by Option Review - March 15th, 2010 4:10 pm
Today’s tickers: FO, STJ, XLB, BSX, BIDU, VRSN & MNKD
FO – Fortune Brands, Inc. – Shares of the holding company with subsidiaries such as Beam Global Spirits & Wine, Inc., which manufactures Jim Beam whiskey and Maker’s Mark, and Acushnet Company, the producer of Titleist golf products, rallied 2.35% during the session to reach a new 52-week high of $48.45. The increase in Fortune’s share price inspired bullish options trading on the stock today. Approximately 1,000 calls were picked up at the April $50 strike for an average premium of $0.66 apiece. But, the real action took place at the June $50 strike where nearly 15,500 calls were purchased for an average premium of $1.68 per contract. Investors holding the June $50 strike call options stand ready to amass profits only if Fortune Brands’ shares rally another 6.65% from the current day’s price to breach the breakeven point on the calls at $51.68 by expiration day in June.
STJ – St. Jude Medical, Inc. – The manufacturer of cardiovascular medical devices experienced a sharp 8.45% rally in its share price today to $40.67 on news its rival, Boston Scientific Corp., suspended sales of its implantable heart defibrillator this morning. Options players initiated bullish transactions on the stock by selling 2,100 puts at the March $40 strike for an average premium of $0.60 apiece. Put-sellers keep the $0.60 premium per contract as long as St. Jude’s shares trade above $40.00 through expiration on Friday. However, put-players are obliged to have shares of the underlying stock put to them at an effective price of $39.40 each should the put options land in-the-money at expiration. Optimistic investors scooped up 3,100 call options at the July $45 strike by paying an average premium of $0.77 per contract. Call-coveters are positioned to profit only if shares rally another 12.5% from the current price to breach the breakeven share price at $45.77 by expiration day in July.
XLB – Materials Select Sector SPDR – Shares of the XLB, an exchange-traded fund that tracks the performance of the materials economic sector of the S&P Composite Stock Index, declined 0.30% today to $33.19. Trading in long-dated options on the fund, however, suggests one individual is bullish on the sector through expiration in January 2011. It appears the investor sold 10,000 put options outright at the January 2011 $27 strike for a premium of $1.32 per contract. The…
by Option Review - January 15th, 2010 4:21 pm
Today’s tickers: JPM, MNKD, CHK, BIDU, PFE, FXE, AA, SHFL, IBB & INTC
JPM – JPMorgan Chase & Co. – Profit-taking measures employed on the banking institution today show keen foresight by one investor who walked away from the table today with a nice chunk of change in his pocket. Shares of JPMorgan are currently trading 1.80% lower this afternoon to $43.89 even though the firm posted fourth-quarter earnings of $0.40 per share, which exceeded average analyst expectations by a margin of $0.13 a share. It looks like the investor banked gains on a previously established short put position in the February contract today by buying back the contracts at a discounted premium. The trader originally sold 20,000 puts at the February $42 strike for an average premium of $1.02 per contract this past Wednesday January 13, 2010. Today the same individual appears to have purchased-to-close the position by paying a lesser premium of $0.67 per contract. Net proceeds on the transaction amount to $0.35 apiece. The decline in shares of the underlying today certainly cut into the trader’s available profit, but the significant reduction in option implied volatility perhaps benefited the investor by weighing down option premiums. Option implied is 17.94% lower to stand at 25.13% – the lowest level since October of 2007 – as of 2:45 pm (EDT).
