by Option Review - September 17th, 2012 2:08 pm
Today’s tickers: XHB, GILD & JAZZ
XHB - SPDR S&P Homebuilders ETF – Shares in the XHB, which last week hit a five-year high of $26.10 on the heels of Thursday’s FOMC announcement, are down 1.5% this morning at $25.48 as of 11:25 a.m. ET. One options strategist positioning for the price of the underlying to potentially extend declines in the near term appears to have established a bear put spread in the October expiry. The strategy may be a hedge to protect the value of a long position in the underlying, or could be an outright bearish bet that shares in the XHB are poised to pullback somewhat during the next five weeks. It looks like the trader purchased a 4,000-lot Oct. $23/$25 put spread at a net premium of $0.46 per contract. The spread makes money if shares in the Homebuilders ETF slip 3.7% to breach the effective breakeven price of $24.54, while maximum potential profits of $1.54 per contract are available in the event XHB shares drop 10% to $23.00 at expiration next month. Shares in the Homebuilders ETF have increased roughly 110% since October 2011 as the housing market continues to recover.
GILD - Gilead Sciences, Inc.– The biopharmaceutical company’s shares surged 5.3% to an all-time high of $65.31 this morning on positive analyst comments regarding the drug maker’s HIV and hepatitis C treatments. Earlier this morning an analyst at JPMorgan raised his target share price on Gilead Sciences to $75.00 from $70.00, while an analyst with Deutsche Bank raised her price target to $68.00 from $65.00 on Friday. Options activity on GILD this morning suggests some traders are positioning for shares in the name to extend gains in the near term. Upside call buyers targeted the Sep. $65 and $67.5 strikes, with volume at each strike rising to 2,900 and 1,700 contracts, respectively, by midday. Traders appear to have purchased much of the volume, paying an average premium of $0.63…
by Option Review - June 7th, 2012 3:50 pm
Today’s tickers: XHB, LULU & GDX
XHB - SPDR S&P Homebuilders ETF – Heavy call buying in the front month calls on the Homebuilders ETF this morning may mean some traders are positioning for the price of the underlying to extend gains through expiration next week. Shares in the XHB, an ETF comprised of positions in homebuilding-related stocks including Home Depot, Bed Bath & Beyond and Toll Brothers, are up 1.25% at $20.16 this afternoon. The Jun. $21 strike call saw the most action this morning, with more than 30,000 contracts changing hands against open interest of 20,554 positions. The single-largest trade, a block of around 21,440 call options, appears to have been purchased outright at a premium of $0.18 each. The call buyer stands ready to profit should shares in the XHB move up another 5.0% to top the effective breakeven price of $21.18 by June expiration.
LULU - Lululemon Athletica, Inc. – Props to the buyer of a large put spread on athletic apparel retailer, Lululemon Athletica, Inc., on Wednesday prior to the Canadian company’s second-quarter earnings report. The stock is down 9.5% this afternoon at $63.40 after Lululemon’s full-year earnings and sales forecasts fell short of analyst estimates. A 10,000-lot Jun. $60/$67.5 put spread, which was untied to stock but could be a hedge to insulate the value of an existing long position in LULU shares, cost a net premium of $1.30 per contract yesterday. As of 12:45 p.m. ET today, the same $60/$67.5 put spread costs a net premium of $3.86 per contract to purchase, a near 200.0% increase in the sticker price on the strategy overnight. Put volume hovering around 2,000 lots at each strike this afternoon indicates the position is still at least partially intact. Downside protection provided by the put play maxes out at $60.00 should shares in LULU continue to pull back ahead of June expiration.…
by Phil Davis - January 19th, 2012 8:12 am
One trade to rule them all!
That was our goal and our one precious trade for 2012 was BAC on January 5th, buying the stock at $5.75 and selling the 2013 $5 puts and calls for $2.55 for a net $3.20/4.10 entry (see "How to Buy a Stock for a 15-20% Discount" for more on this strategy). On Tuesday afternoon, I modified the entry live on TV at about 3:45, with BAC at $6.70 and you can see the immediate reaction the stock had on my pick into the close.
BAC was $6.49 on Tuesday afternoon at the start of my interview but the 2013 $5 puts and calls were $3.10 so the net was only $3.39/4.20 – not a huge change. BAC came through on earnings this morning and is up at $7.20 pre-market and we're well on our way to our 56% profit target, now with a 30% cushion.
