Gold Mminers ETF Attracts Bullish Option Plays
by Option Review - 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…
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DiggRailroad Bulls Expect CSX Recovery on Track
by Option Review - October 5th, 2009 4:11 pm
Today’s tickers: CSX, VALE, ERTS, JNPR, BRCD & ORCL
CSX - The supplier of rail-based transportation services attracted option optimists to the November contract today amid a 2.5% rally in shares to $42.68. Bullishness was expressed through put selling as investors appear to expect CSX to continue to thrive through expiration in November. Approximately 7,300 puts were sold short at the November 40 strike for an average premium of 2.03 apiece. Traders selling these contracts retain the full credit as long as shares of CSX remain higher than $40.00 through expiration next month. Investors shorting the puts pocket the 2.03 credit in exchange for bearing the risk that shares decline beneath $40.00. If the puts land in-the-money by expiration, traders short the puts will have shares of the underlying stock put to them at price of $40.00 apiece. Therefore, losses begin to accumulate if shares fall 11% from the current price and breach the breakeven point to the downside at $37.97. – CSX Corp. –
VALE - Investors in the Brazilian metals and mining company enjoyed a more than 3% rally in shares to $23.63. The current share price represents a new 52-week high for the stock, which is one nickel greater than the previous 52-week high of $23.58, attained back on September 23, 2009. We observed bullish sentiment in the November contract where one investor established a risk reversal by shorting puts to finance the purchase of calls. The optimistic play involved the sale of 8,000 puts at the November 21 strike for a premium of 60 cents apiece, spread against the purchase of 8,000 calls at the higher November 25 strike for an average premium of 71 cents per contract. The net cost of assuming a long call position amounts to 11 pennies apiece. Shares of Vale must rise another 6% by expiration for the investor to begin to accumulate profits above the breakeven point at $25.11. – Vale SA –
ERTS - Shares at the game-maker are higher by 3% at $18.89 today making the options action a little curious. An investor appears to be writing nearby in-the-money puts in exchange for buying those at out-of-the-money strikes at later expiries. An investor sold 13,700 November puts at the 19 strike for a 1.50 premium, meaning he’d have shares put to him if they remain below the strike in seven weeks time. In the meantime he insures worried ERTS traders…
Transportation ETF Sees Bearish Options Combo
by Option Review - September 23rd, 2009 5:05 pm
Today’s tickers: IYT, WYN, BBBY, XLU, ERTS, MSFT, ALTH & MT
IYT - Shares of the IYT are currently down 0.5% to $71.43. One option trader appears to have exchanged 19,500 contracts on the ETF to take a bearish stance through expiration in December. The three-legged trade executed on the IYT today exceeds the existing open interest of 13,323 lots by more than 6,000 contracts. The trader likely holds a long position in the underlying shares of the fund because of the placement of the options play. It appears the investor funded a put spread by selling out-of-the-money calls short. He sold 6,500 calls at the December 76 strike for 2.45 apiece. The put spread involved the purchase of 6,500 puts at the December 73 strike for 5.10 each against the sale of 6,500 puts at the lower December 67 strike for 2.70 per contract. The investor is left with a net credit of 5 pennies, which he will ultimately retain in full as long as shares of the IYT remain beneath $76.00 through expiration. Additional gains – or downside protection on a long stock position – have already kicked in for the trader given the breakeven price of $73.00 on the trade. The put spread provides maximum protection if shares decline 6% from the current price to $67.00 by expiration in December. – iShares Dow Jones Transportation Average Index –
WYN - The hospitality company appeared on our ‘hot by options volume’ market scanner this afternoon due to greater than normal call activity. Bullish option traders made moves on the stock despite the slight 0.25% dip in shares to $16.01. Traders looked to the November 20 strike where approximately 1,000 calls look to have been bought for an average premium of 45 cents each. The higher November 22.5 strike had about 8,000 calls coveted by investors who paid an average of 19 cents per contract. Call-buyers at the higher strike may garner profits if shares surge 42% from the current price to surpass the breakeven point at $22.69 by expiration in November. Wyndham has traded beneath the breakeven price described since May 20, 2008. We note that option traders exchanged 21,290 contracts on WYN today, which represents 36% of the existing open interest on the stock of 59,774 lots. – Wyndham Worldwide Corp. –
BBBY - The home-furnishings retailer received an upgrade to ‘neutral’ from ‘sell’ at FTN Equity today ahead…
All Fine on Friday – Drop, What Drop?
by Phil - September 4th, 2009 8:23 am
We are starting to love our stick!
