Thrill-Ride Thursday: Jobs, What Jobs?
by Phil - October 15th, 2009 8:12 am
Yesterday was very hard for us.
Our theoretically conservative $100,000 Virtual Portfolio dropped 6% in one day as we had a farily bearish position into options expiration that I stubbornly refused to adjust this week. Surely, I thought, after running up 250 Dow points from Thursday, 10,000 would act as some kind of resistance? We’re also up a neat 500 points for the month of October so that’s our 5% rule and to not get a 1% pullback, even in the most bullish of markets, is very rare indeed.
So we stayed bearish yesterday and got crushed by the AMZN $90 calls we sold as well as UYG calls we sold and our PSQ calls we bought for protection got slaughtered as the Nasdaq flew up not 5% but 5.5% for the month and up 6.2% from it’s October 2nd low. While we are disappointed, we’re not terribly concerned as we’re only going to roll the calls to November anyway and I did promise the members that, if we hold our breakout levels for 2 closes, then I’ll be shifting more bullish. I’ve been trying to identify more bullish positions this week but our mix has still tended bearish as I’m just having so much trouble buying into this rally.
In yesterday’s Member Chat, my comments on the current situation was:
I do wish we were more bullish, this is a very smart group of people and we’re pretty bearish but so is the general investing public or there’d be volume to this rally. I have a hard time ignoring the fact that 600,000 more people lost their jobs this week and, even if it’s "only" 500,000, I still think that’s not really a sign of a healty economy. I think the REITs are off in fantasy land and I think so is the government, who cannot keep borrowing money at these low rates. The dollar has dropped 25% of it’s value since March so the market is only 25% ahead of the currency fall which means a flight back to the dollar, which could happen very suddenly if an EU nation like Spain collapses, could send our market down as fast a 9/11.
That being said, we have no choice but to follow the technicals and now that we can look at nice, easy support levels like Dow 10,000, S&P 1,100, NYSE 7.200, Nas, 2,200 and RUT 620 and simply
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DiggBrazilian 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…
Raging Gold Demand Delivers Gains for Barrick Gold Options Trader
by Option Review - September 3rd, 2009 5:57 pm
Today’s tickers: ABX, V, HOG & MCO
ABX - Notable options activity on the world’s largest producer of gold caught our eye today as the stock continues higher for the second day running. Shares of ABX rallied 2.5% to $38.93 as dollar weakness and rising demand for precious metals helped boost the price of gold to its highest level in three months. Option trades in the front months suggest investors believe the rally may taper off. One trader who initiated a call spread on Tuesday chose to unravel the position this morning to take in profits. He originally purchased the 6,000 lot spread at the October 37.5/41 strikes for a net cost of 70 cents per contract. Today he closed out the position by selling 6,000 calls at the October 37.5 strike for 2.95 each and buying back 6,000 calls at the higher October 41 strike for 1.45 apiece. The 1.50 credit received by closing out the call spread is reduced by the 70 cent purchase price of the original transaction, leaving the trader with net profits of 80 cents per contract. Thus, the investor has reeled in total profits of $480,000. Indications of lower volatility for ABX was apparent by the sold strangle play enacted in the September contract. Traders shed approximately 3,500 calls at the September 39 strike for a dollar apiece in conjunction with the sale of about 3,500 puts at the lower September 37 strike for 80 cents each. The gross premium pocketed on the sale amounts to 1.80 per contract and is full retained as long as shares remain ‘strangled’ within the confines of the strike prices previously described. – Barrick Gold Corp. –
V - Bullish risk reversals accumulated in the January 2011 contract on the credit card company this morning as far-term optimists shed put options to finance the purchase of calls. Shares of the firm were trading down earlier in the session, but have since recovered, gaining less than 0.5% to $70.20. Investors employing the reversal strategy looked to the January 70 strike price to sell 12,000 puts for a premium of 11.30 each. The sale of the puts more than offset the cost of picking up 12,000 calls at the higher January 85 strike for 6.00 per contract. Traders retain the 5.30 credit pocketed on the transaction if shares remain higher than $70.00 by expiration in January 2011. Additional profits could accumulate if…
Channel Checkers: HOG and HOTT
by Insider Scoop - July 6th, 2009 1:59 am
How would Phil trade the Channel Checkers report (below)?
The question we have to ask with HOG is "how much of this bad news is already priced into the stock?"
HOG is trading at 1/3 the average price of the first 3 quarters of 2008 and 2009 earnings are expected to be less than 1/2 of last year. The company is projected to earn just .26 in Q2 vs .95 last year yet "only" 36% of the respondents say business is worse than the same time last year and 12% say it is better. Just because you hear a negative sounding report on a stock does not mean you should automatically be shorting it…
On the whole, I would be hoping for poor earnings and a sell-off as an opportunity to buy HOG back near the lows but I don’t see betting them to go lower as .26 is a very low bar to beat. In the past 3 months, HOG has picked up a "sell" rating from one analyst and now has 3 "underperform" ratings, 9 "holds," one "buy" and 4 "strong buys" so there isn’t all that much enthusiasm for the stock. 18% of the stock is already sold short and that is 8 days of average trading so an upside surprise or raised guidance can cause a squeeze.
