Bulls Eye Continued Rally For USEC Inc.
by Option Review - October 17th, 2011 2:11 pm
Today’s tickers: USU, EP & CHMT
USU - USEC Inc. – The supplier of low enriched uranium (LEU) for commercial nuclear power plants popped up on our scanners this morning after large blocks of Jan. 2012 contract call options changed hands on the stock. Shares in USU are flat on the day at $2.04 following the more than 60.0% pop in the price of the underlying at the tail-end of the previous trading week to $2.12 from $1.30. With shares at $2.04, the stock is down more than 65.0% year-to-date off a 52-week high of $6.35. The burst of call activity on the Bethesda, Maryland-based company appears to be nearly identical to a large call spread initiated this past Friday. The trader responsible for Friday’s transaction may have purchased a 10,000-lot Jan. 2012 $2.0/$3.0 call spread for a net premium of $0.35 per contract. The position may yield maximum potential profits of $0.65 per contract should shares in USU top $3.00 at expiration next year. Today’s sizeable call spread also cost a net premium of $0.65 apiece, but the investor purchased a wider 10,000-lot Jan. 2012 $2.0/$3.5 call spread. The trader responsible for the spread may make up to $1.15 per contract in the event that USEC’s shares surge 71.5% over the current price of $2.04 to exceed $3.50 at expiration in January. Shares in USU last traded above $3.50 in July. The company is scheduled to report third-quarter earnings after the final bell on November 2, 2011.
EP - El Paso Corp. – Kinder Morgan Inc.’s agreement to purchase El Paso Corp. for $21.1 billion saw shares in EP up 23.5% at $24.20 as of 12:30 pm in New York. The deal, which will create the largest operator of natural-gas pipelines and fourth-largest energy company in the U.S., spurred relatively heavy trading in El Paso options on Monday. Fresh prints in call and put options cropped up this morning, with investors favoring calls slightly over puts, and overall volume topping 32,700 contracts in early-afternoon trade. The overall reading of options implied volatility on the stock fell 49.5% to 20.3% today on news of the deal.
The huge rally in the price of El Paso’s shares overnight resulted in massive profits – at least on paper – for some investors who appear to have picked up November contract calls over the past few weeks. Open interest patterns in the Nov. $17 strike call suggests…
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DiggOptions Strategy Suggests Yahoo! May be Next Comeback Kid
by Option Review - June 27th, 2011 4:07 pm
Today’s tickers: YHOO, USU, XLK & HGSI
YHOO - Yahoo!, Inc. – The more than 21% correction in the value of Yahoo’s shares since the start of May has one options strategist positioning for a rebound in the price of the underlying by August expiration. Shares in the online media company are down 0.50% today to stand at $14.82 in early-afternoon trade. The bullish options player picked up 7,500 in-the-money calls at the August $14 strike for a premium of $1.41 each, and sold the same number of calls up at the August $18 strike at a premium of $0.18 a-pop. Net premium paid to initiate the spread amounts to $1.23 per contract. Thus, the strategist profits if shares in YHOO rally 2.8% to exceed the effective breakeven price of $15.23 at expiration. Maximum potential profits of $2.77 per contract are available to the call spreader should shares surge 21.5% over the current price of $14.82 to exceed $18.00 at expiration day in August. Yahoo! reports second-quarter earnings after the final bell on July 19. Shares in YHOO last traded above $18.00 back on May 11.
USU - USEC Inc. – Call options on the supplier of low enriched uranium (LEU) for commercial power plants are active this morning, but it looks like the largest transaction in USU options was initiated by an investor taking a bearish stance on the stock. Shares in the Bethesda, MD-based company are down 0.30% to stand at $3.07 just before 12:00pm on the East Coast. The strategist responsible for the bulk of USU options volume today initiated a call credit spread, selling 6,300 calls at the October $4.0 strike for a premium of $0.41 each, and buying the same number of calls up at the October $5.0 strike at a premium of $0.30 apiece. The…
Options Feeding Frenzy Ensues on Halliburton Co.