MNKD – MannKind Corp. – Shares of the biopharmaceutical company increased 7% in the first half of the trading day, but reversed direction in afternoon trading, falling 2.5% to stand at $10.10. Options activity in the May contract indicates lower volatility in the price of the underlying through expiration. It appears one investor initiated a short straddle play on the stock by selling 5,000 calls at the May $10 strike for a premium of $2.41 apiece, in combination with the sale of 5,000 puts at the same strike for $3.22 each. The straddle-seller pockets a gross premium of $5.63 per contract, which he keeps if MNKD’s shares settle at $10.00 by expiration. The transaction could be the work of an investor selling volatility. Implied volatility is currently up 8.4% to 122.16% with 90 minutes remaining in the session. The investor need not hold the short straddle through expiration in order to profit. Perhaps the trader is looking for a reduction in option implied volatility, which would likely result in lower premiums on both the calls and the puts. Lower…
by Option Review - December 22nd, 2009 4:30 pm
Today’s tickers: MNKD, SKX, FXI, SBUX, VIX, ACOR, NFLX, AMR & UAUA
MNKD – Mannkind Corp. – Stop, hey, what’s that sound? Everybody look what’s going down…We reported bearish options activity on biopharmaceutical company, MannKind Corp., yesterday as investors shed call options and enacted pessimistic plays on the stock. Lo-and-behold, MannKind’s shares plummeted today, falling 20% at times during the trading session to an intraday low of $7.52. News that its inhaled insulin drug, Afresa, could encounter delays at the U.S. Food and Drug Administration incensed investor uncertainty regarding the fate of MNKD’s share price. Option implied volatility jumped 43.61% during the trading day from an intraday low of 116.96% up to the current reading of 167.97%. Frenzied bearish option traders populating the stock today are probably kicking themselves for not acting 24 hour earlier. One investor initiated a put spread today by purchasing 2,000 puts at the February 7.5 strike for an average premium of 1.79 apiece, spread against the sale of 2,000 puts at the lower February 5.0 strike for 64 cents premium each. The net cost of the transaction amounts to 1.15 per contract. Call selling is apparent at the February 10 strike where 1,300 calls sold for 1.21 each. Investors shed 1,200 calls at the higher February 12.5 strike to take in 73 cents premium per contract. Finally, a bearish risk reversal graced the May 2010 contract. It looks like one trader sold 1,250 calls at the May 10 strike for 2.15 apiece in order to partially finance the purchase of the same number of put options at the May 7.5 strike for 3.30 each. The net cost of the put options amounts to 1.15 per contract and yields profits to the downside beneath the breakeven point at $6.35. MNKD’s shares must fall at least 15.5% from today’s low of $7.52 before the investor responsible for the reversal play breaks even on the trade.
SKX – Sketchers USA, Inc. – Fashion footwear manufacturer, Sketchers, received a vote of confidence by one option trader today who initiated a bullish risk reversal in the February contract. The investor implemented the optimistic strategy despite the 0.5% decline in SKX shares to $28.60. It looks like the trader sold 1,800 in-the-money puts at the February 30 strike for 3.00 apiece in order to finance the purchase of 1,800 out-of-the-money calls at the same strike for 2.00 each. The investor receives…
by Option Review - December 21st, 2009 4:04 pm
Today’s tickers: CAT, EEM, CHK, AAPL, AA, UUP, MNKD, LVLT, CHTT, WTR & WAG
CAT – Caterpillar, Inc. – Near-term bullish options trading on the machinery manufacturer today suggests some investors are positioning for a rally in CAT shares by expiration day in January 2010. The stock edged 0.75% higher during the trading session to $57.56. One investor initiated a bullish risk reversal on Caterpillar by selling 6,000 puts at the January 55 strike for a premium of 95 cents each, spread against the purchase of 6,000 calls at the now in-the-money January 57.5 strike for 1.67 apiece. The net cost of the reversal play amounts to 72 cents per contract. The investor accumulates profits on the transaction if CAT’s shares rally above the breakeven price of $58.22 by expiration.
EEM – iShares MSCI Emerging Markets Index ETF – Shares of the emerging markets exchange-traded fund increased 0.10% today to $40.41. Option traders established long-term bullish and long-term bearish positions in the January 2012 contract during the session. A bullish risk reversal took place at the January 2012 40 strike where one trader sold 6,500 puts for 7.80 apiece to buy 6,500 calls for 7.50 each. The optimistic investor pockets a net credit of 30 cents per contract on the transaction. The full 30 cent credit is safe in the trader’s piggy bank if shares of the EEM trade at or above $40.00 through expiration in two years. The investor is positioned to accrue additional profits as shares increase above $40.00. The other transaction observed in the January 2012 contract appears to be bearish. The trade involved the sale of 10,000 calls at the January 2012 45 strike for a premium of 5.30 each, marked against the purchase of 5,000 puts at the January 2012 35 strike for 5.50 each. The investor takes in a net credit of 5.10 per contract due to the 2-to-1 ratio of calls sold to puts purchased. EEM’s shares must trade below $45.00 in order for the investor to keep the 5.10 credit.
