Synthetic Put Bearish On Constellation Brands
by Option Review - January 14th, 2013 1:47 pm
Today’s tickers: STZ, PETM & XRT
STZ - Constellation Brands, Inc. – A large stock and options combination play on wine, beer and spirits producer, Constellation Brands, Inc., appears to be a synthetic put on the name that benefits from bearish movement in the price of the underlying in the near term.Shares in STZ, up roughly 80% since mid-June 2012, are currently down 1.1% on Monday afternoon to stand at $35.24 as of 12:05 p.m. in New York trading. The hefty transaction in STZ options today pushed overall options volume to a level well above the stock’s average daily options volume of around 13,100 contracts. The largest transaction in STZ options appears to be the purchase of a 20,000-lot Feb. $37.5/$42.5 call spread for an average net premium outlay of $0.75 per contract, tied to the sale of STZ shares at $34.80 on a 25.5 delta.The synthetic put position is a bearish strategy that prepares the trader to profit from declines in the price of Constellation Brands’ shares through February expiration.
PETM - PetSmart, Inc. – Shares in the specialty retailer of products and services for pets and their owners are in negative territory on the first trading session of the week, down 1.0% at $67.50 as of 11:30 a.m. ET on Monday. A sizable bearish options strategy initiated on PetSmart today suggests one trader is bracing for shares to potentially extend declines during the next few months. It looks like the strategist purchased a 2,000-lot April $60/$65 put spread for a net premium of $1.80 per contract. The bearish position starts making money if shares in PETM decline 6.4% from the current price of $67.50 to breach the effective breakeven point at $63.20. Maximum potential profits of $3.20 per contract are available on the trade in the event that shares drop more than 11% to settle below $60.00 at April expiration. PetSmart’s shares last traded below $60.00 in May 2012.
XRT - SPDR S&P Retail ETF – The…
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Finally Friday – Maybe Tomorrow the Markets Won’t Fall
by phil - November 16th, 2012 8:32 am
Falling, falling, falling.
That's all the markets have been doing lately. As you can see from our Big Chart – it's been a pretty orderly sell-off according to our 5% rule with roughly a 4-5% drop during October with some consolidation, followed by a much steeper 4-5% drop after the election.
We're back to the point where we expect resistance at an 8% total drop as well as some bounce action where once again we'll be measuring for strong or weak bounces to determine whether or not we can get a turn again (our indicators kept us bearish last time). Regarding the current action, I said to our Members yesterday in Chat:
I think there is a lot of selling as people take capital gains while they can. I think that it's very possible that it's going to be very difficult to get a proper rally into the end of the year because there are plenty of people waiting for a rally to take their gains, whether through timing or position. The problem with this state of not knowing is it becomes prudent for people to hedge for the worst and, if someone had a 20% gain for the year and now it's 15% and they can take it off now and keep 12.75% (after 15% tax) vs possibly hitting another 5% drop and running down to 8.5% this year or possibly 7% (at 30%) if they wait until next year and there's no recovery (and the more the cliff looms the less likely recovery seems) then it almost doesn't make sense not to take the 12.75% and run. So that's very possibly the selling pressure we see and it may continue to be relentless into the end of the year unless there is some sort of resolution or delay to the cliff.
While we don't think the Fiscal Cliff will end up being a big deal – that doesn't stop others from panicking. This week we've been scooping up positions they have been running away from but, if we're going to have another leg down – we'll be needing those disaster hedges (see Wednesday's post) to keep us out of trouble. It doesn't take much to profit from a downturn, fortunately, when we use good hedges. On Wednesday I suggested the TZA April $17/24 bull call spread for $1.40, selling the $14…
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Monday Market Movement – More Mario Momentum?
by phil - July 30th, 2012 7:58 am
So, where's our stimulus?
Like good little Pavlovian dogs, we ran back into the markets last week when Mario Draghi rang the stimulus bill – increasing the $60Tn global markets by 5% – that's $3Tn of valuation added in 48 hours on the say-so of a former GS executive that has been put in charge of the European Central bank. What could possibly go wrong with this scenario?
If we can't trust the Investment Bankers who are taking over our Government, who can we trust? So we'll assume that everything WILL be fixed this week and that the ECB, Fed, PBOC, BOE, BOJ and all the little Central Banksters will be pumping enough money into the system to justify a $3,000,000,000,000 increase in Global Equity prices – even though that means, at an average p/e of 15, that all this expected stimulus somehow drops an additional $200Bn to the bottom line of Big Business to justify the bump in valuation.
