday’s announcement that the firm received approval from China’s Ministry of Agriculture to sell its genetically modified phytase corn. Shares are currently up 4% to $10.86, down from an intraday high – and 52-week high –…
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Retail Reversal Combination Grabs Attention on XRT
by Andrew Wilkinson - November 4th, 2009 4:11 pm
Today’s tickers: XRT, MGM, DE, GLD, UUP, NWL, HNZ, EWZ, UNH, OSTK & STEC
XRT - SPDR S&P Retail ETF – A three-legged transaction in the December contract on the retail exchange-traded fund reveals bearish sentiment by one investor. Shares of the XRT are trading nearly 1% higher today to $34.60. It looks like the trader sold call options in order to offset the cost of buying a put spread. The put spread involved the purchase of 5,000 puts at the December 33 strike for a premium of 1.07 apiece, marked against the sale off 5,000 puts at the lower December 30 strike for approximately 37 cents each. The sale of 5,000 calls at the higher December 36 strike knocked another 87 cents per contract off the total price of the bearish play. The investor more than offset the cost of buying the spread and thus receives a net credit of 17 cents per contract. The full credit is retained by the trader as long as shares of the XRT remain below $36.00 through expiration. Additional profits may accumulate if shares dip below $33.00, while maximum potential gains of 3.00 per contract require that shares trade down to $30.00.
MGM - MGM Mirage, Inc. – Shares of the casino resort operator slipped 2.5% lower to $9.40 today but one options optimist initiated a bullish play on the stock in the March 2010 contract. It appears the trader put on a ratio call spread by buying one in-the-money call option for every three out-of-the-money calls sold. The investor purchased 10,000 calls at the deep in-the-money March 7.0 strike for 3.20 apiece and simultaneously sold 30,000 calls at the higher March 12 strike for 1.05 each. The net cost of the transaction is reduced to just one nickel per contract. The investor probably does not expect shares to rally through $12.00 by expiration because he is short 20,000 calls at that strike price in the March contract. Shares of MGM last traded above $12.00 on October 14, 2009.
DE - Deere & Co. – A large bearish butterfly spread appeared in the March 2010 contract on the agricultural equipment maker. The transaction indicates one investor is positioning for significant declines in the price of DE shares by expiration. Shares are down 1% to $46.76 with just under 90 minutes remaining in the trading day. The investor purchased the upper wing of the spread at the March 40 strike…
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All-Time High for Amazon has Option Traders Raising the Bar
by Phil - October 27th, 2009 6:17 am
Today’s tickers: AMZN, MU, ETH, AMR, WYN, TBT, BAC, PCS, DE, ING, RSH & BCRX
AMZN - Amazon.com, Inc. – Shares of the online retailer surged to an all-time high of $125.44 during the trading session. Investors exchanged approximately 241,000 option contracts on AMZN by 3:00 pm (EDT), which represents about 41% of the total existing open interest on the stock of 591,993 lots. Bullish investors expecting Amazon to rally even higher purchased 7,000 calls at the November 135 strike for an average premium of 1.84 apiece. Optimism spread to the higher November 140 strike where 2,800 calls were picked up for 1.05 each. Super bullish traders looked to the highest available strike price in the front month – the November 150 strike – to purchase 1,000 calls for an average premium of 31 cents per contract. Shares of Amazon.com rallied 36% to reach today’s intraday high of $125.44, climbing up from an intra-week low of $91.98 on Thursday October 22, 2009. Investors holding calls at the November 135 strike will profit by expiration if shares of AMZN gain 9% over the high of $125.44 to breach the breakeven price of $136.84. Finally, near-term put options were also in demand by investors looking to lock in gains enjoyed during Amazon’s recent run-up. Traders shelled out an average of 6.92 per contract to buy 3,100 puts at the November 125 strike.
MU - Micron Technology, Inc. – Option traders invested in April contract call options on the semiconductor manufacturer despite the 0.5% decline in shares to $7.41. It appears some 9,200 calls were purchased by MU-optimists at the April 8.0 strike for an average premium of 1.08 per contract. Call-buyers apparently expect shares to rally significantly within the next six months. Investors holding the call options will profit by expiration if shares of MU rally at least 22.5% to the breakeven point at $9.08.
ETH - Ethan Allen Interiors, Inc. – Home-furnishings retailer, Ethan Allen, experienced a more than 14% decline in shares today to $14.30 after the firm forecast a wider-than-expected loss of 21-23 cents for the first quarter. Analysts predicted an 8 cents per share loss before the firm lowered guidance last week. Long-term downside protection is in demand as traders picked up some 5,500 puts at the May 12.5 strike for an average premium of 1.76 apiece. Investors holding long positions in the underlying stock will find protection kicks in if shares slip beneath…
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Where Did All the Volatility Go?
by Andrew Wilkinson - June 11th, 2009 4:36 pm
Today’s tickers: VIX, EEM, XLU, EWT, AA, ESLR, UNH, HOT & DE
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The Deere Hunter
by Andrew Wilkinson - May 20th, 2009 5:33 pm
Today’s tickers: DE, XLF, V, PBR, HPQ, POT, XLB, RF & F
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September SPDR puts active
by Andrew Wilkinson - May 8th, 2009 6:19 pm
Today’s tickers: SPY, F, DELL, SYMC, DE, FITB, ASML, SMH & UNH
SPY SPDR Trust Series – So implied volatility as measured by the fear gauge known as the VIX, the CBOE volatility index has come screaming off today after a nerve-soothing employment report. The VIX is down 2.17 points today to 31.25. The ongoing rally for equities is likely a snapback against an Armageddon-like scenario priced in to stocks throughout the first quarter. With a lessening in the economic contraction and today’s data icing the cake, investors have thrown in the towel on the bear market and have reduced demand for protection through puts. However, in the S&P index, one investor seems to feel that the rebound won’t extend beyond September and has bought a sizeable chunk of protective puts. The SPDR trades at one-tenth the value of the underlying index and today is 2.5% to the better at 93.15. Some 72,000 put options at the September contract have been purchased at the 75.0 strike for premiums anywhere between 1.84 and 2.05. Breakeven in the worst case example would be at 72.96. That would need a decline of 21.6% to come good. At some point, investors will sit around the camp fire and have a rethink after this huge counter-trend rally. What’s next?
F Ford Motor Company – The only big-three auto company in the US to remain standing without federal aid has climbed 2% to $6.20 per share today. The bullish move in shares could be due to the news that Ford may receive as much as $440 million in government loans. The money would be utilized to facilitate the conversion of a Michigan SUV (sport utility vehicle) factory to one that builds small, fuel-efficient automobiles. Ford edged onto our ‘most active by options volume’ market scanner later on in the afternoon after one individual was seen getting bullish on the stock. In the January 2011 contract the trader was seen shedding 55,000 put options at the January 2.5 strike price for a premium of 80 cents apiece. The investor pockets the premium today as he does not see shares declining through $2.50 over the next year and a half. Option implied volatility on Ford is currently at 85%.
DELL Dell, Inc. – The just-in-time provider of personal computers attracted bullish options investors despite the more than 3.5% decline in shares to $10.65. Perhaps individuals looking for upside movement in shares purposefully got…
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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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