Shares In Amylin Plunge, Options Players Prep For A Rebound
by Option Review - November 8th, 2011 1:29 pm
Today’s tickers: AMLN, XLNX, DF & NTGR
AMLN - Amylin Pharmaceuticals, Inc. – Shares in the biopharmaceutical company plunged 18.1% to an intraday low of $8.95 on Tuesday on news the company ended its diabetes partnership with drug maker, Eli Lilly & Co. Options activity on Amylin Pharmaceuticals, however, suggests some strategists see the selloff as overdone, with a number of investors stepping up today to position for the price of the underlying to rebound. Near-term bulls snapped up more than 1,650 calls at the Nov. $11 strike for a premium of $0.22 apiece. Buyers of the call options profit at expiration if shares in AMLN surge 21.4% over the current traded price of $9.24 (as of 11:50 am in New York), to surpass the average breakeven price of $11.22. Optimism for an AMLN-recovery story spread to the Dec. $10 strike, where more than 5,600 call options changed hands against open interest of 270 contracts. It looks like one investor purchased the majority of these calls for an average premium of $0.85 a-pop. The strategist profits at expiration next month in the event that Amylin’s shares increase 17.4% to trade above $10.85. Longer-dated contracts are the most active in terms of volume on the drug maker so far today. One trader appears to have purchased a 5,000-lot April 2012 $10/$15 call spread for a net premium of $1.30 per contract. The call-spreader may reel in profits of up to $3.70 per contract on the position if AMLN’s shares jump 62.3% to exceed $15.00 by April expiration day. Meanwhile, the sale of 9,000 puts for a premium of $0.63 per contract at the April 2012 $6.0 strike suggests at least one investor expects the price of the underlying to exceed that level through expiration next year. The trader walks away with the premium in hand as long as the put options expire worthless at April expiration day. We note that while much of the activity in Amylin options is likely bullish, the stock was not exclusively populated with bullish players. Some of the volume generated in April 2012 contract calls looks to have been sold by traders betting against the likelihood of steep double-digit gains the shares. Additionally, light put buying the front month indicates other investors are prepared to see the stock pull back further ahead of November expiration. Options implied volatility on AMLN is up 46.7% at 85.0% just after midday…
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DiggLong-Dated Options Appear Rosy At JPM, Gloomy On MS
by Option Review - September 23rd, 2011 3:05 pm
Today’s tickers: JPM, MS & DF
JPM - JPMorgan Chase & Co. – A couple of options strategists appear to have exchanged sizeable blocks of long-dated calls and puts on JPMorgan this morning to position for shares in the name to rebound, or to at least hold, above recent multi-year lows. Shares in JPM came up for air today, rising 0.70% to $29.48 by 11:55 am in New York, following steep declines earlier in the week. The stock has tumbled nearly 40% since the first full week of April. One investor positioning for shares in JPM to at least hold above $29.00 come March 2012 expiration, sold some 7,000 puts at the Mar. 2012 $29 strike to pocket premium of $4.20 per contract. The investor may walk away with the hefty premium received on the sale of the time-rich, closest-to-the-money put options, as long as shares in JPM exceed $29.00 at expiration next year. The large short put position indicates the trader could wind up having 700,000 shares of the underlying stock put to him at an effective price of $24.80 each – after factoring in options premium – should the put contracts land in-the-money at expiration.
Meanwhile, a large stake in Mar. 2012 call options benefits the owner if JPM’s shares take off running to the upside within the next six months to expiration. It looks like one investor snapped up 5,000 calls at the Mar. 2012 $38 strike for a premium of $0.85 each within the first 15 minutes of the opening bell this morning. The call buyer profits at expiration if shares in JPMorgan Chase & Co. jump 31.8% over the current price of $29.48 to surpass the effective breakeven point at $38.85. But, the investor need not wait until expiration to potentially rake in profits…
Friday Follies – Did Obama Blow Jobs Speech?
by Phil - September 9th, 2011 8:15 am
Obama did not satisfy the markets last night.
Although his $447Bn American Jobs Act is a step in the right direction, $307Bn (68%) of the money is coming in the form of tax cuts and Unemployment Insurance extensions, leaving just $140Bn to go towards the creation of actual jobs. Even if every single dollar of that money went directly towards paying a $40,000 salary – the entire amount would employ just 3.5M people, not even 1/4 of the amount of people who are out of work.
Is that the best America can do? Come up with a jobs program that MIGHT lower unemployment from 9% to 7% over the next year? Of course we won’t create 3.5M jobs for $140Bn because a lot of that money gets spent on parts and materials. It’s certainly not that the projects are unnecessary, it’s just that the scope of the program is too limited to have a substantial impact.
