by Option Review - June 27th, 2011 4:07 pm
Today’s tickers: YHOO, USU, XLK & HGSI
YHOO - Yahoo!, Inc. – The more than 21% correction in the value of Yahoo’s shares since the start of May has one options strategist positioning for a rebound in the price of the underlying by August expiration. Shares in the online media company are down 0.50% today to stand at $14.82 in early-afternoon trade. The bullish options player picked up 7,500 in-the-money calls at the August $14 strike for a premium of $1.41 each, and sold the same number of calls up at the August $18 strike at a premium of $0.18 a-pop. Net premium paid to initiate the spread amounts to $1.23 per contract. Thus, the strategist profits if shares in YHOO rally 2.8% to exceed the effective breakeven price of $15.23 at expiration. Maximum potential profits of $2.77 per contract are available to the call spreader should shares surge 21.5% over the current price of $14.82 to exceed $18.00 at expiration day in August. Yahoo! reports second-quarter earnings after the final bell on July 19. Shares in YHOO last traded above $18.00 back on May 11.
USU - USEC Inc. – Call options on the supplier of low enriched uranium (LEU) for commercial power plants are active this morning, but it looks like the largest transaction in USU options was initiated by an investor taking a bearish stance on the stock. Shares in the Bethesda, MD-based company are down 0.30% to stand at $3.07 just before 12:00pm on the East Coast. The strategist responsible for the bulk of USU options volume today initiated a call credit spread, selling 6,300 calls at the October $4.0 strike for a premium of $0.41 each, and buying the same number of calls up at the October $5.0 strike at a premium of $0.30 apiece. The…
by Option Review - November 11th, 2010 5:03 pm
Today’s tickers: HGSI, BSX, DFS, CSCO, LVLT, AMGN & IBB
HGSI - Human Genome Sciences, Inc. – Shares in Human Genome Sciences are up 8.9% to trade around $26.49 in the final hour of the trading session on speculation the firm could become an attractive takeover target if its lupus drug treatment, Benlysta, wins approval next month. Options traders sent up a number of bullish signals using January 2011 contract call and put options. Earlier this morning, one optimistic investor initiated a debit call spread, buying 3,000 calls at the January 2011 $27 strike for a premium of $3.90 each, and selling the same number of calls at the higher January 2011 $40 strike at a premium of $0.375 apiece. The net cost of putting on the spread amounts to $3.525 per contract. The investor makes money on the spread if Human Genome’s shares surge 15.2% over the current price of $26.49 to exceed the effective breakeven point at $30.525 by January expiration. The call spreader could end up taking home maximum potential profits of $9.475 per contract if the price of the underlying stock jumps 51.0% to trade above $40.00 by expiration day next year. The trader is well positioned to benefit from the rally in HGSI shares that would accompany Benlysta’s approval and/or continued takeover chatter. Another bullish sign that appeared in the same expiry involved put options. It looks like another investor unraveled a previously established bear put spread, selling 2,750 puts at the Jan. 2011 $20 strike and buying the same number of puts at the lower Jan. 2011 $15 strike, to take in a net premium of $1.25 per contract. It is possible the transaction is an opening credit put spread rather than a closing sale, but open interest levels at both strikes are more than sufficient to cover today’s volume. Either way, the trade is another sign of optimism on the biotechnology company ahead of the key drug approval decision. Options implied volatility on the stock is…
by Option Review - November 7th, 2010 6:20 pm
Today’s tickers: HGSI, MDRX, JPM, ESV, FLR & SD
HGSI - Human Genome Sciences, Inc. – Shares in biotechnology company Human Genome Sciences are down 3.95% this afternoon at $25.23 as of 3:15 pm, but one options trader populating the December contract today is positioning for the stock to rebound ahead of a key FDA decision on its lupus drug treatment, Benlysta. A preliminary FDA review is set for release in one week, while an advisory panel with outside experts is scheduled to provide their input before the FDA provides a final ruling by December 9, 2010. The optimistic options player is well positioned to benefit from a strong rally in the biotech firm’s shares should approval of the lupus treatment become a reality. The trader purchased 5,000 calls at the December $26 strike for a premium of $4.30 each, and sold the same number of calls at the higher December $32 strike at a premium of $1.36 apiece. Net premium paid for the spread amounts to $2.94 per contract. Thus, the investor makes money if Human Genome’s shares reverse course and rally 14.7% over the current price of $25.23 to surpass the effective breakeven point to the upside at $28.94 by expiration day. The call-spreader stands ready to amass maximum potential profits of $3.06 per contract if shares jump 26.8% to trade above $32.00 by December expiration. Options implied volatility on the biotechnology company is up 12.1% at 141.59% as of 3:30 pm, and will likely continue to ascend ahead of the FDA’s critical ruling.
