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Wednesday, December 6, 2023

Hi-Ho Long-Term Silver Bulls!

Today’s tickers: SLV, EWT, CL, BG, ILMN, COH, TMO, SPG, BG, ADSK & SLM

SLV – iShares Silver Trust ETF – A bull call spread in the January 2011 contract on the silver ETF today suggests shares of the SLV may rally significantly over the next year and two months time. Shares of the SLV are currently up 0.5% to $18.23. The silver-bull purchased a ratio call spread by buying 3,000 calls at the January 23 strike for an average premium of 1.93 apiece, and selling 6,000 calls at the higher January 30 strike for about 90 cents each. The net cost of the transaction is reduced to just 13 cents per contract. Shares of the fund must rally at least 27% before the investor breaks even at a price of $23.13. The trader stands ready to accumulate maximum potential profits of 6.87 per contract if the stock surges up to $30.00 by January 2011.

EWT – iShares MSCI Taiwan Index ETF – A massive bearish play on the Taiwan Index exchange-traded fund caught our attention this afternoon with shares of the EWT down 0.5% to $12.64 in late-day trading. It appears one investor established a bearish risk reversal in the December contract to position for potential share price declines through expiration. The trader sold 31,000 calls at the December 13 strike for 20 cents premium apiece, spread against the purchase of 31,000 puts at the lower December 12 strike for 20 cents each. The sale of the calls exactly offset the cost of buying the puts. Essentially the reversal is a “free” bet that shares of the EWT will trend lower ahead of the 2010. The investor responsible for the transaction is likely long shares of the underlying fund and seeking protection to the downside. If shares fall beneath $12.00, the value of the underlying position is protected. However, if shares of the fund rally by expiration, the trader risks having shares of the stock called from him at $13.00 apiece.

CL – Colgate-Palmolive Co. – Speculation that Reckitt Benckiser Group may acquire Colgate-Palmolive spurred an all-out call option feeding frenzy on CL today and lifted shares of the U.S. company to a new 52-week high of $86.33. Investors flooded the November and December contracts, scooping up call options to position for further upward movement in the price of the underlying. The sudden surge in demand for Colgate-Palmolive options in the midst of takeover chatter boosted option implied volatility 60.67% to 28.29% — the highest level since the start of May 2009. Option traders favored calls at the November and December contract 85/90 strike prices. The majority of the call volume at those strikes appears to be the work of traders purchasing the contracts. Investor exchanged more than 85,000 option contracts on CL this afternoon, which represent about 52% of the total existing open interest on the stock of 160,869 lots.

BG – Bunge Limited – Option traders were fast to predict continuing gains in global agri-producer, Bunge Ltd., as they aggressively bought call options aimed at harnessing further gains in its shares. With shares trading a little above $60 this morning, sharp-shooters forced call premiums at the November 60 strike upwards starting at 70 cents up to 1.25 as around 3,000 calls were exchanged within a matter of minutes. After a brief dip back down during the course of the morning Bunge’s share price attracted more attention and jumped to $62.64 for a 5.8% gain on the day. Those November calls rocketed to a premium of 2.70 per contract offering huge immediate gains to early-bird buyers. By noon more than 4,500 contracts have changed hands. The same picture was evident at the December 65 strike call where 5,500 calls have traded. About 2,000 contracts were purchased for as little as between 70cents and 1.00 before 10am and have since more than doubled to 1.95. The call activity caught the market napping and created a 15% jump in implied volatility driving premiums higher still.

ILMN – Illumina Inc. – Shares in the company that develops the toolkit for genomic researchers slipped 7% Wednesday to $29.05 on a day when EraGen announced a strategic partnership with Illumina to access its molecular tools technology. Option activity of 21,000 lots was above normal at 14-times the typical average volume. In the short-term investors appeared to sell call options at the 30 strike expiring in December in favor of bearish puts at the 25 strike. That would indicate whatever the catalyst for today’s drop in its shares (we don’t think the alliance with EraGen ought to send them into reverse gear) is likely to remain a negative factor through year end. Last month Illumina not only disappointed at earnings but also revised its forecast down. Thereafter, however, investors appeared to expect better things from the company. More than 5,500 call options were eagerly sought as the share price shrank, with investors paying up to 1.90 per contract to lock into fixed buying rights on shares ahead of January expiration implying a 10% recovery from present. The activity caused option implied volatility to rise about 20% to 49% today.

