Bullish Players Pick Up Calls at Staples Ahead of Earnings
by Option Review - February 28th, 2011 4:09 pm
Today’s tickers: SPLS, MRVL, FRX & ERIC
SPLS - Staples, Inc. – Call options on the office supplies retailer are flying off the shelves ahead of the firm’s fourth-quarter earnings report, which is slated for release before the opening bell tolls on Wednesday. Shares in the name are up 1.35% to stand at $21.22 as of 12:00pm in New York. Bullish players are out in numbers, buying up call options in the March and April contracts, to position for shares to extend gains in the near term. Meanwhile, there is a bit of put buying in the front month this morning, with some 1,200 March $21 puts picked up by pessimistic traders for an average premium of $0.55 each. The largest bullish bet on Staples was the purchase of 9,000 calls at the March $22 strike at a premium of $0.40 each. The transaction appears to be tied to the sale of 270,000 shares of the underlying at $21.11 each. The strategy is likely a delta neutral play, with a delta of 0.30 indicated by the size of the stock and option combination employed. The trader could make out on the short stock leg of the trade if shares in SPLS drop post-earnings, however, the parameters of the transaction indicate substantially higher potential gains if shares fly higher in the time remaining to March expiration. A total of 11,395 calls changed hands at the March $22 strike in early-afternoon trade versus previously existing open interest of just 1,520 contracts. Like-minded optimists looked to the April $22 strike to buy roughly 2,000 calls for an average premium of $0.55 per contract. Call buyers at the April $22 strike start making money in the event that Staples’ shares surge 6.3% to surpass the average breakeven price of $22.55 by April expiration. Options implied volatility on the office supplies firm is up 4.8% at 30.82% as of 12:15pm.…
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DiggBears at Work as AMAG Pharmaceuticals Shares Head Lower
by Option Review - September 24th, 2010 4:15 pm
Today’s tickers: AMAG, BID, ERIC, BAX, NVDA, VIT, BVF & ETFC
AMAG – AMAG Pharmaceuticals, Inc. – Safety concerns surrounding AMAG’s Feraheme, the biopharmaceutical firm’s intravenous iron-replacement therapy for patients with chronic kidney disease and its lead product, continue to drive shares to new lows. Shares are down 4.00% at $18.15 as of 3:20 pm ET, but earlier plunged 11.6% to touch down at an intraday- and 4-year low of $16.70. Today’s low of $16.70 put shares down 68.2% since January 12, 2010, when the stock was trading up at its 52-week high of $52.49. Erosion in the price of AMAG’s shares accelerated at the end of August when the FDA added Feraheme to a list of products touting serious risks and connected the drug to unspecified serious cardiac disorders. One options investor appears to be positioning for shares to continue to decline by enacting a ratio put spread in the October contract. The trader purchased approximately 2,500 puts at the October $18 strike for premium of $1.98 each, and sold roughly 5,000 puts at the lower October $16 strike at a premium of $0.84 apiece. Average net premium paid to establish the spread amounts to $0.30 per contract. Thus, the strategist stands ready to profit if AMAG’s shares slip beneath the effective breakeven price of $17.70 by expiration. Maximum potential profits of $1.70 per contract are available to the trader if AMAG shares fall 11.85% from the current price of $18.15 to settle at $16.00 at expiration. The ratio of twice as much sold puts as long puts held by the investor expose him to losses should shares collapse below the effective lower breakeven price of $14.30 by expiration day next month.
BID – Sotheby’s, Inc. – Shares of the auctioneer fine art, antiques and other collectibles rallied as much as 7.65% this afternoon to touch an intraday high of $35.86. One options investor bought call options back in August and was well positioned to book profits on today’s rally. It looks like the trader originally purchased some 1,000 calls at the October $35 strike at an average premium of $0.90 each back on August 11, 2010, when BID’s shares were trading at a volume-weighted average price of $29.41. Shares have since increased significantly, boosting premium on the October $35 strike calls. Thus, the bullish player was able to sell all 1,000 lots at that strike for a premium…
Forget About It Friday – Again
by Phil - April 23rd, 2010 8:28 am
Goldman who? Fuhgeddaboudit!