In fact, exactly one year ago, I wrote "Jobless Thursday – America’s Infrastructure Crisis" where I laid out the TRILLIONS of Dollars worth of repair work that MUST be done in this country sooner or later. Why don’t we do them SOONER, while 20M potential workers are sitting on the sidelines? We MUST spend at least $2Tn on infrastructure in the next 10 years so why not spend $400Bn this year and next rather than waiting until the last minute to do anything? The money is all borrowed over time either way but NOW is when people need to get back to work and, of course, if we get necessary projects done now instead of 10 years from now, then we, the People, get to enjoy 10 years of beneficial use out of them. This is not complicated stuff folks, just common sense…
Nonetheless, $447Bn is 3% of our GDP and figure about 2/3 gets spent in the first year so the program SHOULD keep us out of Recession in 2012 – yay for that at least. If Recession is off the table, then the markets are underpriced – now we have to consider whether or not the bill can get past the Republicans in Congress. By the way, if you have not read "Reflections of a GOP Operative" yet, please do – it’s an excellent insight into the current political climate.
We had flipped bearish yesterday, anticipating…
RIMM Bear-Butterfly Strategist Prepares for the Worst
by Option Review - August 31st, 2010 4:22 pm
Today’s tickers: RIMM, HRB, CAT, DF, XLE, SKS, OCR & NEM
RIMM – Research in Motion, Ltd. – Shares in BlackBerry maker, Research in Motion Ltd., took a severe beating today after a Sanford C. Bernstein Ltd. survey revealed more firms are choosing rival devices such as the iPhone, a sign the firm is relinquishing its share of the corporate market to its competitors. RIMM’s shares dropped 6.30% to an intraday- and new 52-week low of $42.72 in the final hour of trading. The price of the underlying stock, which reached a 13-month high of $88.08 on September 23, 2009, has since collapsed 51.5% lower to reach today’s value of $42.72. But, one options trader populating the longer-dated January 2011 contract today positioning for RIMM’s shares to nearly halve again by expiration. The investor initiated a bearish put butterfly spread, buying 1,100 puts at the January 2011 $27.5 strike for premium of $0.80 apiece, selling 2,200 puts at the January 2011 $22.5 strike for premium of $0.37 per contract, and buying 1,100 puts at the January 2011 $17.5 strike for premium of $0.18 each. The net cost of the spread amounts to $0.24 per contract. The investor stands prepared to accumulate profits if shares of the mobile device maker plummet 36.2% from the current price to breach the effective breakeven point at $27.26 by expiration day. Maximum potential profits of $4.76 per contract are safe inside the trader’s piggybank if the Canadian company’s shares collapse 47.3% lower to settle at $22.50 at expiration. The majority of options traders populated the near-term September contract where the September $40/$42.5/$45 strike puts were the most active.
HRB – H&R Block, Inc. – Bearish investors bombarded the provider of tax, banking, business and consulting services in afternoon trading after Standard & Poor’s Ratings Services lowered its rating outlook on the company to stable from positive. The downgrade weighed heavily on HRB’s shares, which fell as much as 6.20% to an intraday- and new 52-week low of $12.54. Shares are currently down 4.95% at $12.71 with one hour remaining before the closing bell. Given the new 52-week low of $12.54, HRB’s shares are down 21.5% since trading at $15.97 on August 2, 2010. The stock has lost a total of 46.15% of its value since January 21, 2010, when shares reached the current 52-week high of $23.29. Investors wary of continued bearish movement in…
No-Thrills Thursday – Where’s the Kaboom?
by Phil - June 3rd, 2010 8:28 am
Where’s the kaboom? There’s supposed to be an Earth-shattering kaboom.
Well, it’s Thursday and the World hasn’t ended yet, contrary to the dire predictions we were getting last week and I guess that means you’d better buy some stocks! We’ve been buying up a storm since falling below the bottom of our range with 50 long-term entries on our Buy List and another dozen longs in the first two days of this week including speculative longs (haven’t taken those for a while) on BP and RIG. We even took two very bullish earnings plays on STP and JOYG – both of which were just way too low to ignore.
