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Tuesday, February 27, 2024

September SPDR puts active

Today’s tickers: SPY, F, DELL, SYMC, DE, FITB, ASML, SMH & UNH

SPY SPDR Trust Series – So implied volatility as measured by the fear gauge known as the VIX, the CBOE volatility index has come screaming off today after a nerve-soothing employment report. The VIX is down 2.17 points today to 31.25. The ongoing rally for equities is likely a snapback against an Armageddon-like scenario priced in to stocks throughout the first quarter. With a lessening in the economic contraction and today’s data icing the cake, investors have thrown in the towel on the bear market and have reduced demand for protection through puts. However, in the S&P index, one investor seems to feel that the rebound won’t extend beyond September and has bought a sizeable chunk of protective puts. The SPDR trades at one-tenth the value of the underlying index and today is 2.5% to the better at 93.15. Some 72,000 put options at the September contract have been purchased at the 75.0 strike for premiums anywhere between 1.84 and 2.05. Breakeven in the worst case example would be at 72.96. That would need a decline of 21.6% to come good. At some point, investors will sit around the camp fire and have a rethink after this huge counter-trend rally. What’s next?

F Ford Motor Company – The only big-three auto company in the US to remain standing without federal aid has climbed 2% to $6.20 per share today. The bullish move in shares could be due to the news that Ford may receive as much as $440 million in government loans. The money would be utilized to facilitate the conversion of a Michigan SUV (sport utility vehicle) factory to one that builds small, fuel-efficient automobiles. Ford edged onto our ‘most active by options volume’ market scanner later on in the afternoon after one individual was seen getting bullish on the stock. In the January 2011 contract the trader was seen shedding 55,000 put options at the January 2.5 strike price for a premium of 80 cents apiece. The investor pockets the premium today as he does not see shares declining through $2.50 over the next year and a half. Option implied volatility on Ford is currently at 85%.

DELL Dell, Inc. – The just-in-time provider of personal computers attracted bullish options investors despite the more than 3.5% decline in shares to $10.65. Perhaps individuals looking for upside movement in shares purposefully got long of calls on a down-day in order to take advantage of relatively cheaper call premiums. We observed fresh buying interest at the June 11 strike price where traders scooped up more than 6,800 calls for an average premium of 66 cents per contract. More optimistic traders targeted the higher June 12 strike and bought upwards of 6,800 calls for about 33 cents apiece. If investors want to reel in profits by expiration on the June 12 calls, shares will need rise by 16% in order to breach the breakeven share price of $12.33. Option implied volatility on the stock has steadily climbed upwards from 53% recorded on Monday to today’s reading of 63%.

SYMC Symantec Corporation – Shares of the information technology company have remained relatively flat throughout the day and are currently at $15.00 per share. SYMC popped onto our ‘hot by options volume’ market scanner as option traders took bullish stances on the stock. The October 12.5 strike price had 9,100 puts shed for a premium of 70 cents apiece. Perhaps the put premium was utilized to finance the call activity we observed in the same contract. The October 16 strike saw the purchase of 9,100 calls for 1.42 apiece. Further along at the October 19 strike price, some 9,100 calls were picked up for an average premium of 66 cents each. While all of the activity occurred around the same time and in similar volumes, we were not able to conclusively connect the trades together. However, it could be the case that all three legs are the work of one individual looking for further upside on the stock over the next five months.

DE Deere & Co. – The agricultural machine manufacturer has experienced a more than 2% rally in shares to stand at $44.82. Despite the bullish move in price, one investor targeted the September contract in order to establish a bearish ratio put spread. The strategy was enacted by the sale of 20,000 puts at the September 25 strike price for 47 cents apiece spread against the purchase of 10,000 puts at the higher September 35 strike for an average premium of 2.19 per contract. The net cost of the trade amounts to 1.25 and yields a maximum potential profit to the investor of 8.75 attained if shares decline all the way to $25.00 by expiration. We note that just yesterday it appears that a similar strategy was performed at the exact same strike prices in the September contract. The individual looks to have used the same ratio by selling two put options to each put purchased.

FITB Fifth Third Bancorp – The financial services company’s shares have surged upwards by more than 58% to $8.48 today after results of the stress tests were released to the public. FITB must raise about $1.1 billion in capital according to news reports this morning. Option investors who arrived early to the playing field took bullish stances on the stock in the near-term May contract. The now in-the-money May 7.5 strike price saw more than 3,000 calls purchased for an average premium of 66 cents apiece, but the same calls now tote an asking price of 1.30 each. Early-bird bulls targeted the higher May 9.0 strike where 2,000 calls were bought for 26 cents per contract. Currently, that strike has volume of more than 6,000 calls. Those individuals looking to get long the call options now must pay 55 cents apiece, twice the asking price from this morning. More optimistic investors bought about 1,100 calls at the May 10 strike price for an average premium of 12 cents each. In order for these traders to profit from May 10 calls by expiration, shares must continue to rally by an additional 19% to the breakeven point at $10.12. Finally, there were those seeking to lock into gains by picking up protective puts on FITB. The May 7.5 strike price saw more than 3,400 puts purchased for an average premium of 68 cents per contract. Option implied volatility has trickled down throughout the week from Monday’s high of 177% to the low reached today of 117%.

ASML ASML Holding NV – The provider of lithography systems for manufacturing complex integrated circuits has slipped slightly by about 2% to $19.40. ASML edged onto our ‘hot by options volume’ market scanner after one individual appears to have established a calendar spread. The sale of 4,000 puts at the now in-the-money May 20 strike price for a premium of 95 cents apiece was spread against the purchase of 4,000 puts at the in-the-money June 20 strike for about 1.85 each. He looks to be rolling downside protection forward by one month perhaps in the expectation that shares will continue to decline. The net cost of the calendar roll amounts to 90 cents and yields a breakeven point of $19.10. Option implied volatility on the stock climbed as high as 56% from today’s opening value of 51%, but volatility has since come off a bit to stand at the current reading of 54%.

SMH Semiconductor HOLDRS – Shares of the semiconductors ETF are off by more than 2.5% to $19.60 amid broad declines in the technology sector today. In line with the bearish move in the fund, one investor initiated a ratio put spread in the near-term May contract. The spread involved the sale of 10,000 puts at the May 19 strike price for 29 cents apiece spread against the purchase of 5,000 puts at the higher May 20 strike for a premium of 64 cents per contract. The net cost of the ratio spread amounts to 6 cents and yields a maximum potential profit to the investor of 94 cents if shares decline to the lower strike price at $19.00 by expiration. Option implied volatility has made a gradual climb throughout this week from a low of 40% on Monday to a high of 47% recorded today.

UNH UnitedHealth Group, Inc. – The diversified health and well-being company appeared on our ‘most active by options volume’ market scanner this morning after one investor populated the September contract amid a 1% rally in shares to $28.75. The trader looked to the September 30 strike and established a sold straddle by selling 10,000 calls for 2.77 apiece and shedding 10,000 puts for a premium of 3.91 each. The gross premium enjoyed on the trade amounts to 6.68 and will be fully retained if shares settle at $30.00 by expiration. The parameters of the straddle are such that the investor’s premium will erode down to zero should shares breach either of the breakeven points located at $36.68 to the upside and at $23.32 to the downside. Given the current price of the underlying stock, the investor will be looking for shares to rise by about 4% by expiration in September.

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