Gold Bull Buys Butterfly Spread
by Option Review - May 12th, 2010 4:24 pm
Today’s tickers: GLD, AA, KR, AMD, HAL, LOW, CTRP, STR & LPX
GLD – SPDR Gold Trust ETF – Gilded butterfly wings unfurled in the July contract on the GLD, an exchange-traded fund designed to mirror the performance of the price of gold bullion, in afternoon trading with shares of the underlying fund flying 1.30% higher at a new 52-week high of $122.24. Options investors exchanged more than 478,100 contracts on the gold fund as of 3:35 pm (ET). Overall, trading action on the GLD was dominated by bullish players tossing around more than 2 call options to each single put option in play today. One bullish individual expecting the price of gold bullion to continue to appreciate in the next few months purchased a call butterfly spread in the July contract. The investor picked up 6,500 calls at the July $123 strike for an average premium of $4.40 each [wing 1], in combination with the purchase of 6,500 calls at the higher July $143 strike for $0.63 apiece [wing 2]. The third leg of the trade centered at the July $133 strike where 13,000 calls were sold for a premium of $1.59 a-pop [body]. The net cost of the spread amounts to $1.85 per contract and represents maximum loss potential assumed by the investor responsible for the transaction. Shares of the GLD must rally at least 2.15% over the new 52-week high of $122.24 before the investor starts to make money above the effective breakeven price of $124.85. Maximum potential profits of $8.15 per contract are available to the trader should shares of the underlying fund surge 8.80% to settle at $133.00 by July expiration. The spread is a very efficient way for this individual to take a bullish stance because the potential rewards are 4.4 times greater than potential losses.
AA – Alcoa, Inc. – The sale of a large chunk of June contract call options may be the work of an optimistic investor initiating a covered call on the stock. The aluminum maker’s shares are currently up 2.80% to $12.47 with 10 minutes remaining the session. It looks like one investor sold 19,000 calls at the June $13 strike for a premium of $0.42 apiece at around 1:06:16 pm (ET) when shares of the underlying stock were trading at $12.45 each. If the calls were sold in combination with the purchase of 1.9 million shares of stock –…
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DiggOptions on Halliburton Get Messy
by Option Review - April 29th, 2010 4:20 pm
Today’s tickers: HAL, IPG, AMGN, BP, COF, FXI, OMX, NEM & FSLR
HAL – Halliburton Co. – Making sense of options activity on oil company, Halliburton Co., this afternoon is difficult due to the chaotic and seemingly pattern-less trading taking place on the stock. Investors exchanged more than 200,000 contracts on HAL by 3:00 pm (ET), which represents approximately 37% of total existing open interest on the stock of 541,062 contracts. Frenzied options trading was catalyzed by news the firm is assisting in ongoing investigations regarding the oil spill in the Gulf of Mexico as HAL reportedly provided a variety of oilfield services to Deepwater Horizon rig, which is the rig that caught fire and sank last week. Options volume and options implied volatility on Halliburton jumped while its shares slipped 6.3% to $31.26. The surge in demand for option contracts on the stock, coupled with uncertainty regarding possible repercussions stemming from HAL’s connection to the situation in the Gulf of Mexico, lifted the overall reading of options implied volatility 25.4% to 44.13% as of 3:25 pm (ET). Trading activity is heaviest in the May contract with decent volume building in both call and put options. Some bearish investors bracing for continued share price erosion purchased about 2,200 puts at the lowest available strike – the May $25 strike price – for an average premium of $0.16 apiece. Buying interest in put options was also apparent at the May $26 strike where 1,800 puts were picked up for an average premium of $0.20 each. May $29 strike puts were the most heavily trafficked as more than 16,700 contracts changed hands by 3:22 pm (ET), versus previously existing open interest of just 2,743 contracts at that strike. But, the put action was certainly not one-sided as investors took to buying and selling the contracts, with buyers gaining the right to sell the stock at $29.00, and sellers receiving an average premium of $0.81 per contract in exchange for bearing the risk of having shares of the underlying stock put to them at $29.00. Similar two-way trading traffic in calls took place at out-of-the-money strike prices as some traders threw in the towel on bullish stances expiring in May. Meanwhile, contrarian players purchased out-of-the-money calls, perhaps to prepare for a potential rebound in the price per share ahead of expiration next month.
IPG – Interpublic Group of Cos., Inc. – Advertising and…
Long-Term Bullish Spread Unfolds On IBM
by Option Review - January 25th, 2010 4:39 pm
Today’s tickers: IBM, XLF, TXN, XLF, CTXS, EBAY, HAL & FITB
IBM – International Business Machines Corp. – A long-term bullish transaction on IBM suggests one investor is positioning for a significant boost in share price at the computer services firm by expiration in January 2011. IBM’s shares are trading 0.75% higher this afternoon to $126.47. The optimistic trader purchased a ratio call spread on the stock, buying 5,000 calls at the January 2011 $135 strike for an average premium of $6.24 apiece, and selling 10,000 calls at the higher January 2011 $150 strike for a premium of $2.33 each. The net cost of the ratio spread amounts to just $1.58 per contract. Thus, the trader accrues profits if IBM’s shares rally 8% over the current price to surpass the breakeven point at $136.58 by expiration next year. Maximum available profits of $13.42 per contract amass only if shares surge 18.60% to $150.00. IBM’s shares must increase to a new 52-week high in order for the investor to break even on the transaction. The current 52-week high on the stock is $134.25, attained back on January 19, 2010.