From our first Alert of the day, at 9:47 we went bullish into the drop, selling the naked DIA $94 puts and covering our longer put plays fully. After picking TZA hedged ($11.15/14.32) and a short on COST (who had jumped 10%) it was all mooing with longs on MCO, ERTS, BSX and VZ but then a bearish play on GLD at $97.50 as, again, we didn’t think gold will hold $1,000. The market started a sell-off at 1:25 but took a bounce but, as you can see from David Fry’s chart, the S&P held 995 at 2:45 and at 3:07 I said to Members:
Volume right at 100M at 3pm. 140M is "stickable." Mr Stick stopped coming after he got hosed on Monday with someone(s) selling like crazy into the attempted closing pump but "they" jacked it up pre-market on Tuesday and got their money back Tues am at which point they les the market slide to (hopefully) get rid of the jokers who had the nerve to sell into the stick. After an almost 72 hour rest period, I think Mr. Stick is tanned and rested and ready to put a positive spin on this week into the holiday weekend. That’s my market story at the moment. I’ll be right if we get a move either into this close or possibly a pre-market pump into a Free Money Day tomorrow that jams us back to 9,500 on very low pre-holiday volume. Those DIA $94 puts are still $2.15 and I still like them as a way to play for a move up (short sale). The $95 calls came down to .69 as the bulls have lost faith and that makes them a fun play to get back into as well.
So far, my market story is looking pretty good and it’s a quick 150--point ride back to 9,500, which will be a tall order if Non-Farm Payrolls disappoint but looking at then Hang Seng this morning, which got the Grand Mother of all stick saves into their close (500 points in 45 minutes), I’d have to say pretty much anything is possible. This morning’s "rally" in the Hang Seng came off an announcement by authorities that China will raise the ceiling on foreign investments AND shorten the "lock-up" period on certain types of investments considerably. This came on the…
Genworth Financial Rallies Amidst Reversal Positioning Through Options
by Option Review - August 12th, 2009 5:23 pm
Today’s tickers: GNW, ERTS, RCL, WFT, PETM, BBY, AKAM, KR, & FITB
PepsiCo sees large put volume
by Option Review - April 28th, 2009 5:08 pm
Today’s tickers: PEP, XLY, ITT, PFE, HUM, HSY, ERTS & NTRS
PEP PepsiCo, Inc. – The global beverage, snack, and food company’s shares have rallied by more than 1% to stand at $49.75. PEP popped onto our ‘most active by options volume’ market scanner after a large volume bullish transaction was observed in the October contract. One optimistic individual targeted the October 50 strike price and sold 30,000 puts for a premium of 4.20 apiece out of some 35,000 puts sold in total at the strike. There is no existing open interest at the October 50 strike, and thus, the trade represents short selling in anticipation that shares will rise beyond $50.00 by expiration in October. This could also represent a covered put strategy (short stock and sold puts) indicating the investor’s expectation that shares might fall further. At expiration if shares are below the strike the investor would have stock put to him at $50.00 but the premium from the puts effectively reduces that price to $45.80.
XLY Consumer Discretionary Select Sector SPDR – Shares of the ETF have risen by about 0.5% to $22.60 as the ticker edged onto our ‘most active by option volume’ market scanner this afternoon due to one investor who established a ratio put spread in the June contract. It appears that this trader is looking for downside protection on the fund and so bought 12,500 puts at the June 22 strike price for 1.30 apiece spread against the sale of 25,000 puts for 65 cents at the June 20 strike price. The put spread was initiated at no cost the trader given the premium of the respective puts. If shares should decline all the way to $20.00 by expiration this individual will have reeled in the maximum profit of 2.00 possible on the trade. Profits will begin to amass to the downside at any share price below $22.00. Despite carrying a net short put position below a share price of $20.00 losses would not accrue unless shares slipped beneath $18.00, but would rise penny-for-penny thereafter.
ITT ITT Corporation – Shares of the multi-industry company engaged in the design and manufacture of engineered products have remained relatively flat for the day and currently stand at $40.73. ITT appeared on our ‘hot by options volume’ market scanner after one investor initiated a sold straddle in the July contract. It appears that the straddle was…
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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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