Contrarian Traders Eye Call Options on Walter Investment Management Corp.
by Option Review - March 28th, 2011 4:08 pm
Today’s tickers: WAC, XLE, HIG & LLNW
WAC - Walter Investment Management Corp. – Shares in the mortgage servicer and investor dropped 12.9% today to touch down at an intraday low of $16.80 on news the company is buying Green Tree for $1.065 billion including debt. Walter Investment Management Corp. will no longer qualify as a real estate investment trust after the deal closes. The sharp decline in Walter’s shares attracted long term bullish traders to the options playing field this morning. Investors expecting WAC’s shares to make a full recovery, and potentially secure new 52-week highs ahead of September expiration, purchased out-of-the-money calls on the stock. Bulls picked up around 137 calls at the September $18 strike for an average premium of $0.98 each, and bought another 209 calls up at the September $19 strike at an average premium of $0.63 apiece. Trading traffic is heaviest at the September $20 strike where more than 3,300 calls changed hands on paltry previously existing open interest of 204 contracts. Most of the calls at the September $20 strike were purchased for an average premium of $0.43 a-pop. Call buyers profit in the event that Walter’s shares surge 21.6% to trade above the average breakeven price of $20.43 in the six months remaining to expiration. WAC’s shares were trading up at a 52-week high of $20.22 as recently as March 9, 2011. Options implied volatility on the stock spiked 32.3% higher in early-afternoon trade to arrive at 26.76% just before 12:15pm.
XLE - Energy Select Sector SPDR ETF – Investors are trading approximately 11 put options on the Energy SPDR this afternoon for each single call option in play on the fund with shares in the XLE rising 0.90% during the session to secure yet another new multi-year high of $79.40. The largest transaction on the XLE, an exchange-traded fund that tracks the performance of the Energy Select Sector of the S&P 500 Index, was initiated in the September contract. An investor positioning for an eventual pullback in…
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DiggImax Surges on Sony Buyout Talk
by Option Review - December 31st, 2010 4:16 pm
Today’s tickers: IMAX, HIG, VRGY, TOL & WM
IMAX - Imax Corp. – Earlier today you’d have needed more than just 3D-glasses to see the trail left behind by a near 20% surge in shares of the movie-theater corporation. Rumors have emerged that Japan’s Sony Corporation is set to make a $40-plus bid for the company enamored by its growing popularity amongst movie theater-goers. With more films built using 3D-technology shares in the company had already tripled this year in anticipation of growing revenues. Earlier in the week we witnessed what appeared to be a delta-neutral strategy that would have benefitted perfectly from the surging share price, which has subsequently halved its intraday gain. An investor sold stock at around $25.00 and bought call options at the $30 strike expiring in March. As the shares jump in value, the delta on the option swells to give the investor a far-greater long exposure to the stock hugely eclipsing losses from the short position. But is looks like this trader is sitting pretty today as developments unfold and there is no action at that strike price. Rather investors appear to be more concerned with an imminent Sony bid and have targeted the January expiration $35 strike, which has traded in a range spanning 40-cents to $1.10 per contract as the share price digests today’s news. Trading currently at 60-cents the contract would make money by expiration only if shares in Imax surged by more than 18.6% based upon a share price at $30.00.
HIG - Hartford Financial Services Group. – Earlier in the month it appears that an options trader took to a bullish call strategy on the multi-line insurer. December 8 was a high volume day for the stock but also saw around 7,500 calls expiring in January 2011 trade at a 55-cent premium. The strike price of $27.50 was above the closing share price that day by exactly 10%. Just nine days ago the share price hit home lifting the premium to 90-cents. Since then and…
Near-Term Bulls Shop Around for Call Options at Newell Rubbermaid
by Option Review - December 1st, 2010 4:22 pm
Today’s tickers: NWL, GRS, OIH, HIG, EWZ, MBT & XOP
NWL - Newell Rubbermaid, Inc. – The global marketer of everyday commercial and consumer products popped up on our ‘hot by options volume’ market scanner during the second half of the trading session due to bullish activity in the December contract. Shares in Newell Rubbermaid are up 3.35% to stand at $17.33 with 45 minutes remaining before the final bell. Options traders exchanged more than 3,460 call options at the December $17.5 strike, versus previously existing open interest of just 980 contracts. It looks like more than 3,000 of the calls were purchased for a premium of $0.35 per contract. Plain-vanilla call buyers are prepared to make money should shares increase another 3.00% to exceed the effective breakeven point to the upside at $17.85 ahead of December expiration day. Rubbermaid’s shares last traded above $17.85 as recently as November 5, 2010.