XLF – Financial Select Sector SPDR – Option traders continue to initiate bearish strategies on the financial ETF today despite the 0.90% rebound in shares of the underlying to $14.31. Earlier we reported a June $14/$10 ratio put spread, which established downside protection beneath a breakeven share price of $13.30. This afternoon we observed a similar transaction take place. Another pessimistic investor purchased an even larger ratio put spread in the June contract. It looks like this individual bought 27,500 puts at the now in-the-money June $15 strike for an average premium of $1.52 apiece, spread against the sale of 55,000 puts at the lower June $12 strike for about $0.39 each. The net cost of the ratio transaction amounts to $0.74 per contract, and provides downside protection beneath a breakeven share price of $14.26.
TXN – Texas Instruments, Inc. – Chipmaker, Texas Instruments, is scheduled to report fourth-quarter results after the closing bell this afternoon, and although analysts expect the firm to post profits of $0.49 per share on a 19% increase in sales, option traders initiated near-term protective plays. Shares of the semiconductor company are up 1.80% to $23.52 ahead of earnings. One investor established a bearish risk reversal by selling 5,000 calls at the February $24 strike for a…
ACE Call Options in Demand – Option Implied Volatility Explodes
by Option Review - December 1st, 2009 4:17 pm
Today’s tickers: ACE, EFA, HAL, AMAT, WHR, DE, JTX & WCG
ACE – ACE Limited – The surge in demand for call options on the insurance company today drove option implied volatility up 19.75% to 28.67%, while shares gained more than 2% to $49.78 during the trading day. Investors populating the December contract exhibited bullish sentiment on ACE by selling puts and buying calls. Approximately 3,000 puts were shed at the December 50 strike for an average premium of 1.51 apiece, while some 2,100 calls were purchased at the same strike for roughly 89 cents each. Call volume at the January 50 strike sky-rocketed to 21,666 contracts – on previous existing open interest of just 1,402 calls – as traders scooped up about 20,000 lots for a premium of 1.42 per contract. Investors long the January contract call options are positioned to accrue profits if ACE’s shares trade above the breakeven price of $51.42 by expiration.
EFA – iShares MSCI EAFE Index ETF – The exchange-traded fund, which includes stocks from Europe, Australasia and the Far East, attracted bearish option players despite the 2.5% rise in shares today to $56.88. One investor, who may hold a long position in the underlying stock, unfurled a ratio put spread in the January 2010 contract. The trader purchased 10,000 puts at the January 55 strike for an average premium of 1.39 each, and sold 20,000 puts at the lower January 52 strike for about 70 cents apiece. The investor pockets a net credit of 1 penny per contract on the trade and establishes downside protection in case shares of the EFA decline ahead of expiration. The 1 cent credit is ‘free money’ for the trader as long as the shares remain above $55.00 through expiration in January.
HAL – Halliburton Co. – Options activity on the oil and gas company today suggests at least one investor is bracing for potential share price erosion through expiration in January. Halliburton’s shares rose 1% during the session to $29.57. The trader responsible for the bearish ratio put spread is likely holding a long position in the underlying stock. If this is the case, today’s transaction provides downside protection for the investor. It appears 5,000 puts were purchased at the January 29 strike for an average premium of 1.24 apiece, spread against the sale of 10,000 puts at the lower January 24 strike for 18 pennies each.…
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…
Caterpillar Bulldozes Higher
by Option Review - August 21st, 2009 4:14 pm
Today’s tickers: CAT, S, INTC, YHOO, GE, XHB & HAL
CAT - Caterpillar, Inc. – Shares of the world’s largest maker of construction equipment have gained nearly 3.5% during the trading session to stand at $47.06 despite reports of accelerated declines in machinery sales to retailers during the month of July. At first glance, the 20,000 put options purchased at the January 2010 40 strike price for 2.72 apiece, looks bearish. However, we believe the puts are likely tied to the acquisition of an equivalent number of shares of the underlying stock, and is thus a bullish play. The purchase of married put options provides the investor with downside protection through expiration day in January. This individual is hoping to see the price of CAT appreciate, but is immune from losses beneath the breakeven share price of $37.28. We note that the puts are deep out-of-the-money. Thus, downside protection would not kick in unless the investor had already experienced a more than 20% decline in the value of the underlying shares.
