Cisco Call Options Fly off the Shelves
by Andrew Wilkinson - March 8th, 2010 4:06 pm
Today’s tickers: CSCO, DRYS, CIGX, AES, V, MCD, BIIB, SNE, GME & VALE
CSCO - Cisco Systems, Inc. – Bullish call-buying dominated options trading patterns on Cisco today on news the firm is slated to “make a significant announcement that will forever change the internet and its impact on consumers, businesses and governments.” Cisco’s shares jumped 4.15% to a new 52-week high of $26.25 during the session on a target share price upgrade to $28.00 from $26.00 at JPMorgan Chase & Co. Bullish traders purchased approximately 15,800 in-the-money calls at the March $26 strike for a premium of $0.33 apiece and coveted 9,300 calls at the higher March $27 strike for an average premium of $0.10 each. Uber-bullish individuals bought 4,000 calls at the March $28 strike for just two pennies premium per contract. Investors long the closest-to-the-money March $26 strike calls are positioned to accrue profits if Cisco’s shares trade above $26.33 ahead of expiration day. The surge in demand for options on the stock as well as uncertainty surrounding tomorrow’s announcement lifted the reading of overall options implied volatility on Cisco by 17.5% to 22.85% in afternoon trading.
DRYS - DryShips, Inc. – Dry-bulk shipping company, DryShips, Inc., experienced a short-lived dip in the price of its shares in morning trading, but regained its footing this afternoon, rallying 7.77% to $6.10 with about forty minutes remaining in the session. Call-buying action flooded DRYS today with approximately 22,300 now in-the-money calls picked up at the near-term March $6 strike for an average premium of $0.22 apiece. Nearly 12,000 calls were coveted at the higher March $7 strike for $0.05 premium per contract. Optimism spread to the same strike prices in the April contract, as well. Investors secured roughly 11,600 long in-the-money calls at the April $6 strike for an average premium of $0.39 each. Traders bought another 4,000 call options at the higher April $7 strike for $0.16 per contract. Options traders exchanged more than 130,000 contracts on DryShips during the session, which represents about 27% of total existing open interest on the stock of 480,443 contracts. Options implied volatility jumped approximately 34.8% this afternoon to 60.26%.
CIGX - Star Scientific, Inc. – Shares of the maker of dissolvable smokeless tobacco products surged 6.70% to $1.12 today, inspiring one investor to establish a bullish risk reversal on the stock in the August contract. The trader appears to have sold roughly 7,200 puts at the August…
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Capital One Bears Out in Full Force in Options Land
by Andrew Wilkinson - January 22nd, 2010 4:29 pm
Today’s tickers: COF, CAT, XRT, XLY, XLB, XLF, KRE, BRK.B, MCD & ISRG
COF – Capital One Financial Corp. – Better-than-expected fourth-quarter earnings of $0.83 per share, which blew straight past average analyst estimates of $0.45 a share, failed to shield the stock from the massive beating received during the trading session. Shares plummeted 11% to an intraday low of $38.18 after analysts at FBR Capital Markets slashed their forecast for COF’s earnings. FBR analysts cited “shrinking margins and new U.S. credit-card regulations” as reasons for the reducing earnings estimates according to one Bloomberg article released this morning. Bearish option traders are out in full force, populating both the call and put sides of the stock with pessimistic transactions. Investors purchased put options as low as the February $35 strike where 1,200 contracts were picked up for an average premium of $0.57 apiece. Traders long the puts are perhaps bracing for an additional 9.80% shift down in the price of the underlying to the breakeven point on the puts at $34.43 by expiration next month. Approximately 2,000 nearly in-the-money puts were purchased at the higher February $38 strike price at an average premium of $1.46 apiece. Call selling added to the bearish picture as some 2,100 contracts were shed at the out-of-the-money February $40 strike for a premium of $1.43 per contract. Finally, one trader initiated a pessimistic stance in the January 2012 contract. Perhaps this investor believes today’s turmoil is just the beginning of Capital One’s troubles, or, alternatively, the trader may simply be looking to keep the dollar credit on the following transaction. The trader purchased 1,500 puts at the January 2012 $30 strike for a premium of $4.36 each, spread against the sale of 3,000 puts at the lower January 2012 $25 strike for which he received $2.68 apiece. The investor pockets a net credit of $1.00 per contract on the spread, which he keeps if shares settle above $30.00 by expiration.
