Werner Enterprises Sees Bearish Activity
by Andrew Wilkinson - October 22nd, 2009 4:35 pm
Today’s tickers: WERN, MDVN, GT, XRX, SLE, AMGN, ESI, EBAY, FFIV & SLE
WERN - Werner Enterprises, Inc. – The truckload freight services firm edged onto our ‘hot by options volume’ market scanner due to bearish trading in the June contract. Shares of WERN slipped 0.5% lower this afternoon to $20.22. One investor initiated a ratio put spread by purchasing 6,000 put options at the June 20 strike for 2.25 apiece, and by simultaneously selling 12,000 puts at the lower June 17.5 strike for 1.10 each. The net cost of the trade is reduced to just one nickel per contract. The trader is probably aiming to protect the value of a long position in shares of WERN through expiration. Downside protection will kick in if shares decline more than 27 cents from the current price given the effective breakeven point on the trade at $19.95.
MDVN - Medivation, Inc. – Long-term bearish activity in the June 2010 contract suggests one investor may be bulking up on downside protection in case shares of biopharmaceutical company, Medivation, Inc., continue to decline. The stock is currently trading less than 0.5% lower to stand at $26.51. A put spread was established through the purchase of 10,000 puts at the June 22.5 strike for 7.80 apiece, marked against the sale of 10,000 puts at the lower June 12.5 strike for 1.87 each. The net cost of the pessimistic play amounts to 5.93 per contract. The spread was most likely initiated by an investor holding a long position in the underlying shares. Putting on the protective stance shields the investor from losses beneath the breakeven point at $16.57. However, if the trader is in fact long the stock, he will suffer a 38% decline in the value of MDVN before downside protection kicks in at the breakeven price described. An alternate scenario is that the investor does not hold a long position in MDVN. If this is the case, the trader is uber-bearish and expects to garner profits from significant declines in Medivation through expiration in June.
GT - The Goodyear Tire & Rubber Co. – Option traders populated the November contract on GT with bullish plays this afternoon. Shares added more than 2.5% during the session to arrive at the current price of $17.83. Some investors targeted the now in-the-money November 17.5 strike to purchase 3,800 calls for an average premium of one dollar apiece. Other traders looked to the higher…
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PNC Short Sellers Wade In
by Andrew Wilkinson - March 6th, 2009 11:34 pm
Today’s tickers: PNC, GT, ROH, WMT, CX, PG & XLF
PNC – PNC Financial Services Group – Shares have fallen over 12% to $17.60 and put action today indicates that there may be more down-days to come. At the March 15 strike price nearly 14,000 puts were sold for an average premium of 1.78 per contract. We believe this sale could be the work of an investor who is short the stock initiating a covered put strategy. By taking in the premium today, this investor stands ready to take delivery of the shares at $15 come expiration. The risk to this trader is that shares are remain stable above the strike ahead of delivery and thereafter rebound, in which case he has to buy back at some point. But, the trade would yield a satisfactory outcome if shares continue to fall below $15 by expiration in which case the investor has his short position alleviated with a long put holder putting the stock to him. In the meantime this investor retains the full premium of 1.78. At the April 10 strike price, more typical put buying was seen given the fall in shares today. Over 5,500 puts were picked up for about 1.65 apiece, indicating that investors do expect that shares will continue to fall.
GT – The Goodyear Tire & Rubber Company – A victim of the decline in auto sales, Goodyear has fallen 4.5% to a new 52-week low, touching down at $3.40 today. Despite the depressing news plaguing the auto industry from all sides, one option investor sees the world through rose-tinted shades and initiated to purchase of 20,000 calls at the January 2010 7.5 strike price for 50 cents per contract. Shares will need to rally like there’s no tomorrow and increase by 135% in order to breach the breakeven share price of $8.00 by expiration next year. Option implied volatility for GT currently stands at 128%. Lately we have noticed similar structured trades using optimistic options plays in both Ford and GM.
ROH – Rohm and Haas Company – Shares have jumped over 17% to $63.60 amid news that discussions over merger resolution have resumed between ROH and Dow Chemical Co. We can only speculate as to how the discussion will turn out and scant information is available at the present time. The uncertainty has created a veritable hot bed of frenzied trading among option traders whose speculation now surrounds what…
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Qualcomm – Rally in sight, but not just yet
by Andrew Wilkinson - February 28th, 2009 12:32 pm
Today’s tickers: QCOM, GT, IVN, AMGN, C, GFI, HMY, SQNM & GE
QCOM – Qualcomm Inc. – Things might be looking better for Qualcomm – but not just yet according to one large option trade that went through earlier today. An investor sought protection in the April contract for fear that shares would be below $35.00 when the contract expires and turned the cost of the premium into a credit by selling January 2010 expiration puts at the same strike. The strategy assumes that the shares will not break through the strike price as the second quarter begins, in which case the investor gets paid out for every penny below $35.00 the share are at that time. But ahead the investor’s core assumption is that shares will shift ahead of $35.00 when next year begins, rendering the sold put options worthless. Today Qualcomm is trading a shade higher at $33.75.
GT – The Goodyear Tire & Rubber Company – Shares of the manufacturer of tires and rubber products have fallen by 5% to $4.57 today. Perhaps the continued decline stems from the downgrade GT received on Monday to ‘underweight’ from ‘hold’ by a KeyBanc analyst, who cited challenges such as global sales declines, and rising costs related to pension and raw materials. Despite the downgrade and today’s decline in share price, one investor established a bullish play on the stock. At the April 7.5 strike price, 10,000 calls were purchased for 10 cents each. Should there by a rally in shares before expiration, this trader will see premiums grow richer at the 7.5 strike, and could then potentially sell the calls to profit. There is a delta of 0.13 on the trade, thus there is a 13% chance that these calls will land in-the-money by April. The current share price would need to experience an increase of 66% in order to surpass the breakeven point on the trade located at $7.60. Whether the shares can breach the breakeven point or not, this investor can still capitalize on today’s position with even a slight rally in shares by selling premium.
IVN – Ivanhoe Mines Limited – The international mineral exploration and development company’s shares have rallied by 3% to stand at $4.59. IVN caught our attention when it edged onto our ‘hot by options volume’ market scanner. Calls were in demand in the June contract, where over 12,300 calls were purchased for 50 cents at the June…
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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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