S – Sprint Nextel Corp. – The communications company edged onto our ‘most active by options volume’ market scanner this afternoon following a burst of options activity in the November contract. Shares of the firm are currently higher by about 2.5% to $3.92. Investors essentially established short straddles at the November 4.0 strike price by shedding 15,000 calls for a premium of 45 cents apiece and selling 15,000 puts for about 50 cents each. Such positioning indicates that traders expect shares of Sprint to settle near $4.00 by expiration. If this occurs, investors will retain the 95 cent gross premium received on the sale. The premium pocketed today compensates traders for bearing the risk that the stock shifts away from the $4.00 level. If shares were to rally higher, investors are exposed to potentially unlimited losses above the breakeven point to the upside at $4.95. On the other hand, losses would begin to amass to the downside if shares slip beneath $3.05 by expiration.
INTC - Intel Corp. – The semiconductor chip maker has enjoyed a 0.5% increase in shares today to $18.80, but a bullish reversal play on the stock suggests one investor is positioning for more significant gains. It appears that the trader shed 8,800 puts at the January 2010 17.5 strike price for a premium of 1.13 apiece in order to finance the purchase of 8,800 calls at…
Bank of America Call Spreaders Target $22.50
by Option Review - August 20th, 2009 5:39 pm
Today’s tickers: BAC, HAL, XLE, LVS, AIG, HD & AUXL
BAC - Shares of BAC have gained 2% during the trading session to arrive at the current price of $17.10. A bull call spread established in the January 2010 contract today suggests that one investor expects the stock to rally by expiration next year. It appears that the trader has purchased 15,000 calls at the January 17.5 strike price for an average premium of 2.18 apiece spread against the sale of 15,000 calls at the higher January 22.5 strike for 69 cents each. The net cost of the transaction amounts to 1.49 and allows for maximum potential profits of 3.51 per contract if the stock climbs to $22.50 by expiration. Shares must increase approximately 11% before the investor responsible for the trade breaks even at a price of $18.99. If the stock surges 31.5% higher than the current price, the trader will have realized maximum profits of 3.51 per contract for a total of $5,265,000. – Bank of America Corp. –
HAL - The oil and gas company has enjoyed a more than 2.5% rally in shares to $24.27, prompting some traders to scoop up call options in the September contract. The September 26 strike price had more than 7,000 calls exchange hands this afternoon on previous existing open interest of just 425 contracts. More than 4,200 of those calls were purchased for an average premium of 40 cents apiece. Investors long the calls are hoping to see shares of HAL rise at least 9% to breach the breakeven price on the transaction at $26.40 by expiration. Additional call action was observed at the September 25 and 27 strikes which sandwich the central September 26 strike where the most call activity took place. – Halliburton Co. –
XLE - If the price of crude oil is above $70 per barrel when so many investors are questioning the validity or at least the sustainability of the prevailing recovery, what then are the prospects for oil in 16 months time? One option trader appeared to trade in costly put options expiring in December 2010 in exchange for less expensive call options that would benefit from a rally in the energy sector. A bullish reversal in the December 2010 contract indicates long-term optimism by option traders expecting the energy sector to appreciate over the next 16 months. Despite a dip in the share price to $45…
Bulls Head For Developed Markets ETF
by Option Review - July 13th, 2009 4:16 pm
Today’s tickers: EFA, HAL, VIAB, IR, EXPD, GE, CCL, V, & XRX
Put sellers back General Electric
by Option Review - April 3rd, 2009 4:21 pm
Today’s tickers: GE, TGT, XLI, CBST, HAL, DELL, XRT, CAL & JAVA
GE General Electric – Shares have enjoyed a 2% rally to $10.98. GE jumped to the top of our ‘most active by options volume’ market scanner after one investor took a bullish stance on the stock. The trader sold 82,800 puts at the April 10 strike price for a premium of 33 cents per contract. This implies that he does not think that shares are going to fall beneath $10.00 by expiration in a few weeks. He pockets 33 cents in exchange for bearing the risk that shares fall beneath the strike price, which would see him breakeven by $9.67 at which point his premium will have fully eroded. Should the 10 strike land in-the-money by expiration, this investor could have 8,280,000 shares of the underlying stock put to him at $10.00. Established open interest at the 10 strike is 77,000 lots and so this would appear to be the work of fresh interest in the contract today.
TGT Target Corp. – The retailer has had a slight share price rally of less than 0.5% to $36.18. Despite the modest rise today, a couple of investors were observed looking for a significant jump in shares heading into January of 2010. The first of two bullish trades was a sold straddle at the January 45 strike price. The sale of 2,600 puts for a hefty premium of 12.48 coupled with the sale of 2,600 calls for 3.08 yields the investor a gross premium of 15.56. He will retain the full 15.56 if shares can rally by 24% and settle at $45.00 by expiration. The second of the two trades was even more bullish. This investor established a bull call spread by purchasing 7,500 calls at the January 45 strike price for 3.10 each and by selling 7,500 calls at the January 55 strike for a premium of 1.02 apiece. The net cost to get bullish in the January contract amounts to 2.08 and yields a maximum potential profit of 7.92 if shares can rise to $55.00 by expiration. Shares would need to rally by 30% to the breakeven point at $47.08 in order for this investor to begin to garner profits.
XLI Industrial Select Sector SPDR – Shares of the industrials ETF have risen just under 0.5% to $19.93. The XLI ticker jumped onto our ‘most active by options…
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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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