Virgin Media bulls bank profits and build new positions
by Option Review - November 23rd, 2009 4:38 pm
Today’s tickers: VMED, EWZ, HAL, FMCN, VIX, SEED, GLD, CMCSA, SEED, LDK & USG
VMED – Virgin Media, Inc. – Virgin-bulls banked profits and established new positions on the telecommunications company this afternoon amid a 1% increase in shares to $16.54. One investor initiated the closing purchase of 10,000 put options that were originally sold short for an average premium of 68 cents apiece back on October 16, 2009. Today the trader closed out the position by buying the puts for just 15 cents each. Net profits on the trade amount to 53 cents per contract for a total of $530,000. The same investor is likely responsible for putting on a similar bullish strategy in the March 2010 contract. The March 15 strike had 10,000 puts sold short for one dollar per contract. The sale of the put options implies the trader expects shares of VMED to remain above $15.00 through expiration in March. Finally, optimism spread to the March 17.5 strike where 2,685 calls were purchased for an average premium of 1.45 apiece. Call-buyers amass profits if shares of VMED rally another 15% over the current price to breach the breakeven point at $18.95 by expiration day in March. Option implied volatility is currently 8.5% lower to 42.40%.
EWZ – iShares MSCI Brazil Index ETF – A bullish risk reversal on the EWZ in the January 2010 contract indicates investors are positioning for a rally in shares over the next couple of months. Shares of the fund are trading 1.5% higher to $76.28 this afternoon. Traders sold 5,500 puts at the January 77 strike for an average premium of 4.90 apiece in order to finance the purchase of 5,500 calls at the same strike for 3.35 each. The bullish reversal yields a net credit of 1.55 per contract. Investors retain the full 1.55 credit if shares of the Brazil Index ETF trade above $77.00 by expiration in January. Additional profits accumulate to the upside above the $77.00 breakeven price. The 1.55 credit also acts as a buffer against losses to investors in case shares fail to rise up to the strike price described. Investors short the put options stand ready to have shares of the underlying stock put to them at an effective price of $75.45 each if the put options land in-the-money by expiration.
HAL – Halliburton Co. – Near-term bearish option plays on the oil and gas…
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DiggRetail Reversal Combination Grabs Attention on XRT
by Option Review - 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…
Weekly Wrap-Up – 10,000 or Bust!
by Phil - October 17th, 2009 8:27 am
I think I was right on the money last week when I said:
The bar for corporate earnings is still set at very easy to beat levels yet, like this limbo-playing child, when they announce their beats of very low expectations we’re going to get all excited and tell them how great they are doing. The problem is, these are not kids who we hope may grow up one day to be President or CEOs of major companies. these ARE CEOs of major companies and they are being paid top salaries for top performance and we, the stock purchasing public, are paying top dollar for what should be SPECTACULAR performance, not beating 75% off last year’s earnings by a penny!
In that post, I rattled off a list of stocks that seemed overpriced to me: AMZN, BIDU, AM, PALM, NFLX, PCLN, URBN, UHS, CERN, CREE, GMCR, CY, SWM, TRLG, BKE and you would have had a fabulous week just shorting those stocks as only NFLX, URBN and CREE stayed positive. Now most newsletter writers would quit right there and make a giant ad saying they were 12 for 15 on the week but, as our members know, THAT’S NO BIG DEAL AT PSW! I’m just going to remind members that they can refer friends to FREE advice like that in our trial newsletter and earn 20% or more off their subscriptions for doing it.
Picking stocks is easy but a few percent here and a few percent there isn’t much fun is it? On that list, the two we attacked were AMZN and BIDU, both of which ran (in our opinion) way too high AND had very liquid and very overpriced call options that we could sell to collect premiums. AMZN is a staple short in our $100K Virtual Portfolio and we had set up BIDU the week before, selling Oct $420 calls for $8.30 and the Oct $430 calls for $7,20. While both went higher on Monday, the fact that we had a plan for managing the trade kept us from panicking and, thankfully, Monday was the only day those positions gave us trouble and both finished the week worthless (100% profit for us).
