by Option Review - May 11th, 2015 12:56 pm
From our friends at Interactive Brokers
Delta calls active as spread play indicates further bullish move
By Andrew Wilkinson
Overall option volume on Delta Air Lines Inc. (Ticker: DAL) by 11:45am ET on Monday of 50,000 contracts is already in line with the typical 10-day average reading. The stock is trading higher at $46.63 (+1.00%) and stands in the middle of a $10.00 range tracked during the past three months. Implied volatility on its options is about 2.5% higher at 31.4%. Much of today’s option activity results from a call spread involving 10,000 contracts at the 48.0 strike expiring in September, while the opposing leg involved the same-size sale at the 55.0 strike. At the individual strike prices it appears that implied volatility is slightly higher on the nearby strike and lower at the higher strike. The 7-point wide call spread appears to have taken place shortly after the market opened and at a net premium of $2.07. From the Strategy Performance Graph below we can see the turning points associated with the transaction. The breakeven for the trade expiring in 130-days is $50.07 while the maximum profit would occur should Delta’s share price reach $55.00, at which point the investor stands to max out the gain of $4.93 per contract.
Chart – Strategy performance plot for September 48/55 call spread
Ralph Lauren Put Options In Play Ahead Of Earnings
By Caitlin Duffy
Ralph Lauren shares are on the rise ahead of the company’s fourth-quarter earnings report on Wednesday. RL is up roughly $0.60 or 0.45% Monday morning to trade at $135.00, but the stock has had a rough first half of 2015, with shares down nearly 30% since reaching a 52-week high of $187.49 back on December 31, 2014. A ratio put spread initiated on the stock this morning suggests one trader may be positioning for shares to dip following the quarterly report midweek. It looks like the trader purchased 1,000 of the May 130.0 strike puts at a premium of $2.15 each and sold 2,000 of the May 125.0 strike puts at a premium of $0.85 apiece. Net premium paid for the position amounts to $0.45 per contract. The spread makes money in the event that shares in Ralph Lauren…
by Option Review - July 16th, 2012 2:05 pm
Today’s tickers: RL, ALNY & SFD
RL - Ralph Lauren Corp. – A spate of call buying initiated in retailer, Ralph Lauren Corp., in the first hour of the trading session this morning suggests one or more traders are positioning for a short-term bounce in the price of the underlying shares. The stock opened Monday in negative territory following the release of weaker-than-expected retail sales data, but has since recovered to stand 0.35% higher on the day at $141.48 as of 12:40 p.m. in New York. Ralph Lauren options are most active at the July $145 strike where upwards of 5,900 calls changed hands against open interest of just 461 contracts. It looks like most of the calls were purchased for an average premium of $0.40 apiece, including a block of 3,337 calls; the single-largest print in RL options so far today. The contracts may be profitable at expiration in the event Ralph Lauren shares tack on 2.8% to top the breakeven price of $145.40.
ALNY - Alnylam Pharmaceuticals, Inc. – Shares in Alnylam surged 40% to a two-year high of $17.54 today after the biotechnology company announced positive clinical data from a Phase I trial with ALN-TTR02. The results, which can be reviewed in a press release issued by Alnylam this morning, and subsequent spike in the share price appears to have garnered interest in upside call options on the stock. It looks like traders snapped up around 500 of the July $15 strike call for an average premium of $0.76 apiece earlier in the session. Intraday price action now sees those calls trading for more than three times that amount, with the bid/ask spread on the contracts up at $2.55/$2.80 as of 1:05 p.m. in New York. Calls are also in play at the July $17.5 strike where 700 contracts changed hands versus zero open positions. Early-birds stepped in this morning to buy around 150 of the calls for an average premium of $0.12…
by Option Review - March 19th, 2012 1:39 pm
Today’s tickers: LVS, RL & C
LVS - Las Vegas Sands Corp. – Shares in the resort casino operator are off to the races today, trading up 5.25% this afternoon at $59.56, after the Company said it will open its new 13.7 million square foot integrated resort, Sands Cotai Central, on April 11. Options traders expecting the shares to continue to hit fresh multi-year highs during the next four trading sessions snapped up weekly call options. The Mar. ’23 $60 strike calls attracted the most action, with nearly 6,000 contracts in play so far today against open interest of 760 positions. It looks like the majority of the calls were purchased for an average premium of $0.32 apiece, thus preparing buyers to profit in the event that shares in Las Vegas Sands rally another 1.3% to top the average breakeven price of $60.32 at expiration. LVS executives are scheduled to present at the J.P. Morgan 2012 Gaming, Lodging, Restaurant and Leisure Management Access Forum in Las Vegas this afternoon at around 2:15 p.m. ET.