Greece what? Oh we fixed that thing last week! Yeah, the Germans (who are $4.5Tn in debt), the French (who are $4.4Tn in debt), the English ($9.2Tn) and, of course, the Italians ($4Tn in debt) are gonna give the Greeks a little something to keep the lights on until Christmas. Hey the world’s supposed to end in 2012 anyway so it’s not like we gotta keep worrying about this stuff, capiche? See Merkel tells me she knows a guy who knows a guy who’s got the green to keep this whole scam going until then and, after that – who cares? It’s gonna be somebody else’s problem…
I’m not going to complain, I complained about all this stuff on our last Fuhgeddaboudit Friday, just two weeks ago – so you can read that post, where there was a chart of the XLF at $16.40 pre-Goldman and two weeks later, after our mini-crisis on Wall Street, XLF is at $16.65 – just like nothing happened.
Inflation is rising, home prices are even lower than last year, housing starts are anemic, unemployment is still a rounding error off of 10%, wages are falling, defaults on credit cards and mortgages are rising, commercial rents are going uncollected and CRE values are declining rapidly but those declines are being covered up by banks using accounting tricks to hide their losses. All forgotten about as this Friday opens almost exactly where we were last Friday.
Something DID happen happen this week. The SEC made some noise and Obama made a speech and GS fell from $185 a share to $160 a share (down 13%) and isn’t that punisment enough for putting together deals that led to the loss of $15Tn of household wealth in America? Of course Goldman wasn’t out to get us – they were simply structuring deals that would greatly reward their high net-worth clients based on the irresponsible buying patterns of our neighbors while their analysts were upgrading the housing sector to keep the suckers pouring into the other side of the bet.
Sure it’s evil and sure it led to a crisis that crippled our country and cost millions of people their jobs and homes but — oh Goldman — we can’t stay mad at you! Just give us a little stock market rally and all is forgiven but do we have to bend all the way…
Options Player Reveals Long-Term Bullish Sentiment on AIG
by Option Review - March 12th, 2010 4:19 pm
Today’s tickers: AIG, MU, F, POT, CLF, PAYX, ERIC, SVU, LFC & CA
AIG – American International Group, Inc. – The insurer’s shares experienced a fantastic 56.7% run up from its low point in the current month of $24.54 on March 3, 2010, up to yesterday’s intraday high of $38.45. During the current session, AIG surrendered a small portion of its recent share price gains, slipping slightly lower by 1.40% to stand at $34.62 in afternoon trading. Extreme-bullish positioning in long-dated options caught our attention today as one investor established a call spread in the January 2011 contract. The optimistic trader purchased 5,500 calls at the January 2011 $50 strike for a premium of $3.65 apiece, and sold the same number of calls at the higher January 2011 $75 strike for $1.30 each. The net cost of the transaction, and maximum loss potential faced by the investor, amounts to $2.35 per contract. American International Group’s shares must surge 51.2% from the current price of $34.62 in order for the trader to break even on the spread at $52.35 per share. Perhaps the individual responsible for the trade expects AIG’s shares to rebound up to the current 52-week high on the stock of $55.90 (attained back on August 28, 2009), or above within the next ten months to expiration. Maximum available profits of $22.65 per contract – total gains of $12.4575 million – accumulate for the bullish player if AIG’s shares jump 116.6% from today’s price to $75.00 by January expiration day. Shares last traded above $75.00 back in October of 2008.
MU – Micron Technology, Inc. – A large-volume long-term bullish transaction on the manufacturer of semiconductor devices indicates one big options player anticipates continued upward movement in the price of Micron’s shares by expiration in January 2011. Shares rallied 2.55% to $10.05 this afternoon, but earlier increased more than 4% to reach an intraday high of $10.25. The optimistic investor purchased a debit call spread in by picking up 20,000 in-the-money call options at the January 2011 $10 strike for a premium of $2.07 apiece, marked against the sale of 20,000 calls at the higher January 2011 $15 strike for $0.58 each. The net cost of the spread amounts to $1.49 per contract, positioning the investor to amass profits if Micron’s shares exceed the breakeven price of $11.49 by expiration next year. Maximum potential profits of $3.51 per contract…
Testy Tuesday Morning
by Phil - January 5th, 2010 8:27 am
Wow – what a lot of work to get back to last Tuesday’s high!
