Bullish Options Play Constructed On Manulife Financial
by Option Review - January 20th, 2012 2:04 pm
Today’s tickers: MFC, MDVN & MOS
MFC - Manulife Financial Corp. – The single largest options trade on Canadian life insurer Manulife Financial Corp. suggests one strategist is positioning for the price of the underlying to potentially post double-digit gains in the first half of the year. Shares in MFC currently trade 1.6% higher on the day at $12.36. The stock rose around 6.0% this week, helped higher in part by speculation and rumors the financial services may be interested in acquiring ING’s Asian and European insurance and investment management businesses. ING last week announced it hired J.P. Morgan and Goldman Sachs to explore a sale of the units. Takeover chatter aside, Manulife’s shares have moved up sharply in 2012, rising nearly 20.0% in the three weeks elapsed since the year began. One options trader looking further gains in the stock through June expiration initiated a bull call spread today. It appears the investor purchased a 7,500-lot June $13/$16 call spread for a net premium outlay of $0.80 per contract. Profits are available on the spread if Manulife’s shares rally another 11.7% to surpass the average breakeven price of $13.80, while maximum potential profits of $2.20 per contract require a nearly 30.0% upward move in the stock to or above $16.00 by June expiration. MFC is scheduled to report fourth-quarter results ahead of the opening bell on February 9.
MDVN - Medivation, Inc. – The San Francisco, California-based biopharmaceutical company popped up on our market scanners this morning after a sizable position was initiated in February contract call and put options. Shares in Medivation are off slightly today, down 0.50% at $51.97 as of 12:10 p.m. ET, adding to declines realized earlier in the trading week. The stock has dipped 8.0% since…
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DiggAbercrombie & Fitch Puts Pop As Shares Tumble
by Option Review - November 3rd, 2011 1:42 pm
Today’s tickers: ANF, XRT & MDVN
ANF - Abercrombie & Fitch Co. – Bearish positioning in Abercrombie & Fitch Co. options this morning suggests the stock, which dropped the most in more than a decade, may continue to unravel in the final months of 2011. Shares in ANF plunged 22.5% to $57.33 after the retailer said sales at its European flagship stores fell last quarter, indicating turmoil in the region is hitting the clothing and accessories seller where it hurts. Abercrombie reports third-quarter earnings ahead of the open on November 16. Options traders positioning for shares in ANF to extend losses in the near term snapped up deep out-of-the-money put options in the November contract. Investors purchased around 675 puts at the Nov. $45 strike for an average premium of $0.11 each, purchased another 730 puts at the Nov. $48 strike at an average premium of $0.28 apiece, and bought around 500 put options for an average premium of $0.38 per contract at the Nov. $50 strike. Bears prepared to profit in the event that shares tumble more than 10.0% off their lowest point today within the next couple of weeks picked up roughly 800 put options at the Nov. $50 strike for an average premium of $0.57 each. Buyers of the Nov. $50 put profit at expiration in the event that ANF’s shares drop 13.8% to breach the breakeven price of $49.43. Finally, call selling at the Nov. $60 strike suggests some investors doubt Abercrombie’s shares will rebound above that level by expiration day. It looks like traders sold some 1,440 calls at that strike to pocket premium of $2.95 per contract. Call sellers keep the full amount of premium received as long as the contracts expire worthless at expiration.
XRT - SPDR S&P Retail ETF – The put ‘fly spread is the largest transaction in options covering the Retail SPDR, for a third straight session. It looks like the same investor responsible for large bearish prints in XRT put options on Tuesday and Wednesday, is today purchasing the Nov. $43/$47/$51 put butterfly spread for an average net premium of $0.64 per contract. The strategist augmented the position, buying 25,000 puts at Nov. $43 and $51 strikes, and selling 50,000 puts at the central Nov. $47 strike, all for a net premium outlay of $0.64 apiece. The aim of the trade is the same, though the breakeven points are slightly different. The spread…
VIX-Investor Enacts Ratio Call Spread on Fear-Gauge
by Option Review - March 3rd, 2010 4:13 pm
Today’s tickers: VIX, JPM, PEP, MDVN, TEX, EWZ, COST, RSH, AMAG & TIVO
VIX – CBOE Volatility index – The fear-gauge spent the better portion of the session in the red, but edged higher in late-afternoon trading to stand up 1.20% to 19.29. Options players busily populated the VIX with a number of interesting trades during the session. One transaction in particular, however, focused our attention on activity in the May contract. A hefty ratio call spread involving a total of 30,000 call options at deeply out-of-the-money strike prices was established on the VIX today. The investor purchased 10,000 calls at the May 27.5 strike for a premium of $1.50 apiece, and sold 20,000 calls at the higher May 35 strike for $0.70 each. The net cost of the transaction is reduced to just $0.10 per contract. It is possible the investor was motivated to put on the spread because of the low cost of the trade and because of the allure of potential profits going forward. The trader appears to believe the VIX will likely breach the breakeven point on the spread at 27.60 in the next three months to expiration, but doubts the fear-gauge will explode up to the mid-30’s. Evidence to support such a scenario is abundant. First, the investor can almost taste victory because the VIX traded as high as 29.22 on February 5, 2010, which is well above the point at which he garners profits. Second, losses above and beyond the premium paid to initiate the trade seem unlikely because the Index failed to rise above 30 since early November of last year. The resistance of the volatility index at the 30-level persisted despite the drop in global markets after China waved the fear-flag by announcing plans to rein in its country’s economic growth at the end of January. Additionally, angst regarding Europe’s debt crisis and threats to the strength of the Euro were also unable to boost the VIX up above 30. The ratio call spread described above looks to be a relatively cheap way to profit from another bout of market turmoil or jump in investor uncertainty ahead of May expiration. We note that the index must rally at least 43% from its current level before the investor breaks even on the transaction at 27.60.