RL - Ralph Lauren Corp. – Near-term bearish or perhaps protective positioning in Ralph Lauren put options this morning suggests one trader is prepared for shares in the retailer of high-end apparel and home goods to decline in the next five weeks. Shares in RL currently trade 1.15% lower on the session at $175.70 as of 11:30 a.m. in New York. It looks like the trader purchased a roughly 2,600-lot April $165/$175 put spread at a net premium of $3.00 per contract. The spread may be an outright bearish bet on Ralph Lauren’s near-term share price performance, or could be a protective stance to secure the value of a long position in the stock. Profits, or downside protection, kick in if RL’s shares decline…
by Option Review - September 14th, 2011 2:13 pm
Today’s tickers: RL, OSK, SPLS & RAX
RL - Ralph Lauren Corp. – The designer of premium-brand lifestyle products ranging from men’s and women’s fashion to fragrances and home furnishings popped up on our ‘hot by options volume’ market scanner after one investor traded a large chunk of deep out-of-the-money October contract call options. Shares in Ralph Lauren Corp. fell 2.0% earlier in the session to $135.69, but recovered in early-afternoon trade to stand roughly flat on the session at $138.82 as of 12:20 pm ET. The stock currently trades a few dollars below its July 21 all-time high of $141.37. The strategist responsible for nearly all of the options volume on Ralph Lauren today appears to be taking the view that the price of the underlying shares are unlikely to soar above $155.00 within the next five weeks to October expiration. More than 9,900 call options changed hands at the October $155 strike against paltry previously existing open interest of just 372 contracts. One block of 9,075 of those calls were sold by one investor at a premium of $1.70 a-pop within the first hour of the trading session. The trader selling the calls keeps the full amount of premium received on the transaction as long as shares in Ralph Lauren fail to exceed $155.00 come expiration day. The investor may be selling the calls outright, or could be writing the options against an existing long position in the underlying shares. In the naked short scenario, the strategist may accrue losses on the position in the event that RL’s shares jump 12.9% over the current price of $138.82 to surpass the effective breakeven price of $156.70. Options implied volatility on the stock dropped 5.05% this afternoon to 46.3%. Ralph Lauren reports second-quarter earnings on November 9, 2011, well after October options expiration.…
by Option Review - September 21st, 2010 4:04 pm
Today’s tickers: XHB, DHI, NVDA, RL, BSX, GCI, XRT & AMR
XHB – SPDR S&P Homebuilders ETF – Long-term bullish trading in call options on the homebuilders sector jumped today on news housing starts in the U.S. rebounded in August. Shares of the XHB, an exchange-traded fund designed to track the performance of the S&P Homebuilders Select Industry Index, increased as much as 1.6% this afternoon to touch an intraday high of $15.83 as of 2:40 pm ET. One bullish trader expecting the price of the underlying fund to appreciate substantially over the next 16 months scooped up approximately 50,000 calls at the January 2012 $16 strike for an average premium of $2.56 apiece. The call options position the investor to accrue profits should shares surge 17.25% over today’s high of $15.83 to surpass the effective breakeven price of $18.56 by expiration day. Shares last traded above $18.56 back on May 13, 2010.