How many Dollars, Yen, Euros and Yuan do we have to give to Corporations to turn into $200Bn? Well, if it's AMZN – the answer is $15Tn because it takes $50Bn in sales for AMZN to make $600M so figure 75x in sales to make 1x in earnings. Why use AMZN? Well because AMZN is almost 5% of the Nasdaq and it was their amazing run last week, on what rational people would consider poor earnings, that reversed the downtrend initiates by AAPL's (who are 15% of the Nasdaq) miss.
I guess it's obvious why we're short AMZN (see Dave Fry's chart) but let's look at AAPL now, who are quite a bit more efficient at dropping Dollars to the bottom line. Last year, AAPL took in $108Bn and made a profit of $26Bn – now THAT'S a good company! So let's pretend that all companies are as good as AAPL and nowhere near as bad as AMZN at converting sales to profits.
Now to get that additional $200Bn in Corporate Profits we only need about $800Bn in stimulus – assuming, of course, that money actually went to people who would spend it and not to Banksters who are still trying to back-fill multi-Trillion Dollar holes in their mark-to-fantasy balance sheets. $800Bn is a doable number so let's pretend it is enough to justify a 5% bump in the market and now we know…
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Tut Tut Tuesday – Still No Rain
by phil - July 24th, 2012 8:49 am
Tut, tut, it does not look like rain.
You would think the worst drought in 80 years would merit more than the occasional mention in the Financial media – I've seen CNBC do one-hour specials on the marijuana crops so you'd think actual FOOD would maybe make it a little higher on the list of concerns for the MSM – especially when we are experiencing the worst drought of the past 80 years and the last one that was this bad led to a Global Depression (along with, of course, National Debt Crises and Financial Failures but mission accomplished there already).
You would think the drought has somehow fallen into a Somebody Else's Problem Field, where individuals/populations of individuals choose to decentralize themselves from an issue that may be in critical need of recognition. Such issues may be of large concern to the population as a whole but can easily be a choice of ignorance at an individualistic level. As Douglas Adams explains in The Hitchiker's Guide to the Galaxy:
An SEP is something we can't see, or don't see, or our brain doesn't let us see, because we think that it's somebody else's problem…. The brain just edits it out, it's like a blind spot. If you look at it directly you won't see it unless you know precisely what it is. Your only hope is to catch it by surprise out of the corner of your eye.The technology involved in making something properly invisible is so mind-bogglingly complex that 999,999,999 times out of a billion it's simpler just to take the thing away and do without it……. The "Somebody Else's Problem field" is much simpler, more effective, and "can be run for over a hundred years on a single torch battery.This is because it relies on people's natural predisposition not to see anything they don't want to, weren't expecting, or can't explain.
Various areas of psychology and philosophy of perception are concerned with the reasons why individuals often ignore issues that are of relative or critical…
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Monday Market Melt-Down – Spain Again?
by phil - July 23rd, 2012 8:25 am
Wheeeeee!
How great is this? We flipped bearish on Wednesday's poor Beige Book outlook (not to mention drought concerns and Hugh Hendry's warning that "Bad things are going to happen") and Thursday we noted it was looking a little too much like last July, where we fell off a cliff right after options expiration and my very appropriate comment at the end of Thursday morning's post was:
Clack, clack, clack – like a roller coaster going up in the dark, we don't know when we'll get that big "wheeee" but we do know it's coming!
Fortunately, we did not wait with our Long Put List going out in the Thursday Morning Alert to Members at 10:18, with all bearish trade ideas that included these gems:
- AMZN Oct $180 puts at $2.75, still $2.75 – even (all as of Friday's close)
- CMG Sept $350 puts at $5, now $35 – up 600%
- DIA Dec $117 puts at $2.50, now $2.80 – up 12%
- ISRG Jan $350 puts at $1.70, now $5 – up 194%
- MA Jan $290 puts at $2.85, now $3.40 – up 19%
- SPY Oct $120 puts at $1, now $1.15 – up 15%
- V Jan $100 puts at $2, now $2.30 – up 15%
- XRT Jan $53 puts at $2, now $2.20 – up 10%
So a couple of big winners already and, of course, we're done with those (see Stock World Weekly for more trade ideas) and the way we work our Long Put List is to take those winners off the table and utilize our "fresh horses" for the next leg down. Don't worry, we won't run out, there are 13 more picks on deck for our Members with AMZN (above) our top choice for this week (also featured with a slightly different trade in SWW).
Even our aggressive oil puts should be doing well in our small portfolios as well as our bullish VXX trade and, of course, our EDZ and TZA hedges as China dropped 600 points this morning and the Russell is testing our 775 target already. Things may be worse than we thought they were going to be as 775 may not hold on the RUT and that breakdown can lead us to test our -5% lines on the Russell (760), Nasdaq (2,850) and the…
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Free-Falling Thursday – Facebook Faces Fatal Friday Follow-Through
by phil - May 17th, 2012 8:04 am
What a week to do an IPO!