It's no wonder that the TV crowd jumps on my picks as my last two appearances gave them a GNW spread on 10/24 for a 127% gain and an AXP spread from 10/5 for a 140% gain. BAC was, by comparison, a fairly conservative play and that's because, as you know if you've been reading this week – I'm not entirely convinced that this rally is sustainable – but I'm feeling much better about it now that we have BAC earnings out of the way!
This is a great time to thank my friendbuddypal Jim Cramer for chasing all his sheeple out of BAC this year with his SELLSELLSELL rating – without you and your half-assed opinions Jim, we'd have to work for a living! Why just yesterday, my trade idea for Members in the morning Alert was the FAS Feb $67/70 bull call spread at $2, selling the Feb $55 puts for $1.30 for net .70 on the $3 spread but last night – Jim didn't like my bullish Financials pick:
Financials were, in fact, one of my "Secret Santa's Inflation Hedges for 2011" that were published on Christmas Day, 2010 (and you can read that post for the logic behind each trade). All 4 of those trades are done tomorrow so let's see how they performed for the year:
- 30 XHB Jan $15/18 bull call spreads at $1.40 ($4,200), selling
by Phil Davis - November 3rd, 2011 7:59 am
You got to be crazy, you gotta have a real need
You gotta sleep on your toes and when you’re on the street
You got to be able to pick out the easy meat with your eyes closed
And then moving in silently, down wind and out of sight
You gotta strike when the moment is right without thinking – Floyd
You have got to be crazy to play this market!
Forget dogs – it was the early birds who made money this morning as I finally had a web connection at home and, as we expected due to the time changes, our usual 3am trade came late in the Futures as relentlessly bad news (see Member Chat for details) sank the indexes all the way back down to Tuesday’s close.
We reviewed all the news, both good and bad and I decided it was worth taking a chance on some futures long plays at 3:48 in Member Chat, saying:
The RUT futures are holding 715 so I like a long there (/TF) with tight stops below.
Nas Futures are holding 2,275 and I like a bullish play (/NQ) with tight stops on that line.
Oil is at $91.37 and that may be the low but it’s gasoline we like to get bullish on into the weekend and gasoline (/RB) is down to $2.5999 so let’s go bullish there over $2.60 with tight stops.
EU opens in 10 minutes and their futures are down 2.5% and I could be wrong but I think we’re being manipulated lower into the ECB meeting and the Merkozy statement on Greece.
by Option Review - September 6th, 2011 3:40 pm
Today’s tickers: EGO, ATML, C & XHB
EGO - Eldorado Gold Corp. – Mixed opinion on the direction shares in Eldorado Gold Corp. are likely to take during the two weeks remaining before September contracts expire prevails this morning as buyers of calls and puts in the front month took their marks. Canadian stocks slumped along with U.S. equities on global growth concerns and fears over the European debt crisis, but all that glitters today is gold and those that mine for the precious metal, as shares in Vancouver-based Eldorado rallied 6.1% to a record-high of $22.12 earlier in the session. The October 2011 gold futures started the day in distinctly positive territory, but are roughly flat in early-afternoon trade to stand at $1,875 per ounce as of 12:30 pm in New York.
Options activity in the front month suggests there are some strategists expecting Eldorado’s shares to hit new highs by the time September contract calls expire, while out-of-the-money put purchases indicate other players are building up bearish positions should the stock lose its footing in the next eight trading sessions. Bullish traders snapped up 2,000 calls at the September $23 strike for an average premium of $0.29 apiece, against previously existing open interest of just 213 contracts. Call buyers profit if EGO’s shares inflate 5.3% to exceed the average breakeven price of $23.29 by expiration day. Meanwhile, put players targeted the September $20 strike, where some 3,900 contracts changed hands against open interest of 221 contracts. It looks like around 3,000 of the put options were purchased for an average premium of $0.20 each. Buyers of the puts may be taking an outright bearish stance on the stock, or hedging long exposure in the name with the options. Investors holding the contracts make money if EGO’s shares…
by Option Review - June 13th, 2011 8:36 pm
Today’s tickers: HNR, ESI, XHB & FII
HNR - Harvest Natural Resources, Inc. – News Harvest Natural Resources discovered oil off the coast of Gabon sent shares in the Houston, TX-based company up as much as 29.0% to an intraday high of $13.56. The sharp rally in the price of the underlying on the reports spurred bullish plays in Harvest’s options this morning. Shares are currently up a lesser 12.65% at $11.83 as of 12:25pm on the East Coast. Options players purchased roughly 1,600 calls at the June $12.5 strike for an average premium of $0.54 each. The call options were in-the-money earlier in the session, but are now trading out-of-the-money as the rally has cooled somewhat. Investors long the calls are poised to profit should shares in HNR increase 10.2% over the current price of $11.83 to surpass the average breakeven point to the upside at $13.04 by expiration on Friday. Like-minded bulls seeking a longer-term run-up in the price of the shares picked up roughly 1,000 calls at the September $12.5 strike for an average premium of $2.09 a-pop. Call buyers at this strike make money if shares in Harvest Natural Resources surge 23.3% to trade above the average breakeven price of $14.59 by September expiration. Options implied volatility on Harvest stands 9.8% higher on the session at 82.44% just after 12:30pm in New York.
