by Option Review - June 12th, 2012 2:16 pm
Today’s tickers: VALE, LCC & PNC
VALE - Vale SA – The Brazilian metals and mining company’s shares have sustained sharp losses since last summer, with the stock currently trading at a 45.0% discount to the July 26th 52-week high of $33.74. Shares in Vale are in positive territory today, up 1.3% at $18.59 as of 11:00 a.m. in New York; however, the largest prints in the iron ore producer’s options today point to the potential for fresh two-year lows in the next few months. It looks like one strategist is rolling a bearish position from the front month out to the September expiry, selling a 2,592-lot Jun. $20/$23 put spread at $2.97 per contract to buy the 2,592-lot Sept. $16/$18 spread at a net premium of $0.69 each. Open interest in the front month puts is sufficient to cover the size of the transaction, although it is difficult to determine when and at what price the spread might have originally been purchased. The put spread could be a hedge to offset losses on a long position in the shares, or an outright bearish bet that shares in Vale have further to fall this year. The new Sept. $16/$18 spread yields profits – or downside protection – should shares in Vale decline 6.9% to trade below the breakeven price of $17.31 by expiration.
LCC - US Airways Group, Inc. – A sizable position was initiated in US Airways Group put options this morning ahead of the airline operator’s annual shareholder meeting on Thursday and prior to second-quarter earnings due out next month. Shares in LCC are up 1.15% just before midday to stand at $11.50 and stand 120.0% higher since the beginning of the calendar year. It looks like approximately 5,000 put options were purchased at the July $10 strike for an average premium of $0.57 apiece, perhaps as some strategists lock in gains or speculate on a possible pullback. The cheapened cost of downside…
by Phil Davis - March 28th, 2012 8:19 am
Wasn't it just 2 days ago that the EU was all set to pop the ESM to $1.25Tn and the IMF was going to add another Trillion and the Fed was talking about more QE in the $1.25Tn range, which plunged the Dollar to multi-week lows? Shouldn't adding 6% of the entire planet's GDP in additional stimulus give us more than a one-day pop in the markets?
As I pointed out in Monday's Morning Alert to Members – these are all just RUMORS and my conclusion in the Alert was:
Despite the bullish turn of events (which we anticipated last week) we're more inclined to cash out our bullish trades into the excitement and press our bear bets and TOMORROW, if we're still over our levels – THEN we will scramble to add some aggressive bullish trades to our virtual portfolios. Again, I cannot stress enough that CASH is my preferred position because this market is tough to call and you need to be very flexible and very nimble to trade it.
We proceeded as planned and, so far, we haven't had any reason to capitulate and get more bullish and that is both surprising and disappointing as this is the end of the first quarter of 2012 – if not now – when? As David Fry notes:
Monday’s rally was typical as we head toward the end of the quarter. Hedge fund performance fees are on the line and any way to boost these profits is job one. Top holdings for hedge funds include the usual suspects: AAPL, IBM, INTC, BAC, DIS, HD etc.
With little volume it’s easy for algos and hedge funds to prop stocks on little hard news. Tuesday we briefly saw more of this. Just as markets were weakening a story appeared using the Fed’s favorite oracle, the WSJ, as Fed governor Rosengren stated, “more stimulus is on the table”. Immediately HFT algos jumped and markets rose if only briefly.
It's very exciting for us as PLCN (see Thursday's notes) went all the way up to $736 on Monday and sold off on some pretty heavy trading yesterday. Slowly but surely, our negative premise is beginning to take shape as Piper Jaffray is finally catching up with us and noting "a sharp decline in unique visitors to Priceline's booking.com" from growth of 61 percent during the…
by Option Review - October 7th, 2010 4:40 pm
Today’s tickers: WFMI, XLK, LCC, POT, BMC, TGT & BKE
WFMI - Whole Foods Market, Inc. – Shares of the operator of natural and organic foods supermarkets slipped 2.40% lower this afternoon to $35.31 as of 3:05 pm ET. The stock popped up on our ‘hot by options volume’ market scanner after one strategist initiated a short strangle in the November contract. It looks like the investor responsible for the trade expects shares in Whole Foods remain range-bound through expiration day next month. The trader sold 5,000 puts at the November $33 strike at a premium of $1.00 each, and shed 5,000 calls at the November $38 strike for premium of $0.92 a-pop. Gross premium pocketed by the strangle-seller amounts to $1.92 per contract. The trader keeps the full premium received as long as WFMI’s shares trade within the boundaries of the strike prices described through expiration. Short stances taken in both call and put options expose the investor to losses, however, should the price of the underlying stock fly upward or fall substantially in the next six weeks. The options strategist starts to lose money if shares rally above the upper breakeven price of $39.92, or should shares trade below the lower breakeven point at $31.08, by expiration day in November.
