Bullish Investor Enacts Options Combo Play on Goldman Sachs Group, Inc.
by Option Review - July 16th, 2010 9:45 pm
Today’s tickers: GS, BP, XLV & EEM
GS – Goldman Sachs Group, Inc. – One options strategist initiated a three-legged bullish options combination play on Goldman Sachs this morning in order to position for the company’s shares to increase significantly ahead of October expiration. The global investment banking firm’s shares rallied more than 4.6% today, adding to Thursday’s 3.8% bullish move in the price of the underlying stock, to secure an intraday high of $152.00 after the firm agreed to pay $550 million to settle with U.S. regulators. The investor responsible for the three-legged bullish transaction sold short put options in order to partially offset the cost of buying a debit call spread. The trader sold 1,750 puts at the October $130 strike for a premium of $3.50 each, purchased 1,750 calls at the October $160 strike for a premium of $5.50 apiece, and sold 1,750 calls at the higher October $175 strike for a premium of $1.86 a-pop. Net premium paid to establish the spread is reduced to just $0.14 per contract. Thus, the options strategist if prepared to profit should Goldman’s shares rally 5.35% over today’s high of $152.00 to surpass the effective breakeven price at $160.14 by expiration day. The investor walks away with maximum potential profits of $14.86 per contract if shares of the underlying stock surge 15.1% to exceed $175.00 by October expiration.
BP – BP PLC – The 3.75% decline in the price of BP’s shares to $37.46 this morning did not deter one optimistic options player from purchasing a bull call spread in the August contract. It looks like the investor purchased 2,500 in-the-money calls at the August $35 strike for an average premium of $4.34 apiece, and sold the same number of calls at the higher August $40 strike for an average premium of $1.74 each. Net premium paid to purchase the spread amounts to $2.60 per contract. The investor responsible for the transaction makes money as long as the oil company’s shares trade above the average breakeven point on the spread at $37.60 by August expiration day. Maximum potential profits of $2.40 per contract are available to the trader if the price of the underlying stock increases 6.8% over the current price of $37.46 to exceed $40.00 at expiration.
XLV – Health Care Select Sector SPDR – One options strategist expecting shares of the XLV, an exchange-traded fund designed to provide…
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DiggContrarian Options Player Sheds Put Options on Lloyd’s Banking Group PLC
by Option Review - May 25th, 2010 4:50 pm
Today’s tickers: LYG, XLV, MSFT, XLF, F, AZN, LYV, AZO, MW & XLNX
LYG – Lloyd’s Banking Group PLC – One optimistic options strategist initiated a short put stance on Lloyd’s Banking Group PLC today, suggesting perhaps that shares of the underlying stock are not likely to collapse much further ahead of October expiration. Lloyd’s Banking Group shares fell as much as 8.9% to an intraday low of $2.88 in morning trading, but recovered slightly during the session to stand 5.05% off yesterday’s close at $3.16 a share as of 2:45 pm (ET). Across the pond, Lloyd’s Banking Group shares declined the most in London trading, falling 8.9% to 50.52 pence, as concerns over the creditworthiness of European financial institutions continues to weigh heavily on U.K. banking stocks. But, back to U.S. equity options on LYG, the contrarian investor opted to sell short 4,000 puts at the October $2.5 strike in order to pocket premium of $0.30 per contract. The trader keeps the full amount of premium received on the sale as long as LYG’s share price exceeds $2.50 through expiration day in October. The short sale of put options in this case implies the investor is happy to have 400,000 shares of the underlying stock put to him at an effective price of $2.20 each should the put contracts land in-the-money at expiration.