CAT – Caterpillar, Inc. – Surprisingly bullish trades befell machinery maker Caterpillar today. CAT’s shares commenced the trading day with higher shares, but slipped lower during the session, and currently reside 1.35% lower on the day at $56.09. Investors expecting shares to recover by expiration in March shed 5,000 in-the-money put options at the March $57.5 strike for an average premium of $3.76 apiece. Open interest at that strike of 5,169 lots suggests this transaction could be a closing…
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Fall Down Friday - Stop the Week, We Want To Get Off!
by Phil - January 22nd, 2010 8:25 am
Boy, when sentiment shifts - it REALLY shifts!
Suddenly nothing is good enough for this market. A beat from GOOG send the stock plummeting, massive earnings at GS sent the stock lower even before Obama read them the riot act (now called the "Volker Rule"). On the one hand, it’s all an overreaction but, on the very large other hand, it’s about freakin’ time this market finally acted normally and pulled back a little because 10,700 was pretty irrational given the underlying fundamentals.
On the whole, we’re loving it as we went to cash last week and played bearish into the drop. Last week I detailed how we had a great time day-trading in both directions and this week we hit it again with our upside DIA play on Wednesday (a 26% winner on the day) and yesterday I sent out a morning Alert to Members at 9:50 saying: "I am for shorting into this morning spike as it’s nonsense, especially this run in the Nas - most likely it will reverse but I’d like to see a clear move back to resistance first. QQQQ $45 puts give you great leverage at .56 and you can use $46.20 on the Qs as a stop out, looking for .70+ on the day." We hit .85 by lunch and pulled it just off the day’s high for a nice 51% gain on the day.
I point this out both to encourage you to subscribe to our Newsletter (all 19,000 subscribers got yesterday’s free Alert) as well as to emphasize that WE DO NOT CARE which way the market goes. Yes, I am very bearish on the short-term economy as I feel we are overbought and due for a correction but I also think we are probably OK over the longer term and we are taking advantage of these dips to pick up some long positions. We are opportunistic players and we are investing along the premise I laid out in my 2010 outlook, which was titled "A Tale of Two Economies" as we see a great divide forming between the top 10% and the companies that service them and the bottom 90% of our population who are in dire straights, as are the companies that rely on selling to the masses to make a living.
For an example of "Rich Company/Poor Company" just look at the earnings of two ends of the Financial Services sector: Goldman Sach beat earnings expectations yesterday by 60% ($8.20 vs. $5.20) while…
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PSW Holiday Shopping Survey
by Phil - December 22nd, 2009 3:40 pm
I finally went to the mall yesterday.
I guess that makes me part of 2 trends. I am one of those last-minute shoppers that finally went out and got done yesterday while Tina bought EVERYTHING on-line this year and I don’t even think she’s waiting for any more shipments at this point. If you get used to cyber-shopping, it’s easy to see why the trend is growing but on-line retail is still nothing more than a speck (5%) on overall retail sales and that’s AFTER being up more than 20% this year.
So I went to the trenches on Saturday, where the real people shop (well, the real, upper-middle class people, anyway) at the Garden State Plaza in Paramus, New Jersey - one of America’s larger and busier malls made even more so on a Saturday because Bergen County has blue laws and retail is closed on Sundays so yesterday was do or die in Paramus with just 3 more shopping days until Christmas.
I took the kids at about 10 am and the first sign of trouble was that we got a pretty good parking spot. On a normal Saturday at the Garden State Plaza, you can’t get a good spot anyway and on a normal Christmas you can expect a half-mile hike from your car to the mall. When I got inside, it was even stranger, there were so few children in the mall that the carousel was empty so my kids jumped right on that as we spend our first dollar of the day. Riding around the carousel I saw something that didn’t cost anything - there was a MSFT XBox demo station set up with very cool driving set-ups with seats and wheels and big screens and full band set-ups for playing Guitar Hero on a little stage and about 6 other game demo areas - right in the middle of that part of the mall AND IT WAS EMPTY.