MDRX - Allscripts-Misys Healthcare Solutions, Inc. – Call options on the provider of clinical software, services, information and connectivity solutions to physicians and other healthcare providers are in high demand today ahead of the firm’s third-quarter earnings report, which is scheduled for release after the market closes on Monday. Shares in Allscripts are currently up 1.3% at $19.44 as of 2:15 pm. Plain-vanilla call buyers were the first to arrive on the scene, but the majority of the options volume…
by Option Review - January 20th, 2010 4:05 pm
Today’s tickers: INTC, GA, EWZ, VIX, PALM, HGSI, CREE, CYD, BAC, CAL, XLB & CREE
INTC – Intel Corp. – Investors populating the March contract on chipmaker, Intel Corp., expect shares to rebound by expiration. Shares are trading slightly lower by 0.10% to $21.03 with about one hour remaining before the closing bell. Bullish traders utilized a couple of different option strategies. Some investors sold 2,400 puts at the March $20 strike to receive an average premium of $0.45 per contract. Put-sellers keep the $0.45 premium if Intel’s shares trading above $20.00 through expiration. The short sale of puts suggests investors are happy to have shares of the underlying put to them at an effective price of $19.55, should the contracts land in-the-money. Additional bullish action took place at the higher March $22 strike where 20,400 calls were purchased for an average premium of $0.36 apiece. Investors long the calls begin to accumulate profits to the upside if shares of INTC rally 6.3% over the current price to surpass the breakeven point at $22.36 by expiration day in March.
GA – Giant Interactive Group, Inc. – Online game development company, Giant Interactive, attracted significant option volume in late afternoon trading today. Options traded on the stock amassed to 52,350 contracts by 3:00 pm (EDT), which is more than twice that of existing open interest on GA of 25,314 lots. Shares are trading flat at $7.48 with one hour remaining in the session. While some investors are putting on risk reversals, it looks like the bulk of the trading volume represents short straddle plays. Short-straddlers sold the bulk of some 30,000 calls exchanged at the July $7.5 strike for an average premium of $0.51 apiece, and shed the majority of the 26,000 puts traded at the same strike for roughly $0.62 each. Investors selling the straddles receive an average gross premium of $1.13 per contract, and keep the full premium if shares settle at $7.50 by expiration. Shares are a scant two pennies off the central strike price of $7.50. Traders employing the short straddle strategy also benefit from declines in option implied volatility because of the downward pull such shifts in volatility have on put and call premium. Investors may profit ahead of expiration if they buy back the short straddles for less than they received on today’s sale. Option implied volatility is lower by about 3.5% to 24.44%.
by Option Review - November 2nd, 2009 4:06 pm
Today’s tickers: XLF, ETFC, CF, HGSI, EEM, BEBE, SMH, VRTX, HGSI, F & LDK
XLF – Financial Select Sector SPDR – A large bearish spread in the June 2010 contract suggests one investor feels the need for downside protection through expiration. Shares are slightly up this afternoon by about 0.25% to $14.09. The trader purchased 20,000 put options at the June 14 strike for an average premium of 1.91 apiece. He financed the long position by selling 20,000 puts at the June 11 strike for 74 cents each, and by selling another 20,000 puts at the lower June 10 strike for 51 cents premium. The net cost of the transaction amounts to 66 cents per contract. The investor responsible for the three-legged spread is possibly holding a long stock position in the XLF. The put options might then serve to protect the value of the position in the event that shares decline beneath the effective breakeven point at $13.34 by expiration. The fact that the trader is short two times as many puts indicates this investor expects a pullback but not a collapse beneath the lower strike price of $10.00.
ETFC – E*Trade Financial Corp. – The Wall Street Journal reported that ETFC withdrew its application for funding through the Troubled Asset Relief Program (TARP) because the company’s “recent capital-raising and debt-reduction efforts negates the need for the money.” E*Trade raised $150 million by selling stock in the third quarter out of some $765 million of sold stock this year. The seemingly bullish news that the company no longer plans to participate in the capital-purchase program did not do much for the current share price, which slipped 6% lower to $1.37. Our scanners picked up on interesting options activity this afternoon that may or may not have been inspired by today’s news. It appears 95,000 put options sold at the January 1.0 strike for about 5.5 pennies apiece. One may infer the transaction represents bullish sentiment on ETFC if the sale of the put options is fresh activity. If this is the case, the trader pockets the 5.5 cents premium, and expects shares to remain above $1.00 through expiration. However, the sale could also be the work of an investor closing out a long put position given the already high reading of open interest at the small number of available strike prices.