JOYG was a complex spread from our 12:50 Alert to Members with a max profit at $55 but STP was a very simple, VERY bullish play where we bought the $9 calls for $1 and sold the $9 puts for .47, for a net .53 entry and no limit to our upside over $9. Even if your margin requirement is 50% on the puts, you can pick up a single contract spread like this for $497 in buying power and your risk is being assigned the stock at net $9.53 but a move over $10 nets you a 10% gain in one day. As long as you don’t mind owning the stock on a move down, these are fun earnings plays to make…
We didn’t expect to be getting bullish (and we are still well-hedged for the next fat-fingered fall) but at 12:27 on Tuesday, I posted the following chart for Members where I drew a line in the sand for the downturn:
Yesterday I noted in the Morning Post that we were completing that move down into the open so all we really did was follow-through with our plan to flip bullish for at least a bounce. As we drifted along into the afternoon on a low volume move up, I re-examined the chart and decided it was a fine afternoon for a stick save and I drew this updated chart with the attached comment:
10,080 is the 0% line for the Dow and if I were Mr. Stick, I’d use that as my go point and jam the Dow up 100 from there, back to about 1,100 (on the S&P) so that’s the game(d) plan for the afternoon if we are getting back to the usual bullish shenanigans. Which would
…
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…
Trading in Electronic Arts’ Calls Accelerates Ahead of Earnings
by Option Review - May 11th, 2010 4:12 pm
Today’s tickers: ERTS, USO, ARMH, BK, JPM, GG, XRT, DF, CAH & PCLN
ERTS – Electronic Arts, Inc. – Call activity on the video game publisher is booming in late afternoon trading ahead of Electronic Arts’ fourth-quarter earnings announcement. Shares of the underlying stock are up 3.3% at $18.85 with 40 minutes remaining in the session. Analysts, on average, anticipate earnings of $0.05 per share on revenue of $835.4 million. Bullish options investors are scrambling to position for Electronic Arts’ share price to rally sharply should the firm’s earnings report beat average expectations. The majority of the call activity on the stock today is centered in the June contract where trading patterns look to be mimicking the parameters of a plain-vanilla debit call spread strategy. Approximately 15,000 calls were likely purchased for an average premium of $0.94 apiece at the June $20 strike. Meanwhile, traders sold about 15,000 calls at the higher June $22 strike for an average premium of $0.36 each. Investors employing this strategy reduce the net cost of buying the closer-to-the-money call options at the June $20 strike price to an average of $0.58 per contract. Maximum potential profits available to pseudo-call spreading traders amounts to $1.42 per contract should shares of the underlying stock surge 16.7% to surpass the $22.00-level by June expiration. Options implied volatility is up 6.9% to 57.12% ahead of the earnings announcement.
USO – United States Oil Fund LP – Shares of the U.S. Oil Fund are currently trading 1.25% lower on the day at $36.77. The USO’s share price of $36.77 is 12.2% below the May high of $41.90 attained back on May 3, 2010. One options investor is positioning for continued bearish movement in the price of the underlying fund through June expiration. The trader purchased a debit put spread, buying 3,000 lots at the June $36 strike for an average premium of $1.27 each, and selling the same number of contracts at the lower June $33 strike for $0.47 apiece. Net premium paid for the pessimistic play amounts to $0.80 per contract. The trader starts to make money if USO shares slip beneath the effective breakeven price of $35.20 by expiration day. Maximum potential profits of $2.20 per contract accumulate for the put-spreader if shares slump 10.25% beneath the current value to breach the $33.00-level by June expiration.
ARMH – ARM Holdings PLC – Optimistic options players initiated debit…
Weekend Trend Spotting and Virtual Portfolio Management
by Phil - February 20th, 2010 8:27 am
What a wild last 30 day’s we’ve had!
I’m going to do a little bit of charting today so we don’t miss out on the next potential Meatball Market (where bad news "just doesn’t matter") as we get past earnings season without any serious dings. Of course, like Icarus, they higher we go, the further we have to fall, especially when we’re getting there on wax wings but part of our fundamental outlook is looking at market sentiment along with the motives, means and opportunity of the manipulators.
The Fed threw a little monkey-wrench into the works Thursday with a surprise rate move but the market was amazingly unphased and, as you’ll notice on the chart below, we are neatly repeating the same move we saw in early November, when we waited 400 points for the correction that never came – until January 20th of course! This week, we took a few pokes at short plays and got burned and we went into the weekend a little bearish but mostly neutral. Our Buy List is off to the races, of course and only 2 of our 42 trade ideas there (AGNC and DF) are off course – I had meant to do an update this week but there’s no point!
We don’t pay much attention to the Buy List in our daily posts or even in chat because those trades do their job with very little fuss. Ideally, the bulk of your virtual portfolio should be made up of boring, low-touch trades that make nice, consistent returns and THAT allows us to have fun with our more aggressive short-term plays that do demand our regular attention. Someone asked me about allocation the other day and I said that, generally, I feel 75% should be in long-term, well-hedged positions like the ones on our Buy List while the other 25% should be used for more opportunistic trading and, generally, we rarely stray from keeping 1/2 of that in cash to remain flexible.
Of our aggressive virtual portfolio, we try to keep our allocations to no more than 10% of our cash on new positions (which means the more trades you make, the less you put into the next trade) and limit our losses to 20% of a full position or 2% of that virtual portfolio MAX. 2% of 25% is 0.5% of the total virtual portfolio. If our Buy/Write Virtual…
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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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