Will Facebook save the markets tomorrow with a successful roll-out of the largest IPO of all time or will it be the straw that breaks the camel's back, with a disappointing open that sends the Nasdaq off a cliff along with their entire over-priced sector? Either way – this is going to be fun.
We can argue the merits of Facebook's value (or lack thereof) all day long but, scam or not, it's very likely FB will set off a buying frenzy in the space and we finish the week off with a bang. If that doesn't happen – I will be very, very bearish but from what I'm hearing and the way they are extending the offer and raising the price – it's way oversubscribed. Also, we have to consider that people are cashing out 1-5% of their holdings to raise cash for FB on Friday – sure it's moronic, but that's what people do so you have to put yourself in a position of someone who wants to put 5% of your portfolio in to Facebook (the way you wish you had put 5% into Google at $80 when they IPO'd) tomorrow – what would you be doing with the rest of your portfolio today?
Meanwhile, the rest of the World is falling apart with Europe turning sharply lower as Spain sells bonds at record high yields (5.106% for 4-year notes) this morning after announcing that their Q1 GDP was -0.4% at the same time as Moody's indicates they will be cutting the credit ratings of 21 Spanish Banks this evening AND, to top it all off – there is a run on Bankia, which Spain nationalized last week – with $1.3Bn pulled from accounts this past week! This sent Spain's markets down 1.6% and Italy (who is next) fell 2%, sending the Euro down 1% to $1.2668 and the Pound followed it down to $1.5832 (while EUR/CHF holds steady at 1.2009 in the most blatant currency manipulation ever witnessed).
Wow – that's a lot of bad stuff! Maybe too many bad things – as in a bit suspicious that all this bad stuff happens at once – as if maybe someone WANTS to force a panic bottom? If so, I applaud them – we certainly needed to shake things up a little…
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Bears Connect With LinkedIn Puts As Shares Decline
by Option Review - May 8th, 2012 2:09 pm
Today’s tickers: LNKD, XRT & FOSL
LNKD - LinkedIn Corp. – Activity in far out-of-the-money put options on the social networking site for professionals suggests some traders fear the price of the underlying could drop substantially from current levels. Shares in LNKD closed last week at $117.31, up nearly 80.0% year-to-date at the highest closing price since the IPO, following the release of better-than-expect first-quarter earnings. However, near-term bearish positions initiated this morning look for declines in the near term, while longer-term put purchases paint a far gloomier picture for the shares during the next few months. LinkedIn’s shares are off their lows of the session, but remain firmly in the red, down 4.7% at $106.24 as of 12:25 p.m. in New York. Weekly put buyers snapped up puts at the May $100 and $95 strikes, shelling out an average premium of $1.24 and $0.75, respectively, for more than 500 contracts at each strike. Traders may profit at the end of the week if shares in LinkedIn continue to sink. Meanwhile, the purchase of more than 1,650 puts at the July $70 strike for an average premium of $1.22 apiece look for shares to plunge more than 35.0% this summer. Traders long the $70 strike puts make money if shares in LNKD settle below the effective breakeven price of $68.78 at July expiration.
XRT - SPDR S&P Retail ETF – Retail stocks may continue to sell off, by the looks of massive stakes taken in XRT put options this morning. Shares in the equal-weighted retail ETF are down 1.5% at $59.45 this afternoon as stocks across the board sink. The two largest trades in XRT options today are in the May $56 put, with a total of 55,000 contracts purchased in two blocks at a premium of $0.35…
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Whipsaw Wednesday – Dip Buying or Just Dips Buying?
by phil - March 7th, 2012 7:52 am
Was that it?
On February 24th I wrote "TGIF – Sell in March and Go Away?" and I laid out my case for why I thought we were going to fall off the table in March and we have, indeed, fallen right off the table right on schedule since then. I said that Friday, that the post was intended as a bookend to my September 30th bottom call as I felt that we had captured all of the upside we were likely to see off the "good news" that Greece was "fixed" and the economy was "improving."
