Bulls Drive Up Volume In Yahoo! Options
by Option Review - December 8th, 2011 2:55 pm
Today’s tickers: YHOO, LIZ & SFI
YHOO - Yahoo!, Inc. – Shares in Yahoo!, Inc. surrendered gains enjoyed earlier in the session, to trade 0.40% lower on the day at $15.56 just after 2:00 PM on the East Coast. The stock rose earlier in the day after All Things Digital reported that Yahoo’s Chairman and other board members are formally meeting with two private equity firms that have made bids for the Internet company. The report was followed by heavy bullish options activity on the stock in the April 2012 contract, where it appears one or more traders enacted massive three-legged bullish spreads to position for shares to rally. It looks like the investor or investors responsible for initiating the activity sold April 2012 $14 strike put options in order to partially offset the cost of buying the April 2012 $16/$20 call spread, all for an average net premium outlay of $0.30 per contract. Of the more than 44,000 option contracts that changed hands at each strike price, it appears most of the overall volume at each was tied up in the spread. The bullish position may be a profitable one at expiration next year if Yahoo’s shares exceed the average breakeven price of $16.30. Maximum potential profits of $3.70 are available to traders should the price of the underlying soar 28.5% to exceed $20.00 at April expiration day.
LIZ - Liz Claiborne, Inc. – A large three-legged options combination on Liz Claiborne this afternoon indicates one strategist is prepared for shares in the owner of a portfolio of premium retail brands to pull back. Shares in LIZ are currently down 1.3% to stand at $8.13 as of 1:50 PM ET. It looks like the investor received a net credit of $0.01 per contract on the sale of 10,000 calls at the April 2012 $9.0…
Facebook
Twitter
LinkedIn 
del.icio.us
DiggXLF Options Active After Buffett’s Thumbs-Up On BofA
by Option Review - August 25th, 2011 2:20 pm
Today’s tickers: XLF, LIZ, MRK & PSS
XLF - Financial Select Sector SPDR ETF – The financials ETF popped Thursday morning on news Warren Buffett’s Berkshire Hathaway bought $5 billion worth of cumulative perpetual preferred stock in beleaguered U.S. lender, Bank of America Corp. The XLF’s morning rally gave way to losses in early-afternoon trade as heavy selling in Germany and soaring yields on Euro-area sovereign debt reminded markets that the crisis overseas may worsen. Shares in the XLF stand 0.50% lower on the session at $12.64, erasing earlier gains of as much as 4.95% to $13.33. Nearly 430,000 option contracts have changed hands on the Financial SPDR, with traders favoring puts over calls roughly 1.8 times to 1. Much of the heavy options volume resides in contracts expiring in the next few months, but longer-dated contracts attracted sizable interest, as well. Fresh positioning in the March 2012 $13 strike call and put options suggests some strategists expect shares in the fund to stagnate. Traders appear to have sold roughly 20,000 of the March 2012 $13 strike straddle to pocket average gross premium of $2.98 per contract. Straddle-sellers may be taking advantage of inflated levels of options implied volatility on the fund, which currently stands well above historical, as well as the time-rich premium built into the price of both the calls and the puts. Investors selling the straddle benefit from the roughly .07 of a penny daily decline in the value of the position, according to the roughly -.0035 reading of Theta on both the calls and the puts. Additionally, subsiding levels of implied volatility may lower the cost of buying back the straddle at some point ahead of expiration. In seven months time, when March expiration rolls around, traders walk away with the full amount of premium received on the straddle as long as shares in the XLF settle at $13.00.…
Energy ETF Options Portend Tough Times Ahead, but Smooth Sailing to Follow
by Option Review - May 13th, 2011 4:07 pm
Today’s tickers: XLE, LIZ, NE & CBST