As usual, the vast majority of gains came in pre-market trading and the rest came in light-volume, early morning trading while the rest of the day was dominated by every buyer finding a willing seller for 75% of the day’s volume. We saw what happened on Thursday when someone big wants to sell and there are no buyers so we’ll see how long the bull’s luck (manufactured or otherwise) will hold out as we begin to get economic data along with some early earnings reports.
The Ag sector popped 2% yesterday ahead of tonight’s earings from MOS with MON checking in tomorrow morning so we’ll see how wise those last-minute bets were in short order. SONC also has earnings tonight and we like those guys long-term. SONC makes a decent buy/write candidate as you can buy the stock for $10.29 and sell June $10 puts and calls for $2.25 for a net entry of $8.04 with a very nice 24% profit if called away at $10 and an average entry of $9.02 (a 12% discount) if more stock is put to you below $10 in June.
FDO and WOR also report tomorrow morning. FDO will be interesting but a weak dollar probably hurt them last quarter. Tomorrow night we hear from BBBY, BLUD, OHB and Sonic competitor RT, who seem a bit pricey at $7.50. Thursday we get our first real builder, LEN along with STZ and TXI. After the bell on Thursday we hear from APOL, CRI and SCHN with GBX and PSMT on Friday. AA officially kicks of earnings season next Monday with GAP, INFY, KBH, BGG, SCHW, SHFL, INTC and JPM highlighting the reporters.
We have plenty of data this week including Factory Orders and Pending Home Sales at 10 am along with December Auto Sales throughout the day (did you get a new car for Christmas?). Tomorrow is jobs day, with the ADP Report and Challenger Job Cuts ahead of the bell followed by ISM Services (yesterday’s ISM was a nice beat) and, of course, Crude Inventories at 10:30 which are unlikely to sustain $82 oil (USO Jan $40 puts for .80 are a good way to play this). We talked about the other stuff yesterday so I won’t repeat it – suffice to say we have plenty of data this week to see if we justify these lofty levels.
Everyone is talking…
Semiconductor credit spread indicates bearish view
by Option Review - March 20th, 2009 6:14 pm
Today’s tickers: SMH, ELAN, FDX, DELL, AN, GE, POT, PCLN & ERIC
SMH Semiconductor HOLDRS Trust – The semiconductors ETF has seen shares decline by more than 3.5% to stand at $18.11 today. We noticed one investor who is looking to profit from a near-term pull back in shares, by establishing a credit spread in the April contract. While the open interest at the April 18 strike suggests that there has been bullish activity there recently, we believe the trader we observed today is taking the opposite stance. At the April 20 strike price 25,000 calls were purchased at 46 cents apiece, while at the April 18 strike 25,000 in-the-money calls were sold for 1.36 each. The net credit achieved with this strategy amounts to 90 cents and is safe in the bank if shares remain below $18 by expiration next month. SMH has not traded above $20 since November of 2008, and the stock has reached a line of resistance at around $18. This investor may turn out to have made a wise choice in taking advantage of the richer premium afforded by the in-the-money contracts at the lower strike, and he will look for both the April 18/20 calls to expire worthless in 30 days in order to pocket the 90 cent premium. This bear was not alone in the woods today, as the May contract saw 14,000 puts purchased at the 14 strike price for 24 cents apiece. Super-pessimists are looking for shares to decline below the 52-week low on the stock at $14.51 because profits begin to amass as shares fall beginning at the breakeven share price of $13.76.
ELN Elan Corporation PLC – The neuroscience-based biotechnology company has experienced a share price decline of 2% to $5.29. ELN appeared on our ‘hot by options volume’ market scanner after one investor traded a large number of calls in the January 2010 contract. The trader purchased 28,000 calls for 20 cents each at the January 17.5 strike price. Given that shares are light-years away from nearing $17.50, we investigated the open interest of 29,000 at the 17.5 strike. It looks as though this investor sold a good portion of these 28,000 calls short on January 8, 2009 for a premium which ranged between 70 cents and 1.25 per contract when shares were at $9.00. We noted at the time in our commentary that this was part of…
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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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