XLK - Technology Select Sector SPDR ETF – A massive debit put spread utilizing a total of 224,000 contracts on the Technology fund went through electronically this afternoon just after 2:00 pm in New York trading. The spread is perhaps the work of one big options market participant positioning for the price of the underlying shares to slide lower ahead of December expiration. Shares of the XLK, an exchange-traded fund designed to provide investment results that correspond to the price and yield performance of the Technology Select Sector of the S&P 500 Index, edged 0.17% lower to $23.14 by 2:50 pm ET. Companies represented in the Technology Select Sector Index are engaged in industries such as information technology, consulting, semiconductor equipment and products, as…
by Option Review - September 27th, 2010 4:07 pm
Today’s tickers: DRYS, PG, LCC, MHP, GDX, AMR, AMGN & GMCR
DRYS – DryShips, Inc. – A number of options players boarded the DryShips, Inc. bullish bandwagon this afternoon after the dry bulk carrier was upgraded to ‘equal-weight’ from ‘underweight’ and given a target share price of $5.50 at Morgan Stanley. DryShips’ shares jumped 9.95% in the second half of the trading day to touch an intraday high of $4.53. In- and out-of-the-money call options on the shipping firm were in high demand, particularly in the October and November contracts. Traders scooped up some 2,300 in-the-money calls at the October $4.0 strike for an average premium of $0.45 each. Optimists also picked up roughly 6,700 calls at the higher October $5.0 strike by shelling out an average premium of $0.05 apiece. DRYS’ shares would need to rally another 11.5% over today’s high of $4.53 in order for October $5.0 strike call buyers to make money above the average breakeven point at $5.05 by October expiration. Bulls looked to the November $5.0 strike to take ownership of some 4,000 call options at an average premium of $0.14 a-pop. Investors long the calls are prepared to profit should the price of the underlying stock increase another 13.5% in the next couple months to trade above $5.14 by November expiration. Options implied volatility on DryShips surged 10.9% to 48.14% by 3:40 pm ET.
PG – Procter & Gamble Co. – Shares of the consumer goods manufacturer edged 0.60% lower this afternoon to trade at $61.26 with 30 minutes remaining in the trading session. One pessimistic player appears to be building up downside protection on the stock through expiration in January 2012. The investor initiated a ratio put spread, buying 2,000 puts at the January 2012 $60 strike for a premium of $6.00 each, and selling 4,000 puts at the lower January 2012 $45 strike at a premium of $1.80 apiece. The net cost of the transaction amounts to $2.40 per contract. Thus, the investor starts to make money – or realize downside protection on a long position in shares – if the price of the underlying stock falls 6.00% to slip beneath the effective breakeven price of $57.60 by expiration day. Maximum potential profits of $12.60 per contract are available to the trader, but require PG’s shares to collapse down to $45.00. Options implied volatility on PG is up 7.3% at 14.78% as…
by Option Review - July 26th, 2010 4:31 pm
Today’s tickers: VTR, BIDU, WAT, DHI, LCC, ODP, GAP & ISLN
VTR – Ventas, Inc. – Shares of the REIT with a portfolio of seniors housing and healthcare properties in the U.S. and Canada rallied as much as 2.04% this afternoon to reach an intraday- and new 52-week high of $51.57. Ventas popped up on our ‘hot by options volume’ market scanner in the second half of the trading session after one cautiously optimistic investor bought a large amount of stock in combination with a delta neutral put spread in the August contract. The transaction shows guarded optimism by one investor ahead of the firm’s second-quarter earnings report scheduled for release ahead of the opening bell on Wednesday morning. The options strategist paid a premium of $1.05 per contract for an 8,500-lot August $40/$50 debit put spread with a .32 delta tied to the purchase of 272,000 Ventas shares at $51.37 each. The investor is hoping to see shares rally to new highs following earnings, but has shelled out extra premium in order to get long downside protection in case Ventas’ shares decline.