If nothing else had worried me about Christmas before, that would have been it because who doesn’t want to play free video games on big-screen high-def TVs with all the coolest attachments (they had sports-car seats and a wheel/pedals combo that they said cost $100 (not the seat) and was sold out at Game Stop)? Something was very wrong. Leggo land was also empty so maybe people just didn’t want to bring kids to the mall this weekend but that begs the question why? …
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Testy Tuesday - Things Start To Go Wrong
by Phil - December 8th, 2009 8:29 am
Over 100 people were killed by car bombs in Baghdad at about 3:30 this morning.
That got Europe off in a foul mood this morning and poor earnings guidance from MMM didn’t help, nor did poor Industrial Production numbers out of Germany or new fears that Dubai World will cause massive losses (Nakheel lost $3.65Bn in it’s first half report). Then Moody’s Investors Service said today deteriorating public finances in the U.S. and U.K. may “test the Aaa boundaries” while Fitch Ratings downgraded Greece’s credit grade to BBB+. Ben Bernanke told the Washington Economic Club yesterday that the U.S. economy faces “formidable headwinds” but, on the bright side Japan’s government backed a stimulus package worth 7.2 trillion yen ($81 billion).
Before we know it, futures are off 100 points at 7:30. Hopefully we don’t break below 10,320 at the open as we covered our long DIA puts to that spot, more worried about a bounce up than a market move in our generally bearish direction. We had a very nice day yesterday with our $100K Portfolio already making it’s target $1,000 for the week so locking in the gains seemed prudent but maybe we could have been greedier…
“Central banks and governments around the world are totally right in saying that the recovery is still very weak,” Philippe Gijsels, a senior structured product strategist at Fortis Global Markets in Brussels, said in an interview with Bloomberg Television. “Going into 2010 I would be extremely surprised if we do not see a serious hiccup somewhere.” German industrial output unexpectedly fell for the first time in three months in October, led by a drop in production of energy and investment goods such as machinery. Output decreased 1.8 percent from September, when it advanced 3.1 percent, the Economy Ministry in Berlin said today. Economists forecast a 1 percent gain, off by 280%, according to the median of 38 estimates by "expert" economists in a Bloomberg survey.
Moody’s fingers the U.S. and U.K. among top-rated sovereign borrowers, saying they must prove they can reduce their bulging deficits or risk a downgrade to their AAA credit ratings. Under its most pessimistic scenario, the U.S. could lose its rating in 2013 if economic growth lags, interest rates rise and the government fails to shrink the deficit or recover its loans to the financial sector.
Our 25% lines held yesterday, other than the NYSE, and this morning we should get a proper test of Dow 10,250, S&P 1,100, Nasdaq 2,187, NYSE 7,200 and Russell 600…
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Bank of America Bearish Option Position Closed – Shares Rally
by Andrew Wilkinson - November 5th, 2009 4:33 pm
Today’s tickers: BAC, MCD, ADM, XRT, CVS, STT, PFE, CVS, FSYS & AEO
BAC - Bank of America Corp. – One investor banked profits today by unraveling a massive bearish credit spread established back on October 28, 2009. The trader’s decision to take profits ahead of expiration could be a bullish sign for BAC. Shares are trading up 2% near the end of the trading day to stand at $15.00. The investor originally sold approximately 130,000 calls at the November 16 strike for an average premium of 49 cents apiece, spread against the purchase of the same number of calls at the higher November 17.5 strike for 15 cents each. The trader received a net credit of 34 cents per contract on the transaction. Today, the investor left money on the table by closing out ahead of expiration. It appears he sold the upper strike calls for 4 pennies and bought back the lower strike calls for 19 cents apiece. Net profits received for unraveling the spread amount to 19 cents per contract for a total of $2.47 million. One might interpret such a decision as a bullish signal for BAC because the trader decided to walk away with 19 cents – half of the maximum profit potential of 34 cents. The investor would only have been able to retain the full 34 cents if shares traded beneath $16.00 through expiration day in November.
MCD - McDonald’s Corp. – A bullish risk reversal in the January 2010 contract significantly reduced the price paid by one investor establishing an optimistic stance on the fast-food chain. Shares of MCD are trading 1.5% higher today to $61.20 despite yesterday’s downgrade to ‘hold’ by analysts at EVA Dimensions. The investor sold 13,000 put options at the January 60 strike for an average premium of 1.91 apiece to partially offset the cost of purchasing 13,000 in-the-money calls at the same strike for 2.51 each. The net cost of the reversal amounts to 60 cents per contract.