To initiate a speculative long play here, the Feb $17 calls can be bought for $2.22 and the Aug $16 calls can be sold against them for $1.20. This is a position to "scale into," meaning consider this a first round entry. Ideally, the earnings will not be thrilling and the caller will be wiped out, leaving us with the Feb $17s at net $1.02 at which point they can be added to or rolled down to a lower strike for a low average entry. Should HOG surprise to the upside, we simply buy more Feb $17s and roll the callers up to higher strikes. We’ll follow through on this play as it’s a good earnings exercise.
HOTT also has very low expectations. Analysts expect a 0.05 loss for the quarter although, for the year, the company is expected to earn .45 a share, not much below last year. 23% of this stock is already being shorted and there are 22,334 open Aug $10 puts vs. just 1,228 Aug $10 calls so to…
Bulls singing Yahoo! in tune
by Option Review - April 16th, 2009 5:53 pm
Today’s tickers: YHOO, MMR, FXI, CI, HOG, KFT, NUAN & VMC
YHOO Yahoo!, Inc. – Shares have rallied by more than 2% to $14.32 amid news that the company is seeking buyers for its HotJobs employment website and has plans to cut some 200 to 500 jobs. Perhaps investor confidence has been bolstered by the past few months with CEO Carol Bartz at the helm as the stock has risen about 29% from its January 2009 low of around $11.03 up to today’s price. Option investors were seen taking bullish stances on the stock in the May and October contracts. At the May 15 strike price 26,600 calls were purchased for an average premium of 77 cents apiece. Shares would need to rise by another 10% in order to breach the breakeven point on the trade at $15.77 by expiration in May. Further along, the October 12 strike price witnessed the sale of 2,100 puts for a premium of 1.30 each. Some traders were showing caution in the May contract by purchasing 4,500 puts at the May 14 strike price for 99 cents should shares experience a decline in the near future. These put options would begin to provide downside protection or profits beginning at the breakeven point to the downside at $13.01. Option implied volatility on Yahoo! is up sharply today to 74% from yesterday’s reading of 67%.
MMR McMoRan Exploration Co. – Shares of the oil and natural gas company have declined slightly by less than 1% today to stand at $5.22. Despite the fall in share price, one investor does not see shares falling much further as he sold more than 14,000 puts at the May 5.0 strike price for a premium of 50 cents apiece. There is currently no open interest at the May 5.0 strike, and thus this trader accepts the 50 cent premium in exchange for bearing the risk that shares fall beneath the breakeven point to the downside at $4.50. Should shares plummet through the breakeven point, the investor would face increasing losses in proportion with declines in the stock. The puts traded today represent nearly 40% of the existing open interest on the stock of 38,000 contracts. While we do not know the exact motivation for the trade, we do know that shares need only decline by 13% from the current price for this investor to face losses.
FXI iShares FTSE/Xinhua China 25…
Option traders see Harley dropping a gear
by Option Review - April 13th, 2009 4:25 pm
Today’s tickers: HOG, GE, GM, MWW, MAR, YHOO, ALL & C
HOG Harley-Davidson, Inc. – The motorcycle company’s shares have dipped by more than 2% to $17.64 today and have motivated investors to shop for downside protection on the stock. HOG appeared on our ‘most active by options volume’ market scanner after one trader purchased 11,800 puts at the May 15 strike price for a premium of 88 cents per contract. This lot of purchased-puts represents nearly twice the amount of existing open interest at that strike. Should shares fall below the breakeven point at $14.12 by expiration next month the trader will begin to amass profits as shares move lower. From today’s current price, shares would need to fall by another 20% in order to breach the breakeven point described.
GE General Electric – Shares of the Connecticut-based company have rallied by more than 8% to $12.25. Option investors were observed making a mixture of bearish and bullish moves on GE. At the April 12 strike price, 20,000 calls were sold for a premium of 63 cents apiece while the April 12 puts were purchased 24,000 times for an average price of 57 cents per contract. Perhaps investors are banking gains by selling in-the-money calls ahead of expiration on Friday, but also picking up downside protection in case shares reverse direction in the next 4 days. The May 10 strike price witnessed the sale of nearly 16,000 puts for 46 cents and indicates that some traders do not see shares dipping below the breakeven point at $9.54 by next month’s expiration. Finally, the June 13 strike price saw the purchase of 4,600 calls for a premium of 1.06 apiece as some investors are hopeful that shares will breach $14.06 in June. Bullish traders even looked to the June 20 strike price where 2,600 calls were picked up for about 8 cents each. GE’s shares have not traded above $14.06 since January 14th, and have not been above $20.00 since November 4, 2008, but option traders appear to be chomping at the bit – hungry for a meatier GE share price.
GM General Motors, Corp. – Shares are off by more than 16% to $1.70 amid news that the U.S. Treasury has directed the failing automaker to prepare for a bankruptcy filing by June 1, 2009. Option implied volatility has exploded to 324% from Thursday’s reading of 197% as…
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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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