XLV – Health Care Select Sector SPDR Fund – A large chunk of out-of-the-money put options were purchased on the Health Care Select Sector SPDR Fund today as part of a delta neutral trade enacted by one cautiously optimistic options player. Shares of the XLV, an exchange-traded fund designed to produce investment results that correspond to the price and yield performance of the Health Care Select Sector of the S&P 500 Index, declined 0.65% to stand at $28.54 as of 3:35 pm (ET). It looks like the investor purchased up to 22,500 put options with a .31 delta at the September $26 strike for a premium of $1.08 per contract. The trader picked up the puts in conjunction with the purchase of stock at $28.25 a-pop. The delta neutral transaction is meant to offset potential losses faced by the investor should shares of the XLV continue lower because of the larger proportion of put options held by the trader. The purchase of shares of the underlying stock in combination with the put options indicates the investor…
Homebuilders ETF Bull Ditches Massive Call Position in the Nick of Time
by Option Review - May 7th, 2010 5:07 pm
Today’s tickers: XHB, XLV, SHW, CSCO, AMR, DD & FRX
XHB – SPDR S&P Homebuilders ETF – It looks like one big options player threw in the towel on a massive bullish stance involving XHB call contracts today as shares of the underlying fund surrendered 2% to stand at $17.31 as of 1:00 pm (ET). The investor appears to have purchased roughly 50,000 calls at the January 2011 $22.5 strike for an average premium of $0.60 apiece back on April 22, 2010, when shares of the fund were trading at a volume-weighted average price of $19.04. Just four days after the purchase of the call contracts, the homebuilders fund’s share price touched a new 52-week high of $20.00. With the benefit of hindsight, it’s clear the trader would have been better off ditching the calls back on April 26, 2010. However, it seems the investor decided to sell the calls today – perhaps fearing the fund’s shares are only heading lower – for an average premium of $0.66 apiece to take in average net profits of $0.06 per contract. Again, with our hindsight coming in at a perfect 20/20, the trader made the right decision to sell the calls this morning because shares of the XHB are now down 3.1% to $17.11 as of 1:15 pm (ET), and the calls may now be sold for just $0.57 per contract. Waiting just a couple of hours more to sell the calls today would have resulted in a net loss rather than a net gain to the trader.
XLV – Health Care Select Sector SPDR Fund – Shares of the XLV, an exchange-traded fund that tracks the price and yield performance of the Health Care Select Sector of the S&P 500 Index, are trading 0.90% lower at $29.85 as of 12:35 pm (ET). Options traders populating the fund today are mostly placing bearish bets that shares of the underlying fund are set to decline ahead of May expiration. However, there was some notable contrarian activity in May contract calls, as well. Pessimistic players bracing for continued share price erosion picked up roughly 5,400 puts at the now in-the-money May $30 strike for an average premium of $0.56 apiece. Put buyers at this strike price make money if the XLV’s share price slips beneath the average breakeven point to the downside at $29.44 by expiration day. Buying interest continued at the more bearish…
Analyst Upgrade Fuels Bullish Option Plays on Iron-Ore Giant Vale
by Option Review - January 19th, 2010 4:36 pm
Today’s tickers: VALE, MBT, FXI, NWL, CSE, VZ, XLV, CBY, HSY & SYMC
VALE – Vale S.A. – Shares of the world’s largest producer of iron-ore surged 2.75% in afternoon trading to stand at $31.18 after the firm received an upgrade to ‘overweight’ from ‘equal weight’ with a target share price of $39.00 at Barclays Capital. Indications of like-minded optimism are apparent in today’s option trading patterns on the stock. It looks like one investor initiated a put credit spread in the March contract. The bullish transaction involved the sale of 5,000 puts at the March $31 strike for a premium of $1.67 apiece, spread against the purchase of 5,000 puts at the lower March $28 strike for an average premium of $0.66 each. The credit spread results in a net credit of 1.01 per contract to the investor, who keeps the full premium received if VALE’s shares trade above $31.00 through expiration in March. The width of the spread indicates maximum potential losses on the trade of $1.99 per contract if shares of the iron-ore maker slump to $28.00 ahead of expiration.
MBT – Mobile Telesystems OJSC – The Russian provider of wireless communication services appeared on our ‘hot by options volume’ market scanner this afternoon due to near-term bullish options activity. Optimistic option plays fit neatly with the current 3.5% rally in shares of the underlying to $52.25 today. Traders sold 2,500 puts at the February $47.5 strike for a premium of $0.70 per contract, while the same number of calls were purchased at the higher February $55 strike for about $1.05 apiece. Another chunk of 2,500 puts were shed at the March $40 strike for approximately $0.33 each. All three transactions indicate bullish sentiment on Mobile Telesystems. If the trades are perhaps the work of one individual, the three-legged combination creates a clear directional play. In such a case, the investor will have paid a net $0.02 per contract for the calls by selling short the put options as described above. The long call stance positions the trader – in this example – to accrue profits if shares of MBT rally another 5.30% to surpass the effective breakeven price of $55.02 by expiration next month. We note that shares of the firm traded as high as $55.71 on October 21, 2009.