GRS - Gammon Gold, Inc. – Bullish players picked up call options on the gold mining company today with shares of the Halifax, Nova Scotia-based firm climbing 1.2% to $6.77 in the final hour of the session. Investors expecting Gammon’s shares to extend gains purchased more than 3,000 calls at the January 2011 $7.0 strike for a premium of $0.43 apiece. Call buyers at this strike are poised to profit should shares in Gammon Gold surge 9.75% over the current price of $6.77 to surpass the effective breakeven point at $7.43 by January expiration. More than 3,280 calls changed hands at the Jan. 2011 $7.0 strike, which is more than six times the number of contracts represented by the 531 lots of previously existing open interest at that strike. Bullish sentiment spread to the March 2011 $7.5 strike where another 1,000 call options were purchased for premium of $0.48 each.…
Hartford Financial Services Group Call Options in High Demand
by Option Review - September 11th, 2010 7:30 am
Today’s tickers: HIG, EW, GENZ, AWK, STEC, DELL, HTZ, DBRN & OVTI
HIG – Hartford Financial Services Group, Inc. – Call options on the insurance and financial services firm are flying off the shelves today with shares trading higher by as much as 2.95% to tie down an intraday high of $22.99. As of 2:20 pm ET, more than 14.1 calls have changed hands on HIG for each single put option in action on the stock thus far in the session. The sharp increase in demand for calls bumped up the insurer’s overall reading of options implied volatility 26.4% to today’s high of 56.57%. While some investors populating HIG are selling calls, the majority of calls traded were purchased by traders positioning for continue appreciation in the price of the underlying shares. Near-term optimists picked up roughly 7,500 calls at the September $23 strike for an average premium of $0.50 each. Call buyers at this strike make money if HIG’s shares rally above the average breakeven price of $23.50 by expiration day next Friday. Other bulls purchased some 4,600 calls at the September $24 strike for premium of $0.23 each. Another 2,800 calls were scooped up at the higher September $25 strike at an average premium of $0.16 a-pop. More than 10,800 calls changed hands at the September $26 strike versus previously existing open interest of just 3,300 lots. The vast majority of those calls, some 7,000 contracts, traded to the middle of the market at a premium of $0.12 apiece. Bullish sentiment on the insurance company spread to the October $24 strike where some 2,000 calls were coveted at an average premium of $0.76 each. Investors holding these contracts stand ready to accumulate profits if HIG’s shares jump 7.7% over today’s high of $22.99 to exceed the average breakeven price of $24.76 by October expiration. An additional 2,000 calls were picked up at the October $25 strike for premium of $0.70 a-pop. Traders long the calls make money if shares surge 11.8% to trade above $25.70 ahead of expiration day next month. Options traders exchanged more than 66,700 contracts on Hartford Financial Services Group by 2:30 pm ET.
EW – Edwards Life Sciences Corp. – The provider of products and technologies created to treat advanced cardiovascular disease popped up on our ‘hot by options volume’ market scanner after one options player initiated a sizeable bearish transaction in the November…
Frenzied Options Activity Observed on Transocean Ahead of Earnings
by Option Review - August 4th, 2010 5:02 pm
Today’s tickers: RIG, BKS, GPS, HIG, CX, GENZ, ENP & PG
RIG – Transocean, Ltd. – Shares of the provider of offshore contract drilling services are up 6.75% to stand at $53.79 with 20 minutes remaining before the closing bell. Transocean is scheduled to reveal its performance for the second quarter of 2010 after the market closes today. Impending earnings inspired a flurry of options activity on the stock in afternoon trading. Investors are making good use of RIG’s weekly options pre-earnings, placing both bullish and bearish bets by exchanging calls and puts. Optimists hoping to see Transocean shares extend gains through weekly-expiration on Friday purchased roughly 3,200 calls at the August $55 strike for an average premium of $0.74 each. Buying interest spread to the higher August $60 strike where approximately 1,000 calls were coveted at an average premium of $0.08 apiece. A strong earnings report and continued rally in RIG’s shares will benefit traders making bullish wagers today. On the flip side, some investors are hedging possible disappointing earnings and subsequent share price erosion. Put players picked up roughly 2,500 puts at the August $52.5 strike for an average premium of $0.96 each. These contracts, which expire on Friday, yield profits – or downside protection – to investors should Transocean’s shares decline 4.2% from the current price of $53.79 to breach the average breakeven point on the downside at $51.54 by expiration. Calls expiring on August 20 were also heavily traded ahead of earnings. Trading traffic is heaviest at the August $55 strike where more than 11,500 contracts changed hands by 3:50 pm ET. Overall, options players exchanged roughly 1.65 calls for each single put traded on the stock today.