DHI – D.R. Horton, Inc. – In contrast to the outright bullish trading observed in XHB LEAPs, homebuilding company, D.R. Horton, received nearer-term bearish bets that shares are set to decline ahead of expiration in January 2011. DHI’s shares rallied as much as 2.6% on the positive new housing starts data to secure an intraday high of $11.34 this morning. But, by midday, a put option feeding frenzy initiated by traders who appear to expect shares to reverse course had already gained momentum. It looks like traders bought roughly 30,000 puts at the January 2011 $10 strike at an average premium of $0.73 a-pop. Put buyers are poised to profit should shares of the underlying stock plummet 18.25% from today’s high of $11.34 to slip beneath the average breakeven point to the downside at $9.27 by January 2011 expiration.
NVDA – NVIDIA Corp. – Shares of the manufacturer of chips used in computer graphics cards jumped 7.1% this afternoon to reach an intraday high of $11.47 as of 2:50 pm ET after analysts with Pacific Crest Securities said NVDA’s shares are likely to rally up to $13.00 as inventory declines and demand stabilizes. Investors hoping to see the bullish momentum continue purchased some 6,150 calls at the October $12 strike for an average premium of $0.32 per contract. Call buyers make money if the price of the underlying stock increases another 8.65% over today’s high of $11.34 to trade above the average breakeven point on the calls…
by Option Review - May 5th, 2010 4:16 pm
Today’s tickers: XHB, MTH, AIG, THC, RL, GPS, ITMN, EEM & EWZ
XHB – SPDR S&P Homebuilders ETF – Shares of the XHB, an exchange-traded fund designed to track the performance of the S&P Homebuilders Select Industry Index, are trading 3% lower this afternoon to stand at $18.29 as of 2:50 pm (ET). Pessimistic positioning by one options strategist suggests shares of the underlying fund could continue to decline ahead of June expiration. The investor initiated a three-legged options combination play, essentially selling call options to finance the purchase of a debit put spread on the fund. The pessimistic player established the trade by purchasing 12,000 puts at the June $18 strike for a premium of $0.79 apiece, spread against the purchase of the same number of puts at the lower June $17 strike for $0.44 each. The third leg of the transaction involved the sale of 12,000 calls at the June $20 strike for a premium of $0.36 a-pop. The investor responsible for the bearish play pockets a net credit of one penny per contract, and keeps it as long as shares trade below $20.00 through expiration day. Maximum potential profits available to the trader – including the net credit received – amount to $1.01 per contract and pad the investor’s wallet if shares of the underlying fund decline another 7.05% from the current price of $18.29 to breach the $17.00-level by June expiration.
MTH – Meritage Home Corp. – The homebuilding company, like the homebuilders ETF, enticed bearish options investors late in the trading session. Meritage Home’s shares are down sharply by 5.35% to $22.11 as of 3:00 pm (ET). But, Meritage is not the only one suffering today as shares of rival firms Pulte Group Inc., Lennar Corp and D.R. Horton, Inc., also declined significantly along with the price per share of the SPDR S&P Homebuilders ETF. Pessimistic options players expecting MTH’s shares to continue lower in the next several months purchased at least 4,300 puts outright at the September $20 strike for a premium of $1.60 per contract. The confirmed purchase of the these contracts represents just a portion of the more than 10,000 puts exchanged at that strike today where previously open interest stood at just 377 lots. Put-buyers make money if Meritage’s shares plummet 16.75% below the current price of $22.11 to breach the effective breakeven point to the downside at $18.40 by September…
by Option Review - February 3rd, 2010 4:20 pm
Today’s tickers: ORCL, SKX, EEM, TM, ZION, DHI, BBBY, RL, MCD & MYGN
ORCL – Oracle Corp. – A massive bearish transaction on software manufacturer, Oracle Corp., paints a gloomy picture for Oracle investors through expiration in June. Shares are trading 0.15% lower on the day to $23.73 with just under two hours remaining in the trading session. The pessimistic portent is a bearish risk reversal transacted in the June contract on the stock. The trader responsible for the reversal sold 34,700 calls at the June $24 strike for an average premium of $1.37 each in order to offset the cost of purchasing 34,700 put options at the lower June $23 strike for $1.24 premium apiece. A net credit of $0.13 per contract pads the investor’s wallet as long as the June $24 strike call options remain out-of-the-money through expiration day. Additional profits, or downside protection on a long stock position, kick in if shares of the underlying trade under $23.00 ahead of June expiration.