Adjusting our positions kept us busy this week as we STILL have a slightly bearish bias and I apologize for that but, as I said in Friday’s post: Every time I try to get a little more bullish, they pull me…
Emerging Markets Heading Down, Say Option Traders
by Option Review - October 16th, 2009 4:14 pm
Today’s tickers: EEM, POT, JAVA, BARE, SHAW, EWZ & KG
EEM – iShares MSCI Emerging Markets Index ETF – Shares of the emerging markets exchange-traded fund are down 1.25% to $40.77 as we head toward the closing bell this afternoon. One bearish option trader exchanged 70,000 contracts in the January 2010 contract to protect against potential declines in the EEM through expiration. It appears the investor sold 35,000 calls at the January 41 strike for an average premium of 2.34 apiece. A chunk of 25,000 of those call options were spread against the purchase of 25,000 puts at the same January 41 strike for a premium of 3.00 per contract. The remaining 10,000 calls were spread against the purchase of 10,000 puts at the lower January 34 strike for 81 pennies each.
POT – Potash Corporation of Saskatchewan, Inc. – The Canada-based potash producer rose more than 2.5% to $96.72 despite the overall bearish trend for the larger marketplace today. Plain-vanilla call buying suggests bullish investors are hoping POT’s shares continue on the up-and-up through the end of 2009. Approximately 4,000 calls were picked up at the November 100 strike for an average premium of 3.05 apiece. More optimistic individuals looked to the December 105 strike to get long of some 6,200 calls for about 3.02 per contract. Investors holding the December 105 strike calls are now positioned to accumulate profits if shares of POT rally at least 12% from the current price to breach the breakeven point at $108.02.
JAVA – Sun Microsystems, Inc. – Call-selling and put-buying in the January 2010 contract suggests investors expect JAVA’s shares could experience further declines before the year is over. Shares fell less than 0.5% to $9.13 during the trading session. It appears traders sold 4,500 calls at the in-the-money January 9.0 strike for 40 cents apiece. Perhaps these individuals are throwing in the towel on JAVA, salvaging whatever premium they can in case the stock falls below $9.00. Additional bearishness took place at the January 7.5 strike where investors bought more than 16,000 puts for an average premium of 16 cents per contract. Perhaps put-buyers are long shares of the underlying stock. If this is the case, downside protection from the put options will kick in if shares plummet 20% to $7.34 by expiration in January.
BARE – Bare Escentuals, Inc. – The cosmetics and skin care products company popped…
Brazilian Stocks Capture Option Traders’ Imagination
by Option Review - October 15th, 2009 2:25 am
Today’s tickers: VALE, EWZ, NYX, PFE, HOG, XRT, S & ROVI
VALE – Vale S.A. – Rio de Janeiro-based mining company, Vale S.A., experienced a 6.25% surge in shares today to $26.57. Perhaps the jump in shares is due to unconfirmed news the company plans to invest $5.8 billion to expand projects in the Brazilian state of Minas Gerais. In options-land one investor took a bullish stance by selling puts to buy calls. It appears the risk reversal involved the sale of 4,000 puts at the November 23 strike for 45 cents apiece, spread against the purchase of 4,000 calls at the higher November 28 strike for 38 cents premium each. The investor receives a net credit of 7 pennies per contract on the trade. He will retain the full credit as long as shares of VALE remain higher than $23.00 through expiration day. To add to profits shares must climb 5% higher to surpass the breakeven price of $28.00.
