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Monday, July 15, 2024

Tech Back in Demand as Call Buyers Line Up at XLK

Today’s tickers: XLK, RF, NBR, MCD, KEY, MGM, HBAN & LVS

XLK – The tech-sector exchange-traded fund attracted a hoard of call buyers this afternoon amid a less than 0.5% decline in shares during the session to $20.62. Traders expecting upward momentum in the price of the stock looked to the December 22 strike price where approximately 35,000 call options were purchased for an average premium of 43 cents per contract. Investors will turn a profit on the calls if shares of the XLK rise 9% from the current level to surpass the breakeven price of $22.43 by expiration in December. – Technology Select Sector SPDR –

RF – Investors exhibited near-term bearish sentiment on RF today by piling into put options on the stock. Shares of Regions Financial have slipped 1% lower today to stand at the current price of $5.54. The heaviest volume was observed at the September 5.0 strike where about 31,000 puts look to have been purchased for an average premium of 11 cents apiece. More pessimistic traders looked to the lower October 4.0 strike to get long of 3,100 puts valued at 10 cents per contract. Perhaps traders exhibiting such behavior are long shares of the underlying stock. If this is the case, the put action was inspired by traders seeking downside protection through expiration next Friday and through October’s expiration day. – Regions Financial –

NBR  The largest onshore drilling firm edged onto our ‘hot by options volume’ market scanner today due to call action in the October contract. Investors were apparently not discouraged from taking bullish stances on the stock even though shares are currently lower by about 1% to $18.84. Approximately 6,000 calls were coveted at the October 20 strike for an average premium of 95 cents apiece. Traders long the calls are hoping to see shares rally about 11% higher by expiration so that they may begin to garner profits above the breakeven point at $20.95. – Nabors Industries Limited –

MCD – Traders hungry for calls – or perhaps a Big Mac – placed bullish bets on the golden arches using options despite a 1% decline in the price of its shares to $54.36. Nearer-term optimism was observed at the October 60 strike where approximately 4,500 calls were pocketed for an average premium of 12 cents per contract. Perhaps the continued rise in unemployment has helped fuel bullish sentiment on the fast food chain. McDonald’s, which offers a variety of options on their Dollar Menu, is likely to appeal to cash-strapped consumers who can little afford more upscale restaurants at this time. A call-spreader took to the December contract to enact a bullish play. It appears the investor purchased 3,000 calls at the December 55 strike for about 2.30 apiece and simultaneously shed 3,000 calls at the higher December 60 strike for 56 cents each. The net cost of the transaction amounts to 1.74 and yields maximum potential profits of 3.26 per contract if shares of MCD rally to $60.00 by expiration. We note that MCD last traded above $60.00 on June 4, 2009. – McDonald’s Corp. –

KEY – A large buyer of Keycorp put options emerged this morning. Shares are down by 2.6% at $6.02. Buying at the soon-to-expire 6.0 strike put was pretty strong on volume of 20,000 lots at premiums of approximately 25 cents per contract. This could be another example of a married put (long stock and long protection via puts) or could be someone taking a pop at the lender ahead of next weekend’s expiration. Having said that option implied volatility is 1% higher today at 69% indicating that a break beneath the September 2 low of $5.80 might be some bears’ target. – Keycorp –

MGM – The casino operator’s shares are 7.5% higher at $12.13 and having broken above an August peak at $9.60 is accelerating fast towards the May high of $14.01. There was tremendous activity in the September 12.5 strike call options earlier as speculators piled into to buying rights sending premiums from 25 cents to 70 cents. News that the company has extended a previously announced participation offer enabling existing bond holders to trade in 8.5% senior notes maturing in 2010 for 10% notes maturing due 2016 might be part of the cause for today’s ebullience. During the recession fears over liquidity drove the stock into the doldrums and perhaps today’s news continues to demystify the company’s debt structure ahead. Volume of 25,000 calls at this strike price made up one-in-four of today’s option’s business and easily surpasses an open interest reading of 13,800 lots. December 13 calls were also heavily traded on 7,890 contracts and at least twice the current level of investor interest. Buying rights there commanded a 90 cent premium by lunchtime and so imply further year-end appreciation to a break even point of as much as 15%. – MGM Mirage –

HBAN – Shares of the financial holding company have edged nearly 1% lower during the session to stand at $4.05. HBAN appeared on our ‘most active by options volume’ market scanner after an investor appears to have established a large chunk of married puts on the stock. This type of transaction implies that the trader has simultaneously purchased shares of the underlying stock along with protective put options. In this case, it appears the trader purchased 15,400 puts at the near-term September 4.0 strike for 20 cents apiece when shares of HBAN were trading at approximately $4.07 apiece. The investor has shelled out 20 cents per contract to hedge against potential declines in the stock through expiration next Friday. Downside protection would kick in if shares of HBAN fall another 6% to breach the breakeven point at $3.80. Given the parameters of the trade it appears the investor is bullish on HBAN and hoping to see the value of the underlying stock appreciate. – Huntington Bancshares, Inc. –

LVS – The casino and resort operator has enjoyed a rally of 5% during the trading session to $17.09 after receiving an upgrade to ‘buy’ from ‘neutral’ at Sterne, Agee, & Leach. Option traders reacted to the bullish news by taking some optimistic bets on the stock. There appears to be a bullish risk reversal in the October contract where some 2,500 puts were shed for 1.65 apiece at the October 17 strike, spread against the purchase of 2,500 calls at the higher October 19 strike for 97 cents premium. The net cost of the reversal amounts to 68 cents per contract and positions traders to profit above the breakeven point at $19.68. A similar strategy was employed in the December contract, but it seems the investor responsible for this risk reversal has selected more conservative strikes. He appears to have shed 4,400 puts at the December 16 strike for 2.35 each to fund the purchase of 4,400 puts at the higher December 17.5 strike for 2.80 each. The trader paid a net 45 cents per contract, and will accumulate profits if shares rally just 86 cents higher to breach the breakeven price of $17.95. Call options were more heavily traded than puts on LVS today as evidenced by the current call-to-put ratio of more than 3-to-1. – Las Vegas Sands Corp. –

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