ADM - Archer Daniels Midland Co. – Food products company, Archer Daniels Midland, jumped onto our ‘most active by options volume’ market scanner this afternoon due to bullish activity in the March 2010 contract. Shares edged 0.5% higher to $32.37 during the trading session after the firm revealed better-than-expected first-quarter profits of 77 cents per share. One investor sold out-of-the-money put options to partially finance the purchase of a bull call spread. The call spread…
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Jobless Thursday - REITs Turn Rotten
by Phil - October 1st, 2009 8:28 am
Look out below!
I warned yesterday that the end of the quarter may well mark the end of Goldman and their Gang of 12’s Global pump job and what better way to pull the rug out from under the markets then for Goldman Sachs themselves to issue a report that warns that REIT valuation seem "stretched" and they are projecting "flat to down 15% returns next year" with concerns that they are "just beginning what could be a multi-year down-cycle."
Other headlined charts (and Zero-Hedge has the full scoop) are:
- Still a long road ahead for a recovery in credit.
- Cap rates to rise substantially.
- Deleveraging process just beginning for the REIT sector
- Despite pipeline reductions, development remains a risk
In other words, all the stuff I’ve been saying for for the last couple of months as they IYR has climbed 50% since July 15th is now the subject of a GS report on Oct 1st. I was fine with the sector rising 20% (IYR $36) but the move to $46 was completely without merit and, as I noted in a post last week, we shorted it there and went very long on SRS (ultra-short on the IYR). In fact, just yesterday, in the morning post, I discussed Friday’s multiple plays on SRS. We also have short positions on BXP and, of course, we’re still overall short on the whole market as a correction in the real estate sector is not going to be an isolated incident.
Fortunately, at PSW, we don’t have to wait for Goldman Sachs to tell us a sector is overvalued because we understand valuations and we practice sound fundamentals - something that is sorely lacking in the larger investing community. There’s a reason REITs usually trade at 10x multiples and it’s the same reason commodity producers usually trade at 10x multiples as well - because the underlying commodity, whether it is land or oil or gold or copper, can fluctuate in price over time and will sometimes spike earnings up and sometimes spike them down so, on the whole, they are WORSE long-term investments than say AAPL, MCD, KO or PG, who tend to steadily grow their business over time and deserve stronger multiples.
When the REITs were trading at 5x earnings in March, we were loading up on them but when they crossed 12x in August, we flipped negative. That’s called buying low and selling high, something GS and their traders (like Cramer - and congrats on that CIT call by the way, Jimbo) don’t get or even worse, maybe they do get it but then they herd their sheep into…
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Tech Back in Demand as Call Buyers Line Up at XLK
by Andrew Wilkinson - September 11th, 2009 4:39 pm
Today’s tickers: XLK, RF, NBR, MCD, KEY, MGM, HBAN & LVS
XLK - The tech-sector exchange-traded fund attracted a hoard of call buyers this afternoon amid a less than 0.5% decline in shares during the session to $20.62. Traders expecting upward momentum in the price of the stock looked to the December 22 strike price where approximately 35,000 call options were purchased for an average premium of 43 cents per contract. Investors will turn a profit on the calls if shares of the XLK rise 9% from the current level to surpass the breakeven price of $22.43 by expiration in December. – Technology Select Sector SPDR –
RF - Investors exhibited near-term bearish sentiment on RF today by piling into put options on the stock. Shares of Regions Financial have slipped 1% lower today to stand at the current price of $5.54. The heaviest volume was observed at the September 5.0 strike where about 31,000 puts look to have been purchased for an average premium of 11 cents apiece. More pessimistic traders looked to the lower October 4.0 strike to get long of 3,100 puts valued at 10 cents per contract. Perhaps traders exhibiting such behavior are long shares of the underlying stock. If this is the case, the put action was inspired by traders seeking downside protection through expiration next Friday and through October’s expiration day. – Regions Financial –
NBR The largest onshore drilling firm edged onto our ‘hot by options volume’ market scanner today due to call action in the October contract. Investors were apparently not discouraged from taking bullish stances on the stock even though shares are currently lower by about 1% to $18.84. Approximately 6,000 calls were coveted at the October 20 strike for an average premium of 95 cents apiece. Traders long the calls are hoping to see shares rally about 11% higher by expiration so that they may begin to garner profits above the breakeven point at $20.95. – Nabors Industries Limited –
MCD - Traders hungry for calls – or perhaps a Big Mac – placed bullish bets on the golden arches using options despite a 1% decline in the price of its shares to $54.36. Nearer-term optimism was observed at the October 60 strike where approximately 4,500 calls were pocketed for an average premium of 12 cents per contract. Perhaps the continued rise in unemployment has helped fuel bullish sentiment on the fast food chain. McDonald’s, which…
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$5,000 Portfolio Update - Week 3 - $5,598
by Phil - July 25th, 2009 8:25 am
We’re up 12% in 3 weeks - not bad…
The goal of the $5,000 portfolio is to play around the volatility of earnings and make no mistake, it’s a high-risk way to trade $5,000 and is meant to be a small portion of a large portfolio - not something you would want to do with your only $5,000. Of course the usual disclaimer is, this is a virtual portfolio, don’t try this at home, trading is dangerous, always consult a professional financial adviser, etc, etc. The idea is to practice different option strategies and we’re having a a very exciting first few weeks!