ESI - ITT Educational Services, Inc. – Shares in the for-profit provider of degree programs in the U.S. rallied nearly 2.0% this morning to touch an intraday high of $83.74 after analysts at Piper Jaffray raised their share price target on the stock to $84.00 from $75.00. Despite the rise in shares of ITT Educational Services today one options strategist is positioning for the price of the underlying to drop sharply ahead of June…
by Phil Davis - February 19th, 2011 9:59 am
Crazy stuff, right?
If you have never before paid attention to Fibonacci Retracement Levels, I would strongly consider paying attention to the S&P chart below. This chart shows, 2 years later, a consolidation and breakout that could have been predicted in March of 2009. That’s right, if you asked a Fibonacci technical guy where the S&P was going to consolidate on March 10th of 2009 – he would have said: "Assuming that yesterday was the bottom and coming off our high of 1,576, then I would say we will consolidate between 1,014 and 1,229."
Leonardo of Pisa (and independent republic at the time) was born in 1,175 and died at the ripe old age of 65. Pisa was a city of about 10,000 people – a mixture of Muslims, Christians and Jews. Construction on the great tower began in 1,173 and was not completed until 1,319 (so don’t complain about modern union jobs!) but they knew that it was listing in 1,178 so the point is: Leonardo was born in a small town that had a huge architectural problem.
Fibonacci’s father was a State customs worker (essentially overseeing floor trading) and encouraged his son to take up studies in mathematics which, at the time, included learning Hindu Vedic math, which was the foundation of modern algebra and which Fibonacci came to greatly respect, saying:
The knowledge of the art very much appealed to me before all others, and for it I realized that all its aspects were studied in Egypt, Syria, Greece, Sicily, and Provence, with their varying methods; and at these places thereafter, while on business. I pursued my study in depth and learned the give-and-take of disputation. But all this even, and the algorism, as well as the art of Pythagoras I considered as almost a mistake in respect to the method of the Hindus.
Thus Fibonacci became the driving force by which Hindu-Arabic numerals came to replace the Roman ones. Fortunately, at the time, the arts and sciences were still supported and he found the favor Emperor Frederick II, who funded his studies – even though they didn’t make him any money (imagine that!). Fibonacci did not invent Fibonacci numbers (it was probably India’s Pingala in 200 BC), he just realized they could be applied to natural growth and regression sequences and, as it turned out,…
by Phil Davis - February 5th, 2011 6:14 am
Here we are again!
The last time I wrote a Breakout Defense article was back on December 11th when I said: "Wow! I mean wow! Will this market ever go down? My mother called me this morning and she’s raising her GDP outlook for 2011 too – that’s how crazy things have gotten out there. I’m just waiting for the Pope to come out and tell us to buy CMG and Netflix and THEN we’ll know it’s a sign." Clearly, my Mom and the Pope nailed it as the the Dow is up another 500 points (4.3%) since then and CMG made a comeback yesterday and is a bit higher than Dec. 10th’s finish at $238.22 and NFLX is well above $194.63 so the infallibility streak continues for the pontiff!
As with last time, I would urge you to spend some time reading (and now viewing) David Fry’s market commentary over at ETF digest. Dave’s take on the IWM, which we have been playing this week, is that it is still rolling over and that investors should not be fooled by the Dow. I’m not here to debate the points – this is an article about what we can do to make sure we don’t miss the rally train if it does leave the station and, like last time, it’s very easy to set aside a small amount of capital into highly leveraged trades like this, which can make excellent returns on even small rises in the market. On the whole, I remain cautious and still believing that we may be in a blow-off top but we have plenty of bearish short-term bets and we need some balance – just in case…
We had just a 4.3% gain since our December picks and check out this performance on those already:
- FAS Apr $20/25 bull call spread paired with the sale of the April $21 puts for net .15, now $3.98, up 2,553%.