XLE - Energy Select Sector SPDR Fund – Two massive transactions in XLE options today suggest nearer-term pessimism on the energy sector and longer-term optimism. Shares in the fund started the session in positive territory, but the rally proved to be short-lived as shares are currently trading 0.60% lower on the day at $73.72 just before 12:50pm. The XLE, an exchange-traded fund that corresponds to the performance of the Energy Select Sector of the S&P 500 Index, jumped to the top of our ‘most active by options volume’ market scanner this morning after a huge bull call spread was purchased outright in the September contract. The transaction is a profitable one if shares in the XLE top recent highs to trade at levels not seen since mid-2008. The options player purchased 52,750 calls at the September $79 strike for a premium of $2.23 each, and sold the same number of calls up at the September $90 strike at a premium of $0.28 apiece. Net premium paid to initiate the spread amounts to $1.95 per contract, a price tag of more than $10.28 million. Profits are available to the trader should shares in the fund surge 9.8% over the current price of $73.72 to exceed the effective breakeven point at $80.95 by September expiration. Maximum potential profits implied by the spread’s parameters amount to $9.05 per contract if the price of the underlying fund jumps 22.1% in the next four months to trade above $90.00 at expiration. Meanwhile, a large put spread purchased in the nearer-term June ‘30 expiry suggests a less rosy outlook on the energy sector over the next seven weeks. The spread was likely purchased by the investor, although direction in this case is more difficult to determine as both legs of the transaction traded to the middle of the market. The pessimistic player appears to have purchased 33,330 in-the-money puts at the June $75 strike for a premium of $3.27 each, against the sale of the same number of put options at the lower June $65 strike at a premium of $0.52 a-pop. The net cost of the spread amounts to $2.75 per contract, thus yielding profits below…
What Me Worry Thursday?
by Phil - May 13th, 2010 7:48 am
What a freakin’ recovery!
As I said on Monday: "It’s a paper tiger of a straw man we’re building for $1Tn but you HAVE to respect $1,000,000,000,000 – you just have to… Our 5% Rule series for the S&P over the 1,155 breakdown line is the very critical 1,170, followed by 1,185, 1,200 (critical), 1,215 and 1,230 and THEN we are on the way to recovery." Wow, that guy is AMAZING! Anyway, so here we are at 1,170, after two days of testing the 1,155 line as a bottom so now it’s onwards and upwards to 1,185 hopefully. I also said on Monday: "Below that, we’re not too impressed but it also won’t be very surprising if all $1Tn buys us these days is some moderate lift that isn’t strong enough to break our major technicals."
We have been casting a wide and bullish net since the crash, finally pulling some of our sideline cash for long plays on ABX, APPY, BAC, BIDU, BRK/B, BSX, C, CAT, DIA (3), DF, ERX, GOOG, LIZ, LVS, MEE, MON (3), RIG, T (2), TBT (2), TZA (shorting it), UNG and WFR. We’re hedging heavily, of course, but it feels good to have longs again after being in cash for a while. Our short-term bearish plays (mostly DIA and TZA) have been crushing us so far, which is good in a rally but yesterday was a bit much for us and we got a little more bearish but it looks like the G7 has adopted the "Better Red Than Dead" mantra as the World racks up astounding deficits to put off admitting that this little debt problem is not isolated to the PIIGS nations.
Nonetheless, the global markets are rallying in unison – even while the Pound ($1.47) and the Euro ($1.26) collapse and even the Yen jumped back up last night, falling off the very BS 93.63 to the dollar it hit at 3am to psych up the Nikkei exporters back down to 92.75 this morning. I noted weeks ago how the Yen knocked down for Japan’s open and then drifts lower into the US open virtually every night – it’s what currency traders call the "Goldman Trade" because you can bet it every single day and have a perfect quarter. Sure it’s blatant manipulation designed to fool an entire nation of investors but, what else is new – Fuggedaboutit…
So, a TRILLION Dollars down the rabbit hole in Europe – Fuggedaboutit! I pointed out to Members in yesterday’s…
Option Trader Prescribes Bullish Risk Reversal on CVS
by Option Review - November 19th, 2009 5:43 pm
Today’s tickers: CVS, LIZ, ITMN, MA, V, RF, KG, HW, WSM, AEP & NTAP
CVS – CVS Caremark Corp. – Shares of the pharmacy retail chain are up 1.5% to $31.11 perhaps due, in part, to the ‘buy’ rating it received at UBS today. Optimistic options activity took place in the December contract as one investor initiated a bullish risk reversal. It appears the trader sold 4,400 puts at the December 31 strike for an average premium of 94 cents apiece in order to finance the purchase of the same number of calls at the higher December 32 strike for 63 cents each. The investor pockets a 31 cent credit on the trade, which he retains in full as long as shares remain above $31.00 through expiration. Additional profits accumulate if CVS’s shares rally above $32.00.
