The Price is Right for Lockheed Martin Corp. Call Buyers
by Option Review - April 14th, 2011 4:05 pm
Today’s tickers: LMT, KO, LNG & NUAN
LMT - Lockheed Martin Corp. – President Barack Obama’s proposal to cut $400 billion from the Pentagon’s budget through 2023 sent shares in Lockheed Martin lower this week, providing one contrarian options player the opportunity to pick up May contract call options at a steep discount this morning. Lockheed’s shares fell as much as 3.2% at the start of the session to touch an intraday low of $75.81, which marks a 6.7% total decline off Monday’s high of $81.22. Talks of reining-in defense spending pushed some options players to put options, but most of the volume in LMT options on Thursday is in out-of-the-money calls. More than 10,500 calls changed hands at the May $80 strike on paltry previously existing open interest of just 452 contracts. It looks like most of these calls were purchased by bullish players positioning for a rebound in the price of the underlying stock by May expiration. Investors may be picking up the calls in anticipation of a rally following Lockheed Martin’s first-quarter earnings report on April 26, 2011. Call buyers paid an average premium of $0.81 per contract for the options this morning. Premium on the calls was up around $2.60 each at the start of the week, and had a price tag of $1.70 a-pop on Wednesday. Plain-vanilla call buyers start making money if shares in Lockheed rise 3.9% over the current price of $77.79 to surpass the average breakeven point on the upside at $80.81 by expiration day next month. The overall reading of options implied volatility on LMT increased 14.1% to 23.53% by 11:55am.
KO - Coca-Cola Co. – The beverage manufacturer bubbled up on our scanners this morning after one strategist initiated a short strangle in long-dated Coke options. Shares in Coca-Cola Co. are…
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DiggWild Weekly Wrap Up – Only Halfway Through January!
by Phil - January 16th, 2010 8:29 am
Wheee, what a ride!
The week can be neatly summed up by my 1:35 comment to Members in yesterday’s chat, summed the week up quite nicely as I said: "So funny, a whole week of gains I thought were ridiculous wiped out in 4 hours." Of course it’s easy to laugh when you play the market correctly – as I had said in the morning post, we had cashed out into Thursday’s run up and planned on going bearish through the weekend but it turned out we got our sell-off early, jumping the $100K Virtual Portfolio, for example, up 12% in one day – enough to send us back to cash rather than risk a weekend reversal.
We laid the groundwork for this little sell-off in last weekend’s posts as we put up an aggressive Buy List for Members but in my regular weekend post we emphasized the need to cover our buys with "Disaster Hedges" as we were heading to the tops I had predicted when I published the "Last Charts of the Decade," where I set resistance target of Dow 10,457, S&P 1,135, Nasdaq 2,314, NYSE 7,389 and Russell 638. As you can see, I pretty much hit them on the head, other than the Dow but that’s because our year-old 5% rule calculations did not account for the change in the Dow that replaced C and GM with TRV and CVX, who added about 100 Dow points since their inclusion so we started using 10,549 this month and we’ll make it 10,557 for today’s chart, which makes perfect sense looking at this group (I added the Transports as they are fell right off our 2,000 target, giving us the early warning that things were not right):
As you can see, the 5% Rule rules! I will apologize for being such a grump this week but the rally was really starting to annoy me as it was so blatantly forced up through our levels without a proper test that is was really getting me down about the markets. I don’t mind that the markets are manipulated, that’s been going on since markets were invented – it’s stupid and destructive manipulation that bothers me, the kind that, long term, destroys more investor confidence than it builds and squanders capital resources on the "wrong" companies (and now, ETFs!).
In this case, very precious investor capital is being steered into commodities, which is…
Bull and Bear Energy Views Played Out in XLE Options
by Option Review - August 24th, 2009 4:36 pm
Today’s tickers: XLE, PFE, FRE, GLD, DELL, WLP, LMT & FNM
XLE - Shares of the energy fund are up more than 1% to $52.92. We observed near-term bearishness and medium-term bullishness displayed through options on the ETF today. A ratio put spread initiated in the September contract indicates near-term pessimism by some traders. The transaction involved the purchase of 2,500 puts at the September 52 strike for 1.69 apiece spread against the sale of 5,000 puts at the lower September 48 strike for 55 cents each. The net cost of the trade amounts to 59 cents and yields maximum potential profits to the downside of 3.41 if shares fall to $48.00 by expiration. Bullish sentiment was seen at the December 57 strike where 2,100 calls were coveted for 2.00 apiece. An 11.5% rally in shares to the breakeven price of $59.00 will allow this optimistic energy player to begin to amass profits by expiration in December. – Energy Select Sector SPDR ETF –
PFEA - Short straddle initiated in the pharmaceutical company’s January 2011 contract today suggests far-term bullish sentiment on the stock. Shares of PFE are currently higher by approximately 0.5% to $16.71. The straddle was enacted at the January 20 strike where 15,000 calls were shed for 1.12 apiece and 15,000 puts sold for 4.90 per contract. The gross premium on the transaction amounts to 6.02, and will be fully retained by the straddle-seller if shares settle at $20.00 by expiration. Over the next sixteen months shares must rally about 20% for the trader to bank the full 6.02 premium. If the stock fails to center at $20.00, the investor’s premium will erode down to zero if shares move sufficiently in either direction. Once the entire premium has evaporated, the trader will begin to accrue losses above the breakeven point to the upside at $26.02 or beneath the breakeven point to the downside at $13.98. We note that Pfizer has not traded above $20.00 since May 20, 2008. Nearer-term trades indicate that investors may be bracing for declines in the stock. The October 16 strike price had 4,100 puts picked up for 43 cents apiece while the higher December 17 strike had about 2,400 puts purchased at 1.34 per contract. – Pfizer, Inc. –
FRE - Investors were observed making bullish bets on Freddie today as shares soared higher than 30% at times to a maximum of $2.34. Shares are…
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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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