CF – CF Industries Holdings, Inc. – The…
by Option Review - October 29th, 2009 4:54 pm
Today’s tickers: HGSI, MSTR, INTC, FXI, EFA, AA, AVP, RDC, PLL, FSLR, MOT & AKAM
HGSI – Human Genome Sciences, Inc. – Shares of the biopharmaceutical company made a miraculous recovery since yesterday’s slaughter by exploding 13.25% higher during the session to $20.40. Traders populated various contracts with bullish plays after HGSI was raised to ‘overweight’ from ‘neutral’ with a 12-month target share price of $25.00 at JPMorgan. Heavy call volume in the November contract was likely driven by traders anticipating results of Phase 3 trials employed to evaluate the efficacy of HGSI’s potential drug treatment for lupus, Benlysta. Trading at the November 20/25/30 strike prices mimicked the butterfly spread strategy, and suggests perhaps that traders expect shares to rise to $25.00 by expiration. Investors bought at least 3,500 calls at the November 20 strike for 1.88 apiece as well as purchased 3,500 calls at the November 30 strike for 60 cents each. These contracts effectively mimic the wings of the spread while the 9,000 calls sold at the central November 25 strike perhaps represent the body of the spread. Call spreads were initiated in both the December and January contracts. The December transaction, for example, involved the purchase of 1,000 calls at the December 25 strike for 2.60 each, spread against the sale of 1,000 calls at the higher December 30 strike for 1.00 apiece. The net cost of the trade amounts to 1.60 per contract. Thus, the investor may accumulate maximum potential profits of 3.40 per contract if shares of HGSI rally up to $30.00 by expiration day in December.
MSTR – Microstrategy, Inc. – The software company appeared on our ‘hot by options volume’ market scanner this afternoon due to bullish options activity. Investors initiated optimistic plays on the stock despite the 1% decline in shares to $73.03. Profit-taking action appeared in the January 2010 contract while fresh positions were taken in the April 2010 contract. It looks like one investor originally purchased 3,600 calls at the now in-the-money January 70 strike for an average premium of between 3.00 to 3.50 per contract back on July 31, 2009. Today the trader sold the calls for a whopping 7.20 apiece. Net profits enjoyed on the closing sale amount to a minimum of 3.70 up to 4.20 each. Thus, total potential profits earned by the trader are anywhere from $1,332,000 to $1,512,000. In the April contract a bullish risk…
by phil - October 21st, 2009 8:14 am
The last Beige Book report was on September 9th.
At the time the Dow was looking toppy at 9,650 and we had poor consumer confidence numbers (just like yesterday) and poor consumer credit number (no change) and the book had very little "good" news to report (see my analysis) - Yet the market broke over 9,600 again that day and then took off all the way to 9,900 a week later. At the time, we were looking for any excuse to go higher on the hopes that this earnings period will look like last one but have we now come too far, too fast?
It seems we are finally hitting the point of diminishing returns for earnings. Expectations have finally gotten so high that even big beats aren’t enough to keep the momentum going.
Last earnings Q, we were down from 8,900 in June to 8,100 on July 9th as companies began reporting and we had a nice, 1,000-point relief rally over the first two weeks of earnings. This time, we went up an additional 500 points in the past two weeks, over our 9,600 line and that has been in anticipation of a repeat of last earnings but the circumstances are very different this time and it takes a lot to justify a 20% run off the July lows.
Keep in mind that, looking at the sector charts, Energy, Materials and Tech are leading us. Since semiconductors are simply another form of commodity – this is almost entirely a commodity rally in the midst of a recession with Consumer Staples, Financials, Health Care, Industrials, Telcom, Utilities and Transports all underperforming the rest of the S&P. As I keep saying – if no one is shipping anything, how the hell can we be having a proper recovery?