COH – Coach, Inc. – The handbag and accessories retailer received an upgrade to ‘buy’ from ‘neutral’ at Goldman Sachs Group on Monday, but experienced share price declines over the past couple of days. Declines continued today with shares currently lower by 1% to $34.17. Option traders displayed mixed sentiment on Coach by trading put options. Bullish investors sold 3,300 puts at the November 34 strike for an average premium of 25 cents each. Put-sellers retain the full 25 cents on the trade if shares remain at or above $34.00 through expiration on Friday. Meanwhile, option-bears targeted the December 33 strike to purchase 2,800 calls at an average price of 1.15 apiece. Pessimistic individuals accrue profits if shares of COH decline through the breakeven point to the downside at $31.85 by expiration in December.

TMO – Thermo Fisher Scientific, Inc. – Medical equipment provider, Thermo Fisher Scientific, attracted bearish investors to the March 2010 contract today. Shares are currently flat at $46.14. It appears one investor established a put spread by purchasing 3,000 puts at the March 45 strike for 2.50 apiece, marked against the sale of the same number of puts at the lower March 40 strike for 1.00 each. The net cost of the protective play amounts to 1.50 per contract. The trader responsible for the spread is likely aiming to protect the value of a long position in the underlying stock. If this is the case, the investor is protected in the event that shares of TMO slip beneath the breakeven price of $43.50 by expiration in March.

SPG – Simon Property Group, Inc. – Shares of the U.S. shopping mall owner are trading higher by 3% to $74.40 on news the cash-rich firm may purchase assets of bankrupt General Growth Properties Inc. One cautious investor scooped up downside protection on Simon this morning. Perhaps the trader fears the stock price may realize short-term declines if SPG acquires General Growth Properties. Otherwise, this individual is simply taking a bearish stance on the stock. The investor initiated a put spread by purchasing 4,000 puts at the December 70 strike for 2.25 each, and by selling the same number of puts at the December 65 strike for 1.00 apiece. The net cost of the spread amounts to 1.25 per contract and protects the trader if shares fall through breakeven price of $68.75 over the next four weeks. We note that SPG’s shares have remained higher than the effective breakeven point since November 6, 2009.

BG – Bunge Limited – Call activity on the global agribusiness and food company is likely inspired by the 2.5% increase in shares to $60.36 today. Investors traded call options in excess of existing open interest at a number of strike prices across several contracts. The now in-the-money November 60 strike had 3,750 calls exchanged, whereas the higher December 65 strike had 3,100 calls traded as of 10:10 am (EDT). Finally, volume at the January 70 strike exceeded 4,000 calls on previous open interest of 3,069 lots.

ADSK – Autodesk, Inc. – Shares of the software company are trading 10% lower this morning to $24.22 despite reporting third-quarter earnings of 27 cents per share, which exceeded analyst expectations by 4 pennies. Share price erosion today likely stems from lower-than-expected fourth-quarter profit guidance from the firm. Option implied volatility slumped 15.32% today to 37.56% following earnings. Investors exchanged more than 13,100 option contracts on Autodesk as of 10:20 am (EDT), which comprises about 15% of total existing open interest on the stock of 91,493 lots.

SLM – SLM Corp. – Shares of student loan provider, Sallie Mae, are up more than 6% to $11.41 one hour into the trading session. Some investors may be banking gains at the November 11 strike where 7,200 calls traded to the bid at 50 cents on previous open interest of 14,490 lots at that strike. Fresh positions were transacted at the December 14 strike where call volume currently stands at 1,000 contracts. Option implied volatility is slightly higher at 62.59% over the day’s opening reading of 60.21%.


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