by Option Review - October 28th, 2010 4:44 pm
Today’s tickers: HAL, BP, USU, S, POT, VALE & SKX
HAL - Halliburton Co. – Investors are piling into put options on the oil services provider this afternoon following reports that suggest Halliburton shares culpability with BP for failing to act on warning signs that may have prevented the disastrous Deepwater Horizon oil spill in the Gulf of Mexico. At around 1:30 pm this afternoon, HAL’s shares descended into freefall, declining as much as 16.15% to an intraday low of $28.86 in the span of about 30 minutes. Shares gained some composure later in the session, but are still down 10.15% to stand at $30.93 as of 2:45 pm in New York. According to articles on the subject today, HAL submitted documents to the National Commission investigating the BP spill that showed that three out of the four tests of the foam cement conducted by Halliburton before the April 20 blowout indicated the mixture would be unstable. Although Halliburton shared the results of one of two tests conducted in February, neither BP nor Halliburton acted on the information from the foam-stability tests. Uncertainty regarding the impact this new information may have on HAL going forward sent options traders into overdrive and fueled a more than 89.7% increase in the stock’s overall reading of options implied volatility to an intraday high of 62.38%. Investors have driven options volume on Halliburton up to 225,000 contracts as of 3:05 pm. Volume is heaviest in the November contract with the $30 strike put options receiving the most attention. More than 19,000 puts have changed hands at that strike. But, traders are purchasing more bearish contracts as well in case HAL’s shares continue to suffer in the weeks ahead. Pessimists purchased puts at the November $25 strike, where more than 3,400 lots changed hands, at an average premium of $0.39 each. Near-term call options are quite active, as well. The majority of volume in November contract calls appears to be the work of sellers throwing in the towel on the HAL following today’s news story. Longer-term bearishness appeared in the April 2011 contract where one trader initiated a ratio put spread. It looks like the investor purchased 1,250 puts at the April 2011…
Option Players Construct Conflicting Strategies on EBAY
by Option Review - March 5th, 2010 4:09 pm
Today’s tickers: EBAY, RCL, RAI, VLO, VRSN, USU, JAS, NUAN, TIVO & DNR
EBAY – eBay, Inc. – Two different options strategies employed on online auction-house, eBay, Inc., today indicate conflicting medium-term sentiment on the stock. One trader is positioning for a significant rally in the price of the underlying, while another individual anticipates shares will remain range-bound through July expiration. EBAY’s shares increased 3.35% during the current session to stand at $24.58. The uber-bullish stance taken on the stock involved the purchase of 10,000 call options at the July $30 strike for a premium of $0.22 per contract. The investor holding the calls stands ready to amass profits should shares of the underlying stock surge 22.95% from the current price to surpass the effective breakeven point on the calls at $30.22 by expiration in five months time. In contrast, the other options player initiated a sold strangle, which yields maximum benefits only if shares trade within a specified range through expiration. The investor sold 3,500 calls at the July $26 strike for a premium of $1.10 apiece in combination with the sale of the same number of puts at the lower July $21 strike for a premium of $0.58 each. Gross premium enjoyed on the trade amounts to $1.68 per contract. The investor keeps the full amount of premium if shares trade between $21.00 and $26.00 through expiration. However, losses accrue on the position if EBAY’s shares trade above the upper breakeven point at $27.68, or if shares slip beneath the lower breakeven price of $19.32 by expiration day. If the call-buying optimist ends up accurately predicting EBAY’s future share movements, the strangle seller will lose out big time. But, if shares do remain range-bound, the call-buyer only ever risks losing $0.22 per contract, or the price paid to take ownership of the call contracts.