BKS – Barnes & Noble, Inc. – The bookseller’s shares surged 24.9% at the start of the trading session to an intraday high of $16.04 on news the retailer willing to consider offers from others to buy the company and its 720 outlets. Shares cooled slightly by 3:20 pm ET, but are still up 18.85% on the day to arrive at $15.26 ahead of the final bell. The U.S. bookseller was upgraded two levels to ‘neutral’ from ‘sell’ at Goldman Sachs. Options traders hoping to see Barnes & Noble’s shares continue higher ahead of expiration next month purchased roughly 1,000 calls at the September $18 strike for an average premium of $0.47 apiece. Call buyers make money…
US Airways Group, Inc. Call Player at Work as Shares Take Off
by Option Review - June 2nd, 2010 4:45 pm
Today’s tickers: LCC, XLI, CXO, AMGN, DISH, GNW, DVN, WFR, DISCA & HIG
LCC – US Airways Group, Inc. – Shares of the operator of US Airways are trading higher by 7.50% to $9.29 in late afternoon trading after earlier rallying more than 10.50% to secure a new 52-week high of $9.55. The jump in shares prompted one bullish investor to bank profits on a previously established long call position as well as initiate fresh optimistic stances on the stock. US Airways Group’s shares were helped higher, along with shares of other airline operators, after Continental Airlines Inc. posted better-than-expected monthly unit revenue for May. The LCC-bull appears to have originally purchased approximately 29,000 calls at the June $10 strike for an average premium of $0.23 apiece back on May 26, 2010, when shares of the underlying stock were trading at a volume-weighted average price of $8.33. Today, the trader sold 28,900 calls at the June $10 strike for a premium of $0.45 each to pocket net profits of $0.22 per contract. The same investor then extended optimism on US Airways Group, Inc. by purchasing 25,900 fresh calls at the higher June $11 strike for a premium of $0.24 each. The new June $11 strike call position readies the investor to amass profits should LCC’s shares rally 17.7% over the stock’s new high of $9.55 to surpass the effective breakeven price of $11.24 by expiration. Finally, the trader extended high hopes for a significant rally in US Airways’ shares by picking up another 21,450 calls at the July $12 strike for a premium of $0.32 per contract. The July contract call options yield profits to the bullish player if shares of the airline operator surge 29% to exceed the breakeven price of $12.32 ahead of July expiration.
XLI – Industrial Select Sector SPDR Fund – Put strategists populating the XLI, an exchange-traded fund designed to provide investment results that correspond to the price and yield performance of the Industrial Select Sector of the S&P 500 Index, initiated bullish and bearish transactions on the fund today. Shares of the ETF are currently trading 2.00% higher on the day at $29.52 as of 3:05 pm (ET). The first of the two large trades observed on the XLI was enacted by an investor selling-to-close a large-volume long put stance in the June contract. It looks like the trader originally purchased 27,000 puts at…
Xyratex’s Earnings Forecast Inspires Bullish Options Activity
by Option Review - April 1st, 2010 4:11 pm
Today’s tickers: XRTX, EXEL, PBR, F, BPOP, ALTH, RIG, MYL, HIG & SYMC
XRTX – Xyratex, Ltd. – Shares of the provider of data storage and network technology surged 13.7% at the start of the trading session to a new 52-week high of $19.25 after the firm said it anticipates earnings per share of at least $1.10 in the second quarter. The company’s earnings forecast is significantly greater than the consensus estimate of $0.76 per share. The wear-and-tear of the trading session parsed some of the early-morning rally, but Xyratex’s shares are still up 9.50% to $18.56 as of 2:45 pm (ET). Bullish investors prepared for continued appreciation in the price of the underlying by purchasing 1,100 calls at the June $20 strike for an average premium of $1.49 apiece. Call-buyers at this strike profit only if shares surge 15.8% from the current price of $18.56 to exceed the effective breakeven point at $21.49 by expiration day in June. Options traders exchanged 5,025 contracts on the stock during the trading day, which is nearly on par with total existing open interest on XRTX of 5,656 contracts.