CHK – Chesapeake Energy Corp. – Natural gas and oil exploration and production company, Chesapeake Energy Corp., experienced a 1.75% rally in the price of its shares to stand at $26.52 in afternoon trading. Some investors are anticipating a significantly higher share price for CHK by expiration in July 2010. Chesapeake-bulls bought roughly 4,000 calls at the July 30 strike for an…
by phil - November 2nd, 2009 8:24 am
Here’s a scary chart pattern for you from our Chart School:
Elliot Wave Trends points out that the S&P has fallen into a fractal patten that may be repeating the behavior of the great drop of ’08, right here, right now. Of course patterns do SEEM to repeat themselves all the time – until they don’t – but it will be interesting this week and next to see if we follow-through with a flatline, followed by a drop to 1,000 from which we falsely back to 1,050 and then plunge to our doom as Santa foresakes us and we run all the way back down to our lows.
That’s where they lose me. Charts are fun and all but I see no basis for going back to our lows as our lows were ridiculous and caused by panic-selling in a doomsday scenario. Hard to imagine things will fall apart that badly between now and Jan earnings although I do believe we will have a rough time — just not that rough!
Barron’s surveyed Money Managers this weekend and they don’t seem to think things will be rough at all. 52% of those surveyed think there is NO WAY we will have a double dip recession. 76% believe that the decline in corporate profits has ended and 68% believe our GDP wil grow more than 2.5% in Q4 while just 10% believe it is possible for commodity pricing to fall in the next 6 months. You know what they say about when everyone is on the same side of a bet of course!
These are the people we give our money to – the biggest and "brightest" of hedge fund managers who control over $1Tn of assets under management. Favorite stocks in the group are: MSFT, ABT, BAC, BRK.A, CVS, GE, GS, LEG and QCOM. Stocks that are considered overvalued are: AIG, AAPL, GOOG, CAT, AMZN, C, GE, GMCR, VZ and YHOO. Ony 7% think Asian stocks are heading lowed, just 1% less than 8% who feel oil is going down; 92% don’t feel oil will go down.
Everybody likes Tech (just 0.9% think it will be the worst performing sector) and nobody likes the Financials (22.5% think it will be the worst performing sector) followed by Consumer Cyclicals (20.7%) and, oddly, Utilities (15.3%). The sectors picked as the best performers for the next 6-12 months are Tech (18.9%), Energy (17.1%) and Health Care (17.1%). Only…
by phil - June 8th, 2009 6:04 pm
Today’s tickers: UNH, USO, MNKD, POT, X, MCD, PALM, S & JPM
UNH – The diversified health and well-being company has experienced a share price decline of 3.5% to $26.12. Despite the erosion in the price of the stock today we noticed a bullish play in the July contract. One investor looks to have sold 10,000 puts at the July 24 strike price for a premium of a dollar apiece in order to finance the purchase of 10,000 calls at the higher July 27 strike for 1.36 each. The net cost of the transaction amounts to 36 cents and yields a breakeven point at $27.36. In order to profit by expiration, shares of UNH would need to rally by approximately 5%. – UnitedHealth Group, Inc.
USO – Shares have remained relatively flat today at $37.37 and we observed a mixture of bullish and bearish plays on the fund. Bullishness came in the form of a calendar spread initiated by one investor looking for significant upside on the stock by expiration in October. The spread involved the sale of 10,000 calls at the in-the-money July 37 strike price for 2.45 apiece against the purchase of 10,000 calls at the higher October 42 strike for 2.25 per contract. The trader looks to have originally bought the calls at the July 37 strike on May 28th for an average premium of 1.90 each. Today he reeled in profits of 55 cents by selling the calls for 2.45. He was effectively able to reduce the cost of rolling his position forward to the October 42 strike to just 1.70 apiece. This individual will amass profits on the bullish stance if shares can rally 17% to the breakeven point at $43.70 by expiration. In contrast to such medium-term bullishness, another trader took a bearish stance in the nearer-term July contract. This individual looks to have sold 2,000 calls at the July 38 strike price for 1.85 each in order to purchase 2,000 puts at the same July 38 strike for a premium of 2.50. The net cost of shedding calls to get long of puts amounts to 65 cents and yields a breakeven point to the downside at $37.35. Shares of the USO would need to fall more than 2 cents from the current price in order for this bear to begin to amass profits on the reversal. – United States Oil Fund LP…