Our first play 4 plays that we closed were on AA, DIA, SGR, MCD and DELL, which had a total gain of $629 in our first 6 days. For details on those trades, go to the Day 6 post. We have been posting all of the moves for the $5KP in member chat, of course, but also on Seeking Alpha’s Stock Talk, where we have discovered the added bonus that, like Twitter, you do not have to refresh the page to see new comments! If you want to follow these trades, just click on "Follow" under my picture and you will automatically see any comments made there.
On Wednesday, we also had an open a ratio backspread play on YUM and we sold 6 Aug $37 calls for $1.15 ($690) and bought 4 Aug $35 calls for $2.20 ($880). The idea of a trade like this into earnings is that a large drop will hurt your callers more than it hurts you and, to the upside, you have net $800 in the net $190 spread before you have to pay your 2 open callers a penny. That means they would each have to go up $3 before wiping out your profits. Since YUM was at $36 at the time and we did not feel it would be likely to go to $40, even on great earnings, the play made sense. YUM had very poor earnings and dropped right down to $34, below our strike. We decided to buy back the 6 Aug $37 calls for .40 ($240), so a gain of $450 on that leg. That left us with the 4 naked Aug $35 puts, which we paid $880 for, less the $450 gains so we are in those 4 calls for an average of $1.13 per contract. We have since doubled down that position at .40 leaving us with 8 at an average entry of .77 per contract. Currently, they are trading at .50 so we are down $216 on this…
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600-Point Weekly Wrap-Up: Selling High
by Phil - July 19th, 2009 12:01 pm
Holy cow, what a week!
It is hard to believe that last weekend I wrote: "You can hardly find anyone who doesn’t think we’re going back to the March lows. I stand by my statement to Members in yesterday morning’s Alert where I said: "It’s ridiculous for the Dow to go back to 7,500 and ridiculous for the S&P to go back to 800. While it’s easy to make squiggly lines on a chart show 10% drops ahead (which seems like a normal 50% retrace of the gains overall) I just think it’s dead wrong from a valuation perspective so I’m not inclined to play it, especially when those valuations are about to slap you in the face over the next few weeks. Maybe I’m wrong and maybe earnings will suck and Q2 will be a miss and guidance will be lower but right now I say - Show me the misses."
Here we are, just 7 days later and I found myself writing an article about the ridiculous media cheerleading that went on last week. How did the MSM go from 100% bearish to 100% bullish at the stoke of Monday? Well, according to Cramer, it was Whitney, Whitney, Whitney and the logic seems to be that, since she called the problems in the financials early on, she MUST be right by calling an end to the problems now. Of course what Whitney actually said was the banks should have a good quarter as the government pushes for massive mortgage refinancing (all those 1% fees really add up!) and she also said she sees unemployment shooting up another 35% to 13% or higher but hey - at least she said something positive about the banks and that’s all the media needed to hear to tear up the previous week’s entire playbook and switch sides so completely, you have to review the tape just to be sure we didn’t imagine the whole doomed, "head and shoulders" outlook of the week before.
What did I have to say about all this nonsense last weekend? I was emphatic, and I’m usually not, and I said for those who would listen: "So here we are, back at the bottom of the trading range I predicted back in March and even as far back as November, when I said that, based on the fundamentals the crash should settle out at Dow 8,650." I need to be clear about this so you…
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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
(