EWZ – iShares MSCI Brazil Index ETF – Bullish call action in the March contract today certainly jives with the 3.25% rally in shares of the exchange-traded fund to $75.18. An investor hoping for further upward movement in the price of EWZ shares enacted a call spread. The trader bought 2,500 calls at the now in-the-money March 73 strike for an average premium of 7.00 each, and simultaneously sold 2,500 calls at the higher March 78 strike for 4.54 apiece. The net cost of the bullish play amounts to 2.46 per contract. Thus, the investor stands to accumulate maximum potential profits of 2.54 if shares rise to $78.00 by expiration in March. Profits start to accumulate if shares break through $75.46, which is just 28 cents above the current price per share. But, the stock must climb 4% to $78.00 for the investor to revel in maximum available profits of $635,000.
NYX – NYSE Euronext, Inc. – Bullish call buying this afternoon pushed New York Stock Exchange operator, NYSE Euronext, onto our ‘most active by options volume’ market scanner. Shares of NYX are currently trading 5% higher to stand at $29.81. Investors expecting continued upward movement in the stock scooped up call options in the November contract. The November 30 strike had 2,100 calls purchased for an average premium of 1.13 each, while the November 31 strike had 1,200 calls coveted for 82 cents premium apiece. Finally, super-bullish traders…
Wednesday Rally – INTC and JPM’s Piles of Chips
by Phil - October 14th, 2009 8:26 am
That is a crushing beat of the 51 cents expected by analysts, who have been playing expectations catch-up for over a month, trying to get a handle on this quarter’s earnings. JPM’s earnings are more exciting than GS’s earnings as JPM were supposed to be "dragged down" by Chase Banking. With $2Tn under management, the company put up $3.6Bn in quarterly profit, almost 10 times what they made last quarter (.09). "These results included the negative impact of the tightening of the firm’s credit spread, offset by the positive impact of counterparty spread tightening and gains on legacy leveraged lending and mortgage-related positions," the firm said.
Of course we could nitpick and point out that last year they had competition from LEH and BSC and last year they didn’t have $25Bn in bailout money to play with and they didn’t have a Fed Discount window feeding them countless other Billions every month at 0.25% interest but we won’t, because we are trying to get more bullish! Not wanting the Government to get the idea that they don’t need any more free money, CEO Dimon said: "While we are seeing some initial signs of consumer credit stability, we are not yet certain that this trend will continue." Frankly, I think the company sandbagged the earnings as they put $4.967Bn aside as a provision for credit card losses against $5.159Bn in total sales so either their clients are MAJOR dead-beats, or there will be some more profits recognized down the road (assuming all this recovery stuff is real).
INTC also beat earnings expectations last night but they are underperforming last year by a wide margin so not in any way as exciting as JPM’s results. Our strategy for INTC yesterday was to short sell the Nov $20 puts and calls for a total of $1.95 so our upside break/even on INTC is $21.95 but even last night, on the announcement, I still said to members I thought they were a short at $22 but we’re not going to fight the market, not now that we’re over our breakout levels.
The levels we’ve been watching (Dow 9,829, S&P 1,071, Nas 2,146, NYSE 7,047 and Russell 620), should be crushed this morning and, hopefully, will hold up through the end of day. If this is a real rally then we should have no trouble and the last thing the bulls want…
Brazil ETF Investor Employs Covered Call Strategy Through December
by Option Review - October 13th, 2009 4:03 pm
Today’s tickers: EWZ, XLF, RVSN, MHK, COST, AKAM, & LLTC
EWZ – iShares MSCI Brazil Index ETF – Shares of the Brazil exchange-traded fund edged 0.5% lower to $72.55, perhaps inspiring the put spread we observed in the November contract. It appears one investor purchased 3,000 puts at the November 71 strike for 2.70 apiece, and simultaneously sold 3,000 puts at the lower November 65 strike for 1.00 each. The net cost of the put spread amounts to 1.70 per contract, thus yielding downside protection beneath the breakeven point at $69.30 through expiration next month. Longer-term activity seen in the December contract looks to be a covered call. It seems 25,000 calls were sold at the December 90 strike for an average premium of 13 pennies each. The investor responsible for the trade probably purchased an equivalent number of shares of the underlying stock at the time the calls were sold today. If this is the case, the investor reduced the cost of buying the shares to approximately $72.18 apiece by selling the call options. The short call position serves as an effective exit strategy for the investor if the fund trades above $90.00 by expiration. Shares of the ETF must rally 24% from the current price for the investor to have the underlying shares called away. If this occurs by expiration, the trader will enjoy the 24% gains on the rally in the stock, and walk away with no outstanding position in the fund.
