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Monday, December 11, 2023

Brazilian Markets Beckon Option Bulls

Today’s tickers: EWZ, NOK, YUM, EXPE, CY & COF

EWZ – The exchange-traded fund was boosted higher today as Brazilian stocks gained the most in nearly two months. EWZ has experienced a 5.5% rally in shares to $52.80. Option traders populating the fund were seen making bullish plays to take advantage of today’s upward momentum. The near-term July 53 strike price had approximately 9,200 calls purchased for an average premium of 53 cents per contract. Individuals positioned at the July 53 strike are hoping the price of the underlying stock rallies 73 cents higher to breach the breakeven point on the trade at $53.53. One option trader selected the August 52 strike price to initiate a bullish reversal. It appears that this individual shed 6,500 puts at that strike for 2.60 each in order to purchase 6,500 calls for an average premium of 3.10 per contract. The net cost of the reversal amounts to 50 cents and yields a breakeven share price of $52.50. Reducing the price of getting long the calls by selling put options has dramatically reduced the breakeven point to the upside. The investor has already started to profit on the rally as the current market value of the stock is approximately 30 cents higher than the breakeven point. – iShares MSCI Brazil Index Fund

NOK – The world’s biggest maker of mobile phones has rallied higher by more than 6% to stand at $15.63 ahead of earnings scheduled for release tomorrow. The broad-based gains experienced by the market today have bolstered bullish traders who were seen picking up calls and selling puts on Nokia in the October contract. Put options at the out-of-the-money October 14 strike price were sold 2,700 times for 66 cents each while 3,200 puts were surrendered at the October 15 strike for an average premium of 1.05 apiece. Perhaps these investors do not feel the need for downside protection on the stock. The traders may retain the premiums received for writing the puts if shares of NOK remain higher than the strike prices described previously. They may also utilize the option premium to offset the cost of purchasing the shares in the case that shares slip and the puts land in-the-money. Just in-the-money puts were sold 2,400 times at the October 16 strike price for a premium of 1.58 per contract. Again, the full premium is retained if the puts remain out-of-the-money by expiration. Otherwise, the investor would have shares put to him for an effective price per share of $14.42. Bullish sentiment on the call side was observed as traders picked up 3,000 calls at the October 16 strike for 1.00 each. Shares of Nokia must rally higher by approximately 9% to the breakeven point at $17.00 in order for call-buyers to begin to amass profits on today’s transaction. – Nokia Corporation ADS

YUM – There’s no joining in the global equity market surge today for Louisville-based owner of fast-food restaurant KFC Foods, Taco Bell and Pizza Hut after it met revenue but missed on profit expectations. While the company increased its stake in the Shanghai, China operating entity covering the KFC chain, challenges at domestic Pizza Huts gave cause for concern. Shares are lower by 5.1% at $34.18 and the negative sentiment seemingly has convinced option traders that the shares won’t recover above $35 at least by Friday. Heavy volume earlier saw 3,700 out of 4,500 calls at the 35 strike expiring this weekend either sold or trade to the mid-market price where premiums were down at around 10 cents. Later in the morning volume appears to be picking up again with buyers paying 20 cents to get in on this act – why, we’re unclear. Put sellers at the July 33 strike also emerged, effectively straddling the 33/35 area in the expectation that post earnings volatility of 35% will dry up further. – Yum Brands Inc.

EXPE – Shares of the world’s leading online travel company have surged higher by more than 3.5% to $16.40. We observed investors utilizing put options in various ways in the August contract in the midst of today’s rally. A frenzy of activity took place at the August 15 strike price where approximately 14,200 puts were purchased and another 11,400 puts were sold for an average premium of 80 cents apiece. Investors who chose to get long the put options are likely locking into gains enjoyed on the rally. If Expedia’s shares were to reverse direction and head lower, traders who are holding the puts stand to profit beneath the breakeven share price of $14.20. Other bullish option traders were seen selling put options. These individuals receive an 80 cent premium for writing the puts and appear happy to have shares of the underlying stock put to them by expiration at an effective price of $14.20 each. If EXPE remains higher than $15.00 the traders will retain the full premium. The sharp rise in Expedia’s option implied volatility this morning pushed the ticker symbol onto our ‘top option implied volatility % gainers’ market scanner. Volatility jumped as high as 71% on the stock up from Tuesday’s reading of about 60%. – Expedia, Inc.

CY– The semiconductor company appeared on our ‘hot by options volume’ market scanner after bearish investors clawed at options on the stock. Shares of Cypress are currently higher by more than 2.5% to $9.58. However, option trades on the stock suggest a transient rally. Additionally, we note that analysts at JPMorgan have rated CY as ‘underweight’. Traders looked to the July 10 strike price where some 4,300 in-the-money put options were purchased for 63 cents apiece. The puts will protect investors who may be long the underlying stock beneath the breakeven share price of $9.37. Bearishness spread to the September 10 strike where 3,900 calls were shed for 45 cents per contract. Call writing at this strike indicates that traders do not believe shares of CY are likely to breach $10.00 by expiration as these individuals face potentially unlimited losses if the stock moves higher than the breakeven point at $10.45. Finally, a faint glimmer of optimism was detected at the December 7.0 strike where investors sold 3,700 puts for 20 cents apiece. Perhaps such put selling indicates a limit on how low trader’s feel the stock will fall by the end of 2009. Put-writing investors bear the risk of having shares of CY put to them by expiration if shares slip beneath the breakeven point to the downside at $6.80. – Cypress Semiconductor Corp.

COF – What’s in your wallet? Fans of COF have enjoyed a more than 8% rally in shares today to $25.05 after the firm announced better-than-expected delinquency and charge-off data for the month of June. Option traders scrambled for bullish call options on the stock in the July contract. Investors positioning for continued upward movement in the price of the stock looked to the now in-the-money July 25 strike price where about 12,000 calls were purchased for an average premium of 57 cents apiece. We note that the demand for the July 25 strike calls has driven the option premium up 70 cents by noon (EDT) from just a nickel as of last evening’s close. Shares of the bank and credit card issuer must continue higher by about 2% (or 52 cents) in order for call-buyers to breakeven at a share price of $25.57. – Capital One Financial Corp.

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