FXI – iShares FTSE/Xinhua China 25 Index Fund – Shares of the FXI, which invests assets…
Wild Weekly Wrap-Up – August in Retrospect
by Phil - August 29th, 2009 8:28 am
It has been a crazy few weeks!
I went back over our Long Shots list from August 9th, thinking all our picks must be doing great but really only C, with a 67% gain, is really outperforming. Long spreads on UYG and BHI are on target for nice gains but haven’t moved much. Looking at our original picks in Pharmboys Phavorites from the same week, GSK is on track and up nicely already, our AZN cover is up 45% and MRK flew up 19% already. On the riskier Biotech side, ARIA’s stock is up 16% and our spreads are all performing well, ONTY has been flat, OGXI is up 33% and the Jan $17.50s are up a rockin’ 63% with that "cautious" spread up a surprising 75% already.
SPPI had a wild ride (as we predicted with TSCM’s failed assassination attempt) and the buy/write is already up 24%, the Feb vertical is up 50% and the naked Jan put sale is up 27% and our Feb hedge play is right on track so all good there and a fine example of how following Cramer and his lackeys and and doing the opposite of what they say can be very profitable! Congrats to Pharmboy for a very fine set of picks, proving once again that there is room for research and fundamentals - not a single loser in the bunch in a choppy market! It was very timely as I had mentioned just that week in my interview with AOL Finance that XLV was my favorite sector and our IHI pick of 8/10 is up 28% on the naked Feb $45 put sale while the Feb $45 calls have already jumped 16%. It was a great call as IHI outperformed XLV and all our major indexes.
So our energy service pick (BHI) and overall financial pick (UYG) have not done much in 3 weeks and those were our leading sectors into my call to cash out our exposed long calls on Aug 13th, ahead of expirations. The Dow was at 9,400 on that day and now, a bit more than 2 weeks later, we’ve gained another 144 points but to listen to the MSM, you would think you are missing the rally of the century the past couple of weeks. This is one of the reasons I’ve gotten a bit more cynical about the rally – there is so much hype and so…
Ebay on the options auction block
by Option Review - March 13th, 2009 6:45 pm
Today’s tickers: EBAY, HUM, EEM, FXI, C, XLV, GM & LVS
EBAY Ebay Inc. – With its shares struggling to regain breakeven territory today and down 2% at $11.89, a large buyer of protective put options has emerged scooping up 20,000 contracts guaranteeing selling rights should the shares slip to $7.50 by January 2010 expiration. The investor paid a 67 cent premium to for 20,000 options potentially covering 2 million shares valued at almost $24 million at its current share price.
HUM Humana, Inc. – The health benefits company has become a hot-bed for options activity today, and its shares have jumped 10% to $25.30 in response to news of a potential buy-out situation fresh from the rumor-mill. Although little information is currently available in terms of specifics, it has been reported that it would “take a behemoth of a company to acquire Humana”, as they are currently the second-largest provider of health benefits that is backed by the United States Medicare program. Investors have witnessed major acquisitions lately, such as Pfizer’s buy-out of Wyeth and the more recent Merck/Schering-Plough agreement. Thus, traders wasted no time reacting to the bullish musings surrounding Humana and options volume amassed steadily this afternoon. Calls were traded six times to every put and the frantic activity boosted call premiums and implied volatility higher. Some investors were seen banking gains by selling calls in the March contract at the now in-the-money 25 strike price, where about 5,000 sold for as much as 1.90. Further along, at the March 30 strike price, about 9,300 calls were purchased for an average premium of 60 cents. Shares would need to rally an additional 21% from the current price in order to reach the breakeven point at $30.60 by next Friday. In the April contract bullish investors were seen buying calls at the 30 and 35 strikes. Traders shelled out 1.14 for each of the 2,000 calls purchased at the April 30 and 57 cents for each of the 1,800 coveted at the April 35 strike price. It is likely that until a buyer – and more importantly a buy-out price – is announced traders will continue to trade heavily in HUM and send implied volatility even higher than the current reading at 106% up from 86% this morning. Investors have left much on the table for speculators here since the Obama budget announcement caused selling across the sector…
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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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