BIDU – Baidu, Inc. – The Chinese-language internet search provider’s shares jumped 3.6% to an intraday high of $80.87 today after the firm received an upgrade to ‘buy’ from ‘neutral’ with an increased target share price estimate of $92.00 from $69.00 at UBS. Shares were also lifted higher on news Baidu is in talks with mobile phone makers to discuss use of the firm’s search box on devices sold in China. The price of the underlying stock is currently up 2.05% on the day to arrive at $79.67 as of 3:00 pm (ET). Options players itching for continued appreciation in the price of the underlying shares through the end of this month purchased weekly call options on the stock that are set to expire on July 30. Investors picked up 1,000 calls at the July $80 strike for an average premium of $1.48 each. Call buyers at this strike make money if Baidu’s shares rally another 2.3% to trade above the average breakeven price of $81.48 by expiration day. Optimistic individuals looking for BIDU’s shares to hit a new 52-week high before the week is through purchased some 2,100 call options at the higher July $85 strike for an average premium of $0.29 a-pop. Shares must increase at least 7.05% in order for July $85 strike call…
by Option Review - July 7th, 2010 4:11 pm
Today’s tickers: MSG, MOS, LUV, ILMN, GHDX, FCN, KBH, LCC & CSX
MSG – Madison Square Garden, Inc. – Speculation as to which team will acquire the larger-than-life LeBron James continues to mount ahead of the basketball superstar’s Thursday night announcement on ESPN. One options investor put uncertainty in the marketplace to good use by purchasing a strangle on Madison Square Garden, Inc., the fully-integrated sport, entertainment and media business, which, among other things, owns and operates sports franchises including the New York Knicks. MSG’s shares are currently up 1.5% to $20.58 as of 2:50 pm (ET), but earlier surged 5.4% to an intraday high of $21.36. MSG edged onto our ‘hot by options volume’ market scanner after the trader purchased a long strangle in the July contract. The investor appears to be positioning for a dramatic shift in the price of the underlying shares ahead of July expiration. The options strategist purchased a 2,000-lot strangle, buying 2,000 calls at the July $22.5 strike for a premium of $0.60 apiece, and buying 2,000 puts at the lower July $20 strike for a premium of $0.50 each. The net cost of the transaction amount to $1.10 per contract and prepares the strangle-player to benefit nicely as long as MSG’s shares take off running in either direction. Profits are available to the investor if shares rally straight through the current 52-week high on the stock of $22.95 to trade above the effective upper breakeven price of $23.60. If LeBron James were to join the NY Knicks it has been said the value of the MSG franchise will increase significantly. The strangler will certainly benefit if the Knickerbockers turn out to be James’ new teammates because MSG shares are likely to soar. Conversely, the options strategist is poised to profit to the downside should shares trade below the lower breakeven price of $18.90 ahead of expiration day. Perhaps the investor is expecting shares of the underlying stock to suffer if LeBron ends up with a different team. Either way, the investor responsible for the strangle strategy is positioned to benefit from a wayward shift in the price of the underlying stock. But, the trader will lose the full premium paid, $1.10 per contract in this case, if shares trade within the confines of the strike prices described at expiration. Finally, the investor may profit if implied volatility on MSG, which is currently up…
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…
by Option Review - December 2nd, 2009 4:38 pm
Today’s tickers: EWH, HPQ, M, GLD, LCC, KRE, BBY, WAG & DYAX
EWH – iShares MSCI Hong Kong Index Fund – The EWH popped onto our ‘most active by options volume’ market scanner today after one investor traded 70,000 put options on the fund. Shares of the ETF are up 0.25% this afternoon to stand at $16.22. It appears the trader shed 35,000 puts at the January 14 strike for 10 cents apiece in order to partially offset the cost of purchasing 35,000 puts at the June 14 strike for 65 cents each. The net cost of the protective play amounts to 55 cents per contract. The nearer-term short put position in the January contract implies the investor does not expect shares to dip below $14.00 by expiration in less than two months. The investors stands ready to have a whopping 3,500,000 shares of the underlying put to him at $14.00 apiece in the event that the put options do land in-the-money. The long put position in the June 2010 contract suggests the trader is already long the stock. He is most likely extending downside protection on the underlying position for the next seven months before expiration. Shares of the EWH would need to fall 17% from the current price in order for downside protection to kick in beneath the breakeven point at $13.45. We note that shares of the fund have traded above $14.00 since July 15, 2009.