- DBC Apr $27 calls at $1, now $2.05 – up 105%
- 4 DBC Jan $22/27 bull call spread paired with the sale of the 3 USO 2013 $30 puts for net $170, now $740 – up 335%
- DBC Jan $26/30 bull call spread paired with the sale of the $22 puts for net .30, now $1.50, up 400%
- SSO Jan $30/June $42 diagonal call spread paired with the sale of and
by Phil Davis - January 12th, 2011 8:27 am
"Portugal will not request financial aid for the simple reason that it’s not necessary" – Socrates
Of course, that was Jose Socrates, Portugal’s Prime Minister, not Σωκρτης the great Philospoher, who was more famous for saying "False words are not only evil in themselves, but they infect the soul with evil" as well as "True knowledge exists in knowing that you know nothing." More apropos for this morning is the more famous Scocrates’ more famous observation that "True wisdom comes to each of us when we realize how little we understand about life, ourselves, and the world around us."
The investors jacking up the markets at 6am this morning understand very little about the relevance of Portugal’s sale of $1.62Bn in bonds. While the auction was a "success" with longer bonds going off at 6.7% that’s WITH intervention by China and Japan on an auction amount that either one of them could have tipped the cab driver on the ride over from the airport and not missed it. This is like going to your rich uncle for a used car loan because the bank wants 12% and your uncle says "sure I will help you out but you will owe me big time and I will make my brother’s life miserable because I have to give his kid money and I’ll never let him forget it" and then he hands you a contract to pay him back at 11.5%.
Actually, Portugal didn’t even get that much of a "family discount," The last bond auction of 2010 went off at 6.8% and the fear was that the rates would go over 7% but let’s not do cartwheels over 6.7%. Oh, sorry, too late, the markets are already doing cartwheels with a 0.5% gain in the futures and just look how excited the Hang Seng was after lunch, gaining 200 points in a virtual straight line and almost doubling the day’s optimistic opening. The Shanghai was just as exciting, falling from 2,828 down almost 1.5% to 2,788 but then flying back to 2,821 to book a 0.6% gain on the day and giving Mainland China’s Main Market this exciting profile:
by Phil Davis - January 11th, 2011 8:28 am
Up, up and away!
It’s Super Market! Strange index from another reality, who ignores bad news and achieves p/e multiples far beyond those of rational markets. Super Market, who can break resistance on low volume, move higher without consolidation and who – disguised as a genuine Price Discovery Mechanism, an actual indicator of the true-value of listed companies – Instead fights a never-ending battle with rational thinking and negative data because, in America, the market is only allowed to go one way!
OK, I got that sarcasm off my chest, now we can cheer-lead. Go Russell 800 go! Is today finally the day? After a rational-looking sell-off yesterday on very legitimate concerns over the fact that Portugal is now borrowing money at over 7% interest (a rate that would cost the US over $1Tn in interest annually), we had essentially a "Free Money Day," where the market goes up and up and now we have even better futures, where another 0.5% is being tacked on in early trading (7:30).
Let’s embrace the positives first and foremost. Both Japan and China have now stepped up to assist the 17-member EU to beat back high rates by pledging to actively participate in this week’s bond auctions, the first of the new year. The IMF (mostly the US) has also pledged to backstop loans – all this is giving the Euro a nice 0.5% bounce that has knocked the dollar down to 81, which is down 0.6% from yesterday’s open so of course our markets are up 0.6% – THATS WHAT ALWAYS HAPPENS!
What doesn’t always happen is the Nasdaq punching through the 2,700 mark on the back of AAPL’s run to $345 as the expected announcement of the Verizon IPhone is pushing Apple’s expected 2011 earnings past the $20 per share mark so $340 (p/e 17) sounds almost conservative compared to BIDU (p/e 87), AMZN (p/e 74) or NFLX (p/e 71) and, if you think about it, Apple has a search engine, sells things on-line and has Apple TV, which does Netflix’s job so if Goldman Sachs can call Netflix the "killer app" for tablet computers – what does that make Apple TV, which is designed to run off the IPad and includes Netflix as just one of its offerings?
The Wednesday before last, we made shorting the AAPL 2013 $175 puts at $8 the base for buying…