RCL – Royal Caribbean Cruises Ltd. – The cruise operator received an upgrade to ‘neutral’ from ‘sell’ with a target share price of $27.00 at Goldman Sachs Group yesterday, and today nearly reached the target price amid a 2.60% rally in the price of the underlying shares to $29.70. Option trading in the June contract today is likely the work of a bullish trader investing in married put options. It appears the investor purchased shares of the underlying stock for about $29.36 apiece in conjunction with the purchase of approximately 39,000 puts at the…
Goldman Sachs Bulls and Bears Collide
by Phil - January 21st, 2010 5:13 pm
Today’s tickers: GS, WFT, FITB, NITE, USU, KFT, UNP, EBAY, SBUX & HOTT
GS – Goldman Sachs Group, Inc. – Near-term bears and bulls crossed paths in the February contract on global investment banking firm, Goldman Sachs Group, today. The past 48 hours have stirred up a plethora of concerning news for investors, most recently, President Obama’s call to limit the size and trading activity of large financial institutions, which pummeled the financial sector like a ton of bricks, dragging equities down across the board. Additionally, markets are still smarting from China’s reining in of monetary policy, which sent the US dollar up over the past couple of days. The VIX jumped yesterday and continues higher during the current session. The fear-gauge increased 19.67% today to an intraday high of 21.90 countering the declines in the S&P 500. Investors watched Goldman’s shares fall 4% to $161.07 this afternoon even though the firm earned $8.20 per share in the fourth-quarter, which blew right past average estimates of $5.19 a share. Frenzied options trading exploded on the financial institution with roughly 358,000 contracts exchanged on the stock by 2:50 pm (EDT). Bearish bets were plentiful, although there is also evidence of contrarian bullish plays, as well. Put options were purchased as low as the February $145 strike where 3,500 contracts were purchased for an average premium of $1.46 per contract. Shares are still 12.20% greater at the current level than the breakeven price on the puts at $143.54. The heaviest put trading occurred at the nearest to-the-money February $160 strike where more than 23,000 contracts changed hands. At least 8,100 of the contracts were purchased for $4.12 per contract. Contrarian players sold 2,300 puts at the February $135 strike to pocket an average premium of $0.93 each. Put sellers retain the full premium as long as Goldman’s shares trade above $135.00 through expiration next month. Some investors are looking right through the negative news and buying call options. Most notable is the 7,200 calls purchased at the February $165 strike for an average premium of $4.52 each. The stock must rebound back to $169.52 in order for call buyers to breakeven on their purchases. Other traders threw in the towel at the higher February $170 strike by selling at least 8,900 calls to receive an average premium of $3.02 per contract. Two-way trading traffic in GS options and investor uncertainty has lifted…
Weekend Wrap-Up, Ripping Through the Top or Topping and About to Tip?
by Phil - July 25th, 2009 12:34 pm
What a week this has been!
In last week’s 600-Point Weekly Wrap-UP, I said it would take some spectacular earnings results next week to keep the rally going and it seems like we got them this week as roughly 85% of the companies reporting this week beat expectations with 42 of this week’s reporting companies guiding up and only 18 guiding down. While people like Richard Bernstein may make very good arguments for why we shouldn’t focus too much on quarterly earnings surprises, I have to say I am somewhat swayed by the preponderance of evidence we’ve gotten this week that, by and large, the vast majority of our companies are weathering the storm far better than analysts have expected.
"It’s pretty amazing what passes for good news these days," remarks Barry Ritholtz on his blog, The Big Picture (www.ritholtz.com.) "Beating dramatically lowered earnings forecasts on cost-cutting and layoffs — rather than top-line growth — seems to be the order of the day. The irony is that the Wall Street analyst community overestimated earnings at the top of the cycle — pure extrapolation of trend to infinity. They seem to be doing the same thing now, only extrapolating falling earnings to zero. What that produces is not true upside surprises, but merely jumping over a dramatically lowered bar," he says.
It’s interesting Barry says this now because it sounded familiar and I went back to my May 2nd Weekly Wrap-Up, where the sentiment was very similar and I said at the time: "With 2/3 of the S&P 500 weighing in, earnings have been 70% positive. I had warned earlier in the week that we are only beating a very low bar but we are beating nonetheless. As you can see from the above chart, even if we do keep moving up, we are heading into some very serious overhead resistance that may not prove futile this time. With the added pressure of the old "sell in May, go away" adage – there will be a lot of obstacles to overcome this week and next so we will remain on guard but we have also trained ourselves not to think and simply go with the flow, letting our levels guide us and, so far, our levels keep saying yes – despite our common sense saying no."
More importantly, with…
Bullish Vibes Radiate From Energy Fund
by Option Review - July 1st, 2009 4:16 pm
Today’s tickers: XLE, USU, XLP, MYGN, NYX & ELN
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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...
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