JPM – JPMorgan Chase & Co. – The banking institution’s shares surrendered intraday gains of about 1% over…
Presenting For The SEC’s Enforcement Pleasure: $21 Million In Medivation Insider Trading Profits
by ilene - March 3rd, 2010 12:33 pm
Presenting For The SEC’s Enforcement Pleasure: $21 Million In Medivation Insider Trading Profits
Courtesy of Tyler Durden
Medivation shares are not doing too hot: apparently if your core Alzheimer’s drug (developed in collaboration with Pfizer) ends up being a failure, your stock drops by almost 70%.
Pity, because that drug may have been useful to everyone else buying the broader stock market with the hope they won’t eventually suffer the same fate. Yet what is notable is that this information, which hit Business Wire at 7:30 am Eastern, was apparently good enough for someone to make a huge bet on a stock plunge just before the market closed yesterday, at 3:59pm to be specific, and to make almost $21 million on inside information.
Below, you can see the actual trades in MDVN April $40 puts, which amounted to nearly 16,000 in three unique trade blocks of 500, 4750 and 9850, just before the bell rang, at a price of $14/put.
Here is how the volume of this particular put has looked recently.
This class of puts now trades at about $27, meaning a profit of $13 per share, also meaning a total profit of 16,000*$13*100, or about $21 million.
SEC, take it away. Oh wait, we forget that most of your staffers are engaged in not policing this kind of behaviour, but looking at transvestite pornography. Oh well, we tried.
With kind gratitude to @Olivertse who first noticed this now perfectly acceptable market behavior.
Options Trader Constructs Bullish Risk Reversal on SandRidge Energy, Inc.
by Option Review - February 22nd, 2010 4:20 pm
Today’s tickers: SD, DTV, YHOO, SLXP, MDVN, PDCO, XLE, LOW, AIG & CA
SD – SandRidge Energy, Inc. – A bullish risk reversal on natural gas and oil exploration and development company, SandRidge Energy, Inc., suggests one investor may be positioning for a rally in the value of the underlying shares by expiration in June. SandRidge’s shares slipped 0.50% during the session to stand at $8.52. The trader sold 10,000 put options at the June $7.5 strike for an average premium of $0.53 apiece in order to offset the cost of buying 10,000 calls at the higher June $9.0 strike for $0.90 each. The net cost of the reversal play amounts to $0.37 per contract. Shares of the energy firm must rally approximately 10% over the current day’s price in order for the trader to break even on the transaction at $9.37. Profits are available to the upside beyond the breakeven point at $9.37 through expiration day in June.
DTV – The DIRECTV Group, Inc. – Investors sold strangles on the subscription television services company today amidst a 0.55% rally in the price of the underlying stock to $33.83. The use of the short strangle strategy implies traders anticipate reduced volatility in the price of DTV shares and expect the share price to remain range-bound through expiration in June. Throughout the trading session options traders sold approximately 15,000 calls at the June $35 strike for an average premium of $1.77 apiece in combination with the sale of 15,000 puts at the lower June $30 strike for a premium of $0.78 each. Strangle-sellers pocket a gross premium of $2.55 per contract, which they keep if Directv’s share price trades within the range of $30.00 to $35.00 through expiration. The premium received on the transaction provides limited protection against losses should DTV’s shares swing outside of the strike prices described. Stranglers accumulate losses if shares of Directv trade above the upper breakeven price of $37.55, or if shares decline beneath the lower breakeven point at $27.45, by expiration day.