I'm not going to say anything bad about the economy here, I'll let Michael Snyder do that with his "15 Potentially MASSIVE Threats to the US Economy over the next 12 Months" – I think he pretty much covers it! 8 trading days ago (2/24), we had two short trade ideas in our Morning Alert to Members, they were:
- SQQQ April $13/17 bull call spread at .70, still .70 (even)
- DXD April $13/15 bull call spread at net .55, now .70 – up 27%
In Member Chat that day, Exec asked if I was getting bearish and my response was:
Bearish/Exec – Are you kidding, this is me painting a sunny picture! Give me a few drinks and I'll tell you how off the rails the Global Economy is right now… Do you know how much Kool Aid I have to consume not to scream short on every single stock I see. CAT $116, CMG $386, DIA $130, GMCR we already did at $70, IBM $200, KO $70, MA $415, MCD $100, MMM $88, MO $30, MON $80, MOS $59, OIH $45, PCLN $593 (did them too), QQQ $64, SPY $137, TM $85, USO $41.50 (got 'em), UTX $84, V $117, WYNN $119, XOM $87, XRT $59 (got 'em) – and that's just off my watch list of stock I like to buy when they're cheap! We are not just priced for perfection, we are priced for perfection plus a return to full employment a forgiveness of all debts without write-downs and inflation without rising interest – we are priced for Nirvana!
It's a big list but, of course, they are pretty much all winners now, with PCLN the notable exception (so far). Later that day, during Member Chat, we…
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Thursday Foolishness – More of the Same with One Trade
by phil - January 5th, 2012 8:13 am
Our day is done, how’s yours?
That’s right, we already did our 3am trade where we caught the dead top of oil (and the dead bottom of the Dollar), where my 2:59 am comment to Members in Chat was:
Dollar at session low of 80.40 at 3am and oil back at yesterday’s high at $103.70 so oil (/CL) makes a nice short below $103.75 here but DANGEROUS pre-market trading as Iran could spout off at any moment and the trading is VERY THIN.
So that brings us back to the good old Dow (/YM) futures at 12,350 and they are just over that line at 12,351 but that’s the short of the moment as long as the Dollar is over 80.40 .
For the next hour, I did a blow by blow on the oil trade in Member Chat on the way down to $102.70 – a nice $1,000 per contract worm gotten by the early birds, where we took the money and ran ahead of likely morning manipulation back up to $103.50, where we can short it again on inventories (11am). The Dow slipped to 12,300 and paid a solid $250 per contract as well, paying for over 100 Egg Mcmuffins this morning by itself. If you want to see how we make decisions along the way down – it’s well worth going over this morning’s comments – there was also some good discussion of other topics this morning, including my pick for the best wide-screen TV.
We’re still just messing around with hit and run plays, waiting to see how the week pans out and next week we’ll be waiting to see how earnings pan out as well as what we expect will be a pretty major market pullback leading into the 10-year auctions next Wednesday at 1pm. Clearly the Fed freaked out and jumped in yesterday when TLT hit $118 so we are fairly comfortable with our prediction of a…
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Abercrombie & Fitch Puts Pop As Shares Tumble
by Option Review - November 3rd, 2011 1:42 pm
Today’s tickers: ANF, XRT & MDVN
ANF - Abercrombie & Fitch Co. – Bearish positioning in Abercrombie & Fitch Co. options this morning suggests the stock, which dropped the most in more than a decade, may continue to unravel in the final months of 2011. Shares in ANF plunged 22.5% to $57.33 after the retailer said sales at its European flagship stores fell last quarter, indicating turmoil in the region is hitting the clothing and accessories seller where it hurts. Abercrombie reports third-quarter earnings ahead of the open on November 16. Options traders positioning for shares in ANF to extend losses in the near term snapped up deep out-of-the-money put options in the November contract. Investors purchased around 675 puts at the Nov. $45 strike for an average premium of $0.11 each, purchased another 730 puts at the Nov. $48 strike at an average premium of $0.28 apiece, and bought around 500 put options for an average premium of $0.38 per contract at the Nov. $50 strike. Bears prepared to profit in the event that shares tumble more than 10.0% off their lowest point today within the next couple of weeks picked up roughly 800 put options at the Nov. $50 strike for an average premium of $0.57 each. Buyers of the Nov. $50 put profit at expiration in the event that ANF’s shares drop 13.8% to breach the breakeven price of $49.43. Finally, call selling at the Nov. $60 strike suggests some investors doubt Abercrombie’s shares will rebound above that level by expiration day. It looks like traders sold some 1,440 calls at that strike to pocket premium of $2.95 per contract. Call sellers keep the full amount of premium received as long as the contracts expire worthless at expiration.
XRT - SPDR S&P Retail ETF – The put ‘fly spread is the largest transaction in options covering the Retail SPDR, for a third straight session. It looks like the same investor responsible for large bearish prints in XRT put options on Tuesday and Wednesday, is today purchasing the Nov. $43/$47/$51 put butterfly spread for an average net premium of $0.64 per contract. The strategist augmented the position, buying 25,000 puts at Nov. $43 and $51 strikes, and selling 50,000 puts at the central Nov. $47 strike, all for a net premium outlay of $0.64 apiece. The aim of the trade is the same, though the breakeven points are slightly different. The spread…
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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
(