EXEL – Exelixis, Inc. – Bullish options trading tactics were employed on the biotechnology company this afternoon as the firm’s shares surged 11.7% to an intraday high of $6.78. It looks like one investor sold 5,000 puts short at the November $5.0 strike price to take in an average premium of $0.40 per contract. The put seller keeps the full premium received on the transaction as long as shares of Exelixis trade above $5.00 through expiration day in November. By selling the put contracts, the investor implies he is willing to have shares of the underlying stock put to him at an effective price of $4.60 each in the event that the put options land in-the-money at expiration. The jump in options activity on the stock and the shift in share price lifted the overall reading of options implied volatility on Exelixis 42.2% to 82.1% in the final hours of the trading week.
PBR – Petroleo Brasileiro SA – A debit call spread enacted on Brazilian oil and gas company, Petroleo Brasileiro, suggests one investor is positioning for continued bullish movement in the price of the underlying stock through July expiration. PetroBras’ shares rallied 1.9% late in afternoon trading to stand at $45.35 as of 2:30 pm (ET). The optimistic options trader purchased 2,500…
Optimistic individual Initiates Mammoth Bullish Risk Reversal Play on Conseco
by Option Review - March 31st, 2010 6:20 pm
Today’s tickers: CNO, OSIP, HIG, FXI, JDSU, ARQL, GNW, TEVA, KO & UBS
CNO – Conseco, Inc. – The holding company for a number of insurance companies, such as Colonial Penn Life Insurance Co. and Washington National Insurance Co., popped up on our ‘most active by options volume’ market scanner late in the session after a massive bullish risk reversal was established on the stock in the January 2011 contract. Conseco’s shares declined 0.80% during the course of the trading day to stand at $6.18. It looks like one optimistic options player sold 33,727 puts at the January 2011 $5.0 strike for a premium of $0.50 apiece in order to partially finance the purchase of 33,727 calls at the same strike for $1.80 each. The net cost of the transaction amounts to $1.30 per contract. Thus, the investor responsible for the reversal is prepared to amass profits if Conseco’s shares rally through the breakeven price of $6.30 ahead of expiration day in January. The 67,454 contracts involved in the spread trump existing open interest on the stock of 48,756 lots.
OSIP – OSI Pharmaceuticals, Inc. – The outline of a slightly lopsided iron condor appeared in the May contract on OSI Pharmaceuticals, indicating one options investor expects shares of the biotechnology company to trade within a specified range through expiration. OSIP’s shares surrendered 0.85% during afternoon trading to stand at $59.55 perhaps after The Wall Street Journal reported that Astellas Pharma, Inc. is extending its tender offer for OSI Pharmaceuticals – valued at $3.5 billion – by three weeks to April 23, 2010. The investor responsible for the iron condor play essentially enacted two credit spreads, one using put options and the other calls, in order to pocket options premium. On the call side, the trader shed 4,000 contracts at the May $60 strike for a premium of $1.90 apiece, spread against the purchase of the same number of calls at the higher May $62.5 strike for $0.90 each. As for the puts, the investor sold 4,000 lots at the May $55 strike for a premium of $0.94 per contract, marked against the purchase of 4,000 puts at the lower May $50 strike for $0.62 each. Notice that the put credit spread is wider than the spread on the call side, which creates a lopsided iron condor in this case. The net credit pocketed by the trader amounts to $1.32…
Tenet Healthcare Receives Bullish Three-Legged Options Combo Play
by Option Review - March 22nd, 2010 4:09 pm
Today’s tickers: THC, F, TIVO, HIG, LVS, XME, AET & SHW