YHOO – Yahoo!, Inc. – The slight 0.15% decline in the price of Yahoo’s shares to $15.55 today did not some options traders from establishing bullish stances on the stock. One individual initiated a bullish risk reversal to position for a rebound in shares by expiration in January of 2011. The investor sold 15,000 put options at the January 2011 $15 strike for…
Trucking Put Options Drop Despite Slip in Shares at YRC Worldwide
by Option Review - December 31st, 2009 4:44 pm
Today’s tickers: YRCW, NOK & MDVN
YRCW – YRC Worldwide – I was a little skeptical yesterday of the extreme pessimism that depicted the predictions from the options market surrounding the fate of trucking giant, YRC Worldwide. Investors stepped up to buy huge amounts of put options at the 50 cent strike price that expire next month. With shares at that time trading at $1.00 the huge premium represents a rather expensive 50% layout on an event far from certain. The event is not necessarily the bankruptcy of the company itself, rather it’s the potential for the investor to make money from the trade. Investors would do well to look back at the actual trading price of stocks that go into bankruptcy. Shares don’t always go to zero and they can stay above 50 cents even upon entering a Chapter 11 filing. While today’s news of a debt-for-equity swap provides a reprieve from a filing now, investors continue to ditch the stock, which is today trading at 82 cents. However, those same put options at the 50 cent strike have fallen heavily to 35 cents offered today because the uncertainty surrounding the outcome is perceived to be lower. In the options world, we call that reading implied volatility. Today it’s fallen massively from 291% to 188% at the 50 cent strike.
NOK – Nokia Corp. ADR – Looks like an investor is either unwinding a implanting a call option spread on Finnish cell phone maker, Nokia, whose shares have traded between $12.85 and $12.97 this morning. It appears that open interest at both of the February $14 and $15 strikes took off yesterday with both reading around 35,000 lots today. Further bullish volume saw investors buy the lower strike calls at 28 cents and sell the higher $15 strike for about 9 cents. The net cost of the spread at 19 cents means that a surge of 15.6% in Nokia’s shares to $15.00 would maximize investors’ gains at 81 cents per contract. Volume today is 18,000 lots at each strike price. Shares have not traded above the $14.19 breakeven point since they slumped on October 14, 2009.
MDVN – Medivation Inc. – Shares of the biopharmaceutical company have risen at a 45 degree angle since October rising from $25 to almost $40 each this week. The company develops drugs for diseases with limited treatments including Alzheimer’s and Huntington’s disease. One…
Werner Enterprises Sees Bearish Activity
by Option Review - October 22nd, 2009 4:35 pm
Today’s tickers: WERN, MDVN, GT, XRX, SLE, AMGN, ESI, EBAY, FFIV & SLE
WERN – Werner Enterprises, Inc. – The truckload freight services firm edged onto our ‘hot by options volume’ market scanner due to bearish trading in the June contract. Shares of WERN slipped 0.5% lower this afternoon to $20.22. One investor initiated a ratio put spread by purchasing 6,000 put options at the June 20 strike for 2.25 apiece, and by simultaneously selling 12,000 puts at the lower June 17.5 strike for 1.10 each. The net cost of the trade is reduced to just one nickel per contract. The trader is probably aiming to protect the value of a long position in shares of WERN through expiration. Downside protection will kick in if shares decline more than 27 cents from the current price given the effective breakeven point on the trade at $19.95.
MDVN – Medivation, Inc. – Long-term bearish activity in the June 2010 contract suggests one investor may be bulking up on downside protection in case shares of biopharmaceutical company, Medivation, Inc., continue to decline. The stock is currently trading less than 0.5% lower to stand at $26.51. A put spread was established through the purchase of 10,000 puts at the June 22.5 strike for 7.80 apiece, marked against the sale of 10,000 puts at the lower June 12.5 strike for 1.87 each. The net cost of the pessimistic play amounts to 5.93 per contract. The spread was most likely initiated by an investor holding a long position in the underlying shares. Putting on the protective stance shields the investor from losses beneath the breakeven point at $16.57. However, if the trader is in fact long the stock, he will suffer a 38% decline in the value of MDVN before downside protection kicks in at the breakeven price described. An alternate scenario is that the investor does not hold a long position in MDVN. If this is the case, the trader is uber-bearish and expects to garner profits from significant declines in Medivation through expiration in June.
GT – The Goodyear Tire & Rubber Co. – Option traders populated the November contract on GT with bullish plays this afternoon. Shares added more than 2.5% during the session to arrive at the current price of $17.83. Some investors targeted the now in-the-money November 17.5 strike to purchase 3,800 calls for an average premium of one dollar apiece.…
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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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