HPQ – Hewlett-Packard Co. – Medium-term bullish trading graced the global technology company’s February 2010 contract despite a 1% decline in HPQ shares this afternoon to $49.06. A risk reversal by one option player suggests shares could increase significantly by expiration in February. The trader sold 12,000 puts at the February 40 strike for an average premium of 27 cents apiece, and bought the same number of calls at the higher February 60 strike for 8 pennies each. The transaction yields a net credit of 19 cents per contract. The investor retains the full credit as long as HPQ’s shares remain above $40.00 through expiration day. Additional profits accumulate if the stock surges 22% higher than the current price to surpass the $60-level. The long call position probably serves more as a stop loss, or insurance policy, on the trade in the unlikely event that shares do jump more than 22% in the next three months. The reversal was more likely…
by Option Review - November 24th, 2009 4:09 pm
Today’s tickers: BAC, GE, SEED, EWZ, DE, STLD, LCC, SEED & DLTR
BAC – Bank of America – Long-term Bank of America bulls are out in full force today, scooping up call options like they’re going out of style. BAC’s shares are off slightly by less than 1% to $16.19. Plain-vanilla call buying in the January 2011 contract indicates investors expect shares to surge over the next 13 months. A large chunk of 50,000 calls were picked up at the January 25 strike for an average premium of 86 cents apiece. Shares must rally 60% from the current price to breach the $25.86 breakeven point on the trade. Twice as many calls were coveted at the higher January 30 strike where 100,000 calls were purchased for 45 cents each. The investor responsible for the massive position breaks even if shares jump 88% to $30.45 by expiration. Finally, another BAC-optimist established a ratio call spread in the same contract. The investor purchased 20,000 calls at the January 20 strike for 1.95 apiece, spread against the sale of 40,000 calls at the higher January 30 strike for 46 cents premium each. The net cost of the spread amounts to 1.03 per contract and positions the trader to profit if shares exceed $21.03 by expiration in January of 2011. Maximum potential profits available on the transaction amount to 8.97 per contract. Option implied volatility on Bank of America is currently 38.65% – a scant 2.93% above the 52-week volatility low of 35.77% – attained back on October 20, 2009.
GE – General Electric – A massive bullish bet on General Electric today indicates one investor expects shares to surge 43.8% in the next 13 months. Shares are currently up just under 1% to $16.16. It looks like a staggering 131,500 calls were purchased at the January 2011 22.5 strike for a premium of 76 cents per contract. The trader is apparently expecting GE’s shares to jump at least 43.8% to the breakeven point at $23.26 by expiration in January of 2011. Option implied volatility on General Electric is down to a one-year low of 29.46%.
SEED – Origin Agritech Ltd. – Frenzied options activity continues today on Beijing-based seed producer, Origin Agritech, following yesterday’s announcement that the firm received approval from China’s Ministry of Agriculture to sell its genetically modified phytase corn. Shares are currently up 4% to $10.86, down from an intraday…
by Option Review - September 21st, 2009 5:08 pm
Today’s tickers: DAL, LCC, PCS & XHB
DAL - Unconfirmed reports today stated that DAL will likely announce plans to sell $500 to $750 million of five-year, senior secured notes that may price to yield approximately 10%. Shares of DAL reacted by gaining more than 4% during today’s session to $9.34. Bullishness was observed on the stock through call transactions this morning. It appears one trader, who originally purchased 6,500 calls at the December 9.0 strike for 40 cents apiece back on August 20, 2009, sold the chunk of calls today for a much richer premium of 1.35 per contract. The investor received a net profit of 95 cents per contract by selling to close the call position. Expecting further near-term gains in DAL, the trader spread the closing sale of the original calls against the purchase of 13,000 fresh calls at the October 10 strike for 42 cents each. Profit from the original bullish stance on Delta Air Lines was sufficient to double up the size of the long call position to prepare for further upside gains by expiration in October. – Delta Air Lines, Inc. –
LCC - In contrast to the bullish options activity observed on Delta Air Lines this morning, it appears investors employed calls on LCC to display bearish sentiment. Shares of US Airways have improved more than 2% to arrive at the current price of $5.09. It seems some traders doubt the airline will rally through $6.00 by expiration in October because some 10,200 calls were sold short at the October 6.0 strike for an average premium of 18 cents per contract. Call-sellers are apparently willing to bear the risk that shares rise through $6.18 – the breakeven point at which losses begin to amass – in order to receive 18 cents premium today. Shares of LCC would need to rally 21% to $6.18 before investors short the calls are exposed to potentially unlimited losses to the upside. Investors keep the full 18 cent premium if shares remain beneath $6.00 and the call options expire worthless by expiration. – US Airways Group, Inc. –
PCS - As global confidence returns investors are finding it hard to resist promising stories especially those that offer potential for meteoric share price gains. FT’s Alphaville is running an apparently well-heeled story who says that Germany’s Deutsche Telekom has got over the incompatibility fears of buying a U.S. mobile carrier. Since…