The Beige book is an anecdotal view of the economy gathered roughly through the middle of October and we've seen no improvement in Jobs since the Sept 9th report, Cash for Clunkers ground to a halt and, just this morning, we got a horrific 13.7% decrease in the number of mortgage applications from the previous week. That number includes "seasonal adjustments," without adjustments, morgage apps plunged 22.4% despite record low rates as government assistance begins to peter out. The Refinance Index, also adjusted for the holiday, decreased 16.8 percent from the previous week and the…
by phil - October 17th, 2009 8:27 am
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).
by Option Review - August 25th, 2009 5:08 pm
Today’s tickers: IVN, FDX, XLI, HGSI, FXI, VIP, XLP & NOK
IVN - Shares of the international mineral exploration and development company surged 20% during the trading session to reach an intraday high of $10.66. The Canadian stock was fueled by reports which revealed that changes to Mongolia’s laws will help the company to complete an investment agreement on the Oyu Tolgoi copper-gold project in the near future. One investor, who had positioned himself to profit from a rally in Ivanhoe, was seen banking gains today by selling to close a long call position. It appears he originally purchased some 17,000 calls for an average premium of 90 cents each around July 30, 2009. Today he shed all 17,000 contracts for a premium of 2.05 apiece. The investor has realized approximate gains of 1.15 per contract for a total of $1,955,000. Bullish activity was seen at the March 2010 15 strike price where it looks like investor purchased 5,000 calls for one dollar apiece. Traders long the calls will profit if shares rally another 50% to breach the breakeven price of $16.00 by expiration next year. – Ivanhoe Mines Limited –
FDX - Bullish action on FedEx this afternoon boosted the firm onto our ‘most active by options volume’ market scanner with the stock trading more than 0.5% higher to $68.40. Traders shed 8,500 put options at the October 60 strike price to take in an average premium of 1.03 per contract. The full premium will be retained by these individuals as long as the puts land out-of-the-money at expiration. Investors are happy to accept the 1.03 premium in exchange for bearing the risk that the stock slips lower, and falls beneath the breakeven point to the downside at $58.97. Losses begin to accumulate for traders if FedEx trades at a price lower than the breakeven point by expiration in October. We note that the stock has remained above $60.00 since July 16, 2009. – FedEx Corp. –
XLI - The industrials exchange-traded fund has risen less than 1% to stand at $25.50. One investor took hold of a large chunk of put options on the XLI by purchasing 40,000 puts at the September 24 strike price for 25 cents apiece. This trader may be bearish, in which case he aims to amass profits to the downside if the XLI declines beneath $23.75 by expiration next month. Alternatively, the investor may have purchased…
by Option Review - August 19th, 2009 5:50 pm
Today’s tickers: POT, LVS, WYE, TGT, WMT, HGSI, AXL, SBUX & GDX
POT – Shares of the fertilizer and feed products company have rallied 2.5% during the trading session to arrive at the current price of $96.06. Bullish investors rushed in to establish optimistic positions on the stock. A bullish reversal play was established in the near-term September contract by a trader anticipating significant gains by expiration. The reversal involved the sale of 10,000 puts at the September 80 strike price for 75 cents each, which were employed to finance the purchase of 10,000 calls at the higher September 105 strike for 1.80 apiece. The net cost of the trade amounts to 1.05 per contract. The investor responsible for the transaction will begin to amass profits if shares of POT surge approximately 10% through the breakeven price of $106.05 by expiration. Bullish sentiment spread to the December contract where it appears that another trader shed puts to finance the purchase of bull call spread. The December 90 strike had about 2,000 puts shed for 7.90 apiece. Premium received on the sale was put toward the purchase of 2,000 calls at the December 100 strike for 9.25 each, which was offset by the sale of 2,000 calls at the higher December 130 strike for 2.15 per contract. The investor received an 80 cent credit for his trouble and stands ready to add to his gains if shares breach $100.00 by expiration. – Potash Corporation of Saskatchewan, Inc. –
LVS - Profit taking in the January 2011 contract caught our attention this afternoon after one investor “made it big” by utilizing call options on the casino operator. Shares of LVS had attained upward gains earlier in the trading day but are currently lower by more than 0.5% to $12.81. It appears that the trader originally purchased 20,000 calls at the January 15 strike price for 1.70 apiece back on July 9, 2009 when shares closed at $7.42. At that time implied options volatility read 97%. Today he sold the lots to close out the position for 4.35 per contract. If this is indeed what took place, he will have banked gains of 2.65 per contract for a grand total of $5,300,000. This assumes no attached interest in the underlying shares. Implied option volatility has declined during this time to stand at 87% today, negatively impacting the premium of these options, which likely helps…