XLF – Financial Select Sector SPDR – Fresh options activity in the March 2010 contract on the financials exchange-traded fund looks like a bearish risk reversal using deep in-the-money put options. Shares of the XLF have slipped 1.5% during the trading session to $15.13. It appears 5,500 calls were sold short at the March 19 strike for a premium of 30 pennies apiece to partially offset the cost of buying 5,500 puts at the same strike for 4.30 each. The net cost of the reversal amounts to 4.00 per contract. The breakeven point on the trade resides at $15.00. Thus, if the investor holds a long position in the underlying fund, downside protection is provided by the puts if shares slip more than 13 cents from the current price to breach the breakeven price of $15.00 by expiration next year.
RVSN – RADVision Ltd. – Telecommunications equipment designer and developer, RadVision, experienced a 1.75%…
Potash Attracts Option Plays as Shares Increase
by Option Review - October 6th, 2009 4:30 pm
Today’s tickers: POT, EWZ, USO, C, NTRI, GFI, AUY, AA, & WYE
POT - Shares of the Canadian producer of potash rallied more than 5% during the trading session to break through the $90.00-level. The stock tempered this afternoon, however, and stands just 2.5% higher for the day at $87.89. We observed interesting bullish plays take place in the December contract. One investor established a 2,000-lot buy-write strategy, also known as a covered call. The covered call involved the purchase of shares of the underlying stock for approximately $90.74, and the simultaneous sale of 2,000 call options at the December 110 strike for a premium of 1.80 per contract. The cost of buying the stock is reduced by the value of the premium received on the sale of the calls, resulting in an effective price per share of $88.94. Additionally, the short call position serves as an exit strategy for the trader if shares of POT trade above $110.00 by expiration. If the December 110 strike calls land in-the-money, the investor will likely have the underlying shares called from him, and he will be left with net profits of 24% on the rally in the stock. The other strategy employed by POT-lovers this afternoon was a call spread. Investors purchased 5,000 calls at the December 115 strike for 1.25 each, and sold 5,000 calls at the higher December 120 strike for 85 cents premium apiece. – Potash Corp. of Saskatchewan, Inc. –
EWZ - Shares of the Brazil exchange-traded fund are slightly higher this afternoon by less than 0.5% to stand at $69.58. Option traders expecting continued bullish movement in the price of the fund initiated optimistic plays across several contracts. One nearer-term indication of bullish sentiment is a call spread in the November contract. The trade likely involves the purchase of 2,000 calls at the November 71 strike for a premium of 3.23 apiece, spread against the sale of 2,000 calls at the higher November 77 strike for one dollar each. The net cost of the transaction amounts to 2.23 per contract. Thus, maximum potential profits of 3.77 are available in the event that shares of the EWZ rally 11% to $77.00 by expiration next month. Plain-vanilla call buying is another tactic employed by bullish investors today. Some 2,500 calls were purchased at the March 2010 80 strike for a premium of 2.70 each. Finally, 1,000 calls were coveted by…
Alcoa Options Busy
by Option Review - August 3rd, 2009 4:22 pm
Today’s tickers: AA, KEY, EWZ, F, CBS, TCK & OSK
Brazilian Markets Beckon Option Bulls
by Option Review - July 15th, 2009 5:28 pm
Today’s tickers: EWZ, NOK, YUM, EXPE, CY & COF
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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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