SKX – Sketchers USA, Inc. – Street and fashion footwear design firm, Sketchers USA, received a vote of confidence by a bullish options player today despite the 4.25% decline in shares of the underlying stock to $28.54. The investor etched optimism into the July contract on Sketchers by utilizing the ratio call spread strategy. The trader purchased 1,500 calls at the July $30 strike for a premium of $3.00 apiece, spread against the sale of 3,000 calls at the higher July $40 strike for an average premium of $0.60 each. The net cost of the transaction amounts to $1.80 per contract. In the next six months to expiration, SKX-shares must rally 11.40% from their current value in order for the investor to breakeven at a share price of $31.80. Maximum potential profits of $8.20 per contract accumulate should shares explode 40% higher to $40.00 ahead of expiration in July.
EEM – iShares MSCI Emerging Markets Index ETF – An enormous bullish bet on the EEM today implies one investor is positioning for a 5%-11.25% rebound in global markets by March expiration. Shares of the emerging markets exchange-traded fund, which was developed by MSCI as an equity benchmark for international stock performance, dipped slightly lower by 0.20% during the current session to $39.55. Optimism on the fund came in the form of a large-volume call spread in the March contract. The trader responsible for the transaction…
by Option Review - February 2nd, 2010 5:28 pm
Today’s tickers: VIX, MS, BAC, UNG, SU, RL, GIGM, FCX, CVS, SPF & DOW
VIX – CBOE Volatility Index – A massive bearish put position initiated on the VIX today is a bullish sign for the S&P 500 index. The VIX fell more than 6% during the current session to stand at 21.21 as the past two day’s uptick in equities serve to dissipate some of the fear and uncertainty felt by investors during the prior trading week. One investor anticipating further downside movement for the VIX picked up roughly 103,000 puts at the March 20 strike for an average premium of $0.70 per contract. The put options position the investor to accrue profits beneath a VIX reading of 19.30 through expiration. It appears the investor expects the so-called fear-gauge to head in the direction of the index’s 52-week low of approximately 17.49 attained on January 19, 2010. But, the VIX must fall another 9% from the current reading in order for the investor to breakeven by expiration. Furthermore, today’s reading is still 21.25% greater than the 52-week low described previously.
MS – Morgan Stanley – Global financial services firm, Morgan Stanley, attracted the attention of bullish options investors in afternoon trading. Shares are currently trading 1.00% higher at $27.83 with roughly one hour remaining in the trading day. A bull call spread stuck out like a sore thumb in the scantily populated March contract on the stock today. One investor purchased 5,000 calls at the March $28 strike for a premium of $1.35 each, and sold the same number of calls at the higher March $31 strike for an average premium of $0.34 apiece. The trader paid a net premium of $1.01 per contract for the spread, but stands to accrue maximum potential profits of $1.99 per contract should Morgan Stanley’s shares rally up to $31.00 ahead of expiration day. The call-spreader breaks even on the transaction as long as MS’s shares rise 4.25% from the current price to $29.01 before the options expire.
BAC – Bank of America Corp. – Optimistic sentiment on Bank of America appeared in the August contract today amidst a 0.65% improvement in shares of the underlying stock to $15.52. One bullish trader initiated a call spread to position for upward movement in BAC’s shares by expiration. The investor purchased 4,000 calls at the August $16 strike for an average premium of $1.52 apiece,…
by phil - November 14th, 2009 12:02 pm
This was an annoying week for bulls and bears alike.