LIZ – Liz Claiborne, Inc. – A 15,000-lot covered call in the January 2011 contract on Liz Claiborne today suggests shares are likely to recover, albeit at a glacial pace. Shares of the apparel and accessories retailer suffered a 5% decline to $4.55 during the trading session. One investor effectively purchased shares of the underlying stock for $3.30 apiece by selling 15,000 calls at the January 2011 5.0 strike for a premium of 1.25 each. Thus, the trader stands ready to accrue gains of 51% if shares of LIZ appreciate to $5.00 by expiration. The long-term positioning of the covered call play provides several advantages to the investor. One advantage is that the call options do not expire for another 13 months, which leaves ample time for LIZ’s shares to appreciate up to the strike price of $5.00. The 15,000-lot call transaction represents nearly 50% of the total existing open interest on LIZ of 31,502 contracts. Note that shares last traded above $5.00 yesterday at approximately 10:35 am (EDT).
ITMN – InterMune, Inc. – A bull call spread on the biotechnology company today suggests shares could rally significantly by expiration in April 2010. Bullish options activity on the stock belies the more than 3% decline in ITMN’s shares during the session to $10.94. The call spread involved the purchase of 3,750 calls at the April 15 strike for an average premium of 2.25 each, marked against the sale of the same number of calls at the higher April 25 strike for 75 cents apiece. The net cost of the transaction amounts to 1.50 per…
Popular Bank Shares Surge as Option Player Stakes a Claim
by Option Review - September 16th, 2009 9:25 pm
Today’s tickers: BPOP, LNCR, EEM, XLK, XL, PALM, LIZ & MI
BPOP - The ‘popular’ bank popped up on our screens this afternoon after a large-volume risk reversal was established on the stock. The massive trade was likely the work of an investor with knowledge of commercial banks as approximately 60,000 contracts were exchanged on BPOP amid a more than 12% rally in shares of the underlying to $2.60. It appears the trader purchased 30,000 now in-the-money October 2.5 strike calls for an average premium of 33 cents apiece. He funded the purchase of the calls by selling 30,000 puts at the January 2.5 strike for 43 cents each. The investor received a net credit on the transaction of 10 pennies per contract. The motivation is perhaps that this individual is swimming with the rising tide of financial names today and expects a far larger rally lifting shares towards $3.75-resistance level. If this is the case, he is likely to exercise the calls by October’s expiration and take delivery of the underlying shares to ride with the stock’s upward momentum. Even if the move continues somewhat, it would likely reverse the structure of this trade to his advantage. – Popular, Inc. –
LNCR - The provider of oxygen and respiratory therapy services attracted option bulls today with shares of the firm standing more than 13% higher for the session to $29.85. Option implied volatility on LNCR exploded 50% higher from a low of 32% this morning to an intra-day high of 48%. The burst in volatility is likely due to increased investor demand for calls on the stock as well as greater uncertainty regarding future price movements in shares of Lincare. Perhaps the rise in uncertainty stems from news that Deutsche Bank raised LNCR’s target price from $33.00 to $38.00 today and maintained their ‘buy’ rating on the stock. Investors gobbled up 2,200 September 30 strike calls for an average premium of 31 cents. The contracts will expire worthless unless shares breach the $30.00-level to land in-the-money by Friday. Bullish sentiment spread to the October 30 strike where traders coveted 2,400 calls for about 71 cents premium. Investors long the calls will begin to amass profits if shares rally through the breakeven point at $30.71 by expiration in October. – Lincare Holdings Inc. –
EEM - The emerging markets exchange-traded fund jumped higher on our ‘most active by options volume’ market scanner…
German
Spanish
French
Italian
Portuguese
Japanese
Korean
Russian
Chinese
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
(