THC – Tenet Healthcare Corp. – Shares of the provider of health care services surged 9.39% today to $6.29 following the passage of health-care reform legislation through the U.S. House of Representatives. Intriguing bullish options trading transpired on Tenet Healthcare during the current session as investors secured positions that yield profits if the firm’s shares continue to appreciate through expiration in January 2011. One optimistic player enacted a three-leg options combination play by selling short put options to partially finance the purchase of a debit call spread. The investor picked up 10,000 calls at the January 2011 $7.5 strike for a premium of $0.65 apiece, and sold 10,000 calls at the higher January 2011 $10 strike for $0.10 each. Next, the trader shed 10,000 puts at the January 2011 $5.0 strike for $0.55 premium apiece. The investor’s combination play was essentially enacted at zero cost because of the financing provided by the sale of higher-strike calls and out-of-the-money put options. Maximum potential profits of $2.50 per contract are available to the Tenet-bull if shares of the underlying stock jump 59% from the current price to $10.00 by expiration next year. The short position in put options implies the trader is willing to have Tenet’s shares put to him at $5.00 each should the put contracts land in-the-money ahead of expiration day in January. Options implied volatility on the stock slumped 20.9% this afternoon to 46.67% following the passage of the health care bill in the House.
F – Ford Motor Co. – Bullish options activity on the automobile manufacturer picked up as the trading day progressed amid a 4.5% rally in the price of the underlying stock to $13.90. One optimistic individual initiated a bullish risk reversal transaction in the June contract to position for continued upward momentum in the price of Ford’s shares through expiration. The investor sold 5,000 puts at the June $10 strike for a premium of $0.23 per contract in order to partially offset the cost of buying the same number of call options at the higher June $16 strike for $0.44 apiece. The net cost of the reversal play amounts to $0.21 per contract. Thus, the investor responsible for the trade stands ready to accrue profits if Ford’s shares surge 16.60% over the current price to surpass the breakeven point at $16.21 by expiration…
Citi-Bull Sheds Just Under a Quarter Million Put Options
by Option Review - March 18th, 2010 4:21 pm
Today’s tickers: C, ERTS, ATVI, DNDN, HIG, DD, RCL, SFD & AMR
C – Citigroup, Inc. – One investor established a mammoth bullish stance on Citigroup in the first 20 minutes of the current trading session. Citigroup’s shares at the time of the transaction were trading at approximately $4.05, but have since slipped lower and are down 0.50% to $4.03 as of 2:45 pm (ET). It looks like the Citi-bull sold 240,000 put options outright at the April $4.0 strike to take in a premium of $0.16 per contract. Premium received on the sale, which represents maximum potential profits, amounts to $3.840 million to the investor if Citigroup’s shares trade above $4.00 through expiration day. The short stance in put options implies the investor is willing to have 24 million shares of the underlying stock put to him at an effective price of $3.84 each should the puts land in-the-money at expiration.
ERTS – Electronic Arts, Inc. – An enormous bullish debit call spread purchased on video game software publishing company, Electronic Arts, Inc., indicates one big options investor is expecting shares of the underlying stock to rally sharply ahead of expiration in January 2011. Electronic Arts’ shares are up 2.40% this afternoon to $18.57. The options player purchased approximately 61,000 call options at the January 2011 $25 strike for an average premium of $0.60 apiece, and sold roughly the same number of contracts at the higher January 2011 $30 strike for $0.14 each. The net cost of the spread amounts to $0.46 per contract, thus yielding maximum potential profits of $4.54 apiece if shares surge through $30.00 by expiration day next year. ERTS shares must increase at least 37% from the current price in order for the investor to break even on the trade at $25.46. Maximum profit acquisition of $4.54 per contract, or total gains of $27.694 million, requires a 61.55% rally in shares to $30.00 by January expiration. The 122,000 call options utilized in the transaction represent a staggering 44.58% of total existing open interest on the stock of 273,639 contracts.
ATVI – Activision Blizzard, Inc. – The producer of online, console and hand-held games received a vote of confidence by one large options player anticipating bullish movement in the price of its shares through expiration in January 2011. Activision’s shares rallied 2.12% to $12.05 in the first half of the trading session. The optimistic investor established…
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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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