We had a very exciting day on Monday, topping out at 10,248 but I didn’t like the way we got there (low-volume, commodity rally, as noted in David Fry’s chart) and, when pressed for a prediction on TV that evening, I had to say that I felt that we were more likely to be down by Thanksgiving than up with a possible Santa Claus bounce into Christmas. What we did get for the remainder of the week was very choppy action on even lower volume.
I had mentioned in last week’s "Wrong-Way Weekly Wrap-Up" that we were partying like it’s 1999 as we broke through Dow 10,000 and S&P 1,080, despite rapidly deteriorating fundamentals. Stocks are being bought because they are going up in price (much like commodities), not because there is any actual demand for them and that is very clear from the rapidly declining index volume as we run back into resistance at S&P 1,100.
Since early September our upside targets for the indexes have been: Dow 10,087, S&P 1,096, Nasdaq 2,173, NYSE 7,204 and Russell 623 and nothing has happened to change our fundamental outlook for the better so the closer we get to those levels, the LESS comfortable we are taking bullish positions. In fact, yesterday as we got our mid-day spike to 10,300, I told members that it was sorely tempting to just cash out all bullish positions and take 20% of the virtual portfolio 100% bearish with a 10% stop. Rather than mess around with a mix of positions, going fully bearish can allow for some spectacular gains if we crash and stopping out with a 50% loss would suck – but a breakout like that, well above Dow 11,000 and S&P 1,200 would certainly give us reason to be more bullish.
As I concluded last week: "We’re generally not happy until we see Russell 600 and the Dow Transports over 4,000 (now 3,852) and we took a 55% bearish stance into the weekend because we’ll feel a lot less silly being burned by a move up than we would if we weren’t bearish enough for a move down. It would be nice to be able to make more of a commitment but the bulls clearly have the bears cowering in fear so we’ll just patiently wait and see how far they can play things out." Not much has…
by phil - October 3rd, 2009 8:27 am
Wow. what a fantastic week!
Well, not for the markets but for us as we totally nailed it. It's hard to believe that it was just two weeks ago, on Monday, the 21st, after I posted the "Wrong Way Weekly Wrap-Up" as the Dow rose from 9,600 to 9,800, that I had to apologize to members, saying: "I’m sorry because I don’t like being bearish – I’m an optimistic guy usually but I can’t just sit here and tell people what they want to hear. It’s just too irresponsible not to be cautious here. We make plenty of bullish picks but I maintain a very wary outlook until we get some real fundamental improvements."
That's the funny thing about fundamentals, they don't matter until they do – and then they matter a lot. It's funny how I get labeled a perma bear when I'm shorting the market at the top and a perma bull when I'm buying the maket at the bottom. Gee, I always thought that's what you're supposed to do but it turns out that few people have the patience to work a market trading range and I don't blame them, I blame the mainstream media, who encourage this destructive herd mentality to investing that culminates in Jim Cramer and his sound-board, where all the complexities of the market are supposed to boil down to either BUYBUYBUY or SELLSELLSELL.
It makes me seem downright wishy-washy when I said to members on the 21st: "I don’t have all the answers, but I do have a lot of questions – too many to get comfortable buying at these levels." On the whole, as I explained in detail way back in late July, I am neither bullish nor bearish, I am Rangeish. Yes, it's a made-up word and I have to make it up because no other analysts these days seem to believe the market can go up AND down, everyone seems compelled to stick to one or the other AND THEY DO IT TO THE DETRIMENT OF THEIR READERS – I WILL NOT DO IT!
There are strong stocks and there are weak stocks and I can't believe I even have to write this out but the best strategy is to short weak stocks and ETFs that have gone too high and buy strong stocks and ETFs that have gone too low. As I explained in my LiveStock appearance back on March 6th (when I was called a "perma-bull" for…