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Sunday, August 14, 2022


Gold Bulls and Bears Place Bets on Bullion

Today’s tickers: GLD, MTG, ACN, BAC, HUN, PSS, ARO, HUN, APWR & FDO

GLD – SPDR Gold Trust ETF – Surprise, surprise…shares of the gold exchange-traded fund reached another record high by climbing up to $119.42 today. We observed one investor initiate a contrarian play in the January 2010 contract. The trader established a bearish risk reversal by selling 4,000 calls at the January 120 strike for 3.65 apiece, spread against the purchase of 4,000 puts at the same strike for 4.60 each. The net cost of the spread amounts to 95 cents per contract. The trader, if long shares of the underlying, enacted downside protection to hedge against potential declines in the price of gold through expiration in January. Perhaps this investor believes gold has peaked, at least as far as the next couple of months are concerned. In contrast, longer-term trading in the September contract was decidedly bullish. The trader sold 5,750 puts at the September 117 strike for 9.35 apiece in order to finance the purchase of the same number of calls at the higher September 140 strike for an average premium of 5.88 each. The investor banks a net credit of 3.47 per contract on the transaction, which he retains in full as long as shares remain higher than $117.00 through expiration. Additional profits amass if shares jump 17% to surpass the $140-level by expiration in September.

MGT – MGIC Investments Corp. – Bullish investors populated MGIC Investments Corporation with various optimistic option strategies throughout the trading day. Shares surged 20% to $5.10 after its Wisconsin regulator waived minimum capital requirements for two years. This permits the company to continue selling coverage despite nine straight quarterly losses. Investor reacted by picking up nearly 5,000 calls at the now in-the-money December 5.0 strike for an average premium of 30 cents apiece. Call-buyers will profit if MTG’s shares surpass the breakeven price of $5.30 by expiration. Additional bullish transactions appeared in the January 2010 and March 2010 contracts. Optimistic individuals shed 3,000 puts at the January 5.0 strike for 60 cents premium apiece. Investors retain the premium received on the sale if shares remain above $5.00 through January’s expiration day. Put-sellers stand ready to have shares of the underlying stock put to them at an effective price of $4.40 per share if the puts land in-the-money. Finally, another chunk of 5,000 puts were sold at the March 5.0 strike for 1.35 each. Option implied volatility on MGIC Investments Corp. sank 22.02% to 84.13%.

ACN – Accenture PLC – The provider of business support services was rated ‘equal-weight/neutral’ with a target share price of $45.00 at Barclays Capital today. Options activity in the January 2010 contract suggests some traders also expect shares of ACN to reach or exceed $45.00 by expiration. Shares edged slightly lower by 0.25% to $41.94 during the session. It appears traders shed 7,500 puts at the January 40 strike for 70 cents premium in order to finance the purchase of the same number of calls at the higher January 45 strike for 50 cents apiece. Investors employing the bullish risk reversal strategy receive a net credit of 20 cents per contract on the transaction, which they keep as long as ACN’s shares trade above $40.00 through expiration. Additional profits accumulate only if the stock rallies 7% from the current price to surpass the $45-level. Similar plays were initiated at the same strike prices in the January 2010 contract yesterday. Perhaps bullish individuals are doubling up on optimism with today’s trades.

BAC – Bank of America Corp. – A firestorm of options activity exploded on Bank of America today following the firm’s announcement it will repay $45 billion of U.S. government bailout funds. Shares of the nation’s biggest lender reached an intraday high of $16.61 this morning, although gains tapered off towards midday to stand at $16.06. Investors exchanged more than 666,000 option contracts on the stock by 12:00 pm (EDT). Near-term trading patterns indicate a few different strategies are at work today. Put volume at the in-the-money December 17 strike exceeded 97,000 contracts, which is more than 2.5 times existing open interest at that strike of roughly 37,000 lots. Approximately 33,000 puts were purchased at the December 17 strike for an average premium of 91 cents apiece. Perhaps traders are locking in gains experienced during the rally in case shares reverse direction ahead of expiration. The December 16 strike attracted bullish put selling 31,000 times for about 44 cents per contract. Traders shedding the puts bank the 44 cent premium received on the sale if shares remain above $16.00 through expiration day. We note that the 75,000 contracts exchanged at the December 16 strike do not exceed open interest of 84,786 lots. Thus, the put selling could be the work of investors closing out long put positions. Long-term bullish investors put on a risk reversal in the January 2012 contract. It appears some 7,865 deep in-the-money puts were sold at the January 22.5 strike for a premium of 8.15 each, spread against the purchase of 7,865 calls at the same strike price for 2.00. A net credit of 6.15 is enjoyed by reversal players who retain the full amount as long as the put options land out-of-the-money by expiration in 2012.

HUN – Huntsman Corp. – Bullish action on the commodity chemical products manufacturer continues to flourish this afternoon. Shares are up nearly 7% to $10.58 as of 12:15 pm (EDT). Investors purchased call options as high up as the January 13 strike where 1,600 calls were picked up for an average premium of 26 cents apiece. Call-buyers at this strike profit if HUN’s shares rally another 25% from the current 52-week high to surpass the breakeven price of $13.26 by expiration. Another trader rolled a previously established long call position in the December contract to a higher strike. The investor originally purchased 2,500 calls at the December 9.0 strike for just 40 cents apiece on November 19, 2009, when shares were at $8.79. Today the trader sold the calls for 1.00 each, and banked net profits of 60 cents per contract on the transaction. Next, the investor renewed bullish sentiment on the stock by purchasing 2,500 calls at the higher December 10 strike for 30 cents per contract. Option implied volatility is sky-high, up 51.48% to 67.27%.

PSS – Collective Brands, Inc. – Shares of the owner of Payless ShoeSource and other retailers surged more than 9% today to a new 52-week high of $22.01. The firm revealed better-than-expected third quarter profits of 61 cents per share, which exceeded average analyst estimates by 12 pennies per share. One investor was ready for the bullish move in shares today. The trader originally sold 3,000 puts at the January 17.5 strike for 80 cents each on November 30, 2009. Today he initiated the closing purchase of the puts for just 25 cents apiece. Net profits enjoyed on the trade amount to 55 cents per contract. Longer-term options activity revealed mixed sentiment on the stock. Bullish traders purchased 4,000 calls at the March 22.5 strike for 1.79 apiece, while pessimists shed 5,500 calls at the same strike for roughly 1.79 per contract. Option bulls tipped the scales, however, by selling nearly 5,000 put options at the March 17.5 strike for an average premium of 61 cents apiece. Option implied volatility is 32.04% lower to 40.78% following earnings.

ARO – Aeropostale, Inc. – The mall-based specialty retailer of apparel and accessories suffered an 11.5% decline in shares during the session to $28.93. Share price erosion today is likely due to the firm’s revised fourth-quarter guidance to $1.20 per share versus average analyst expectations of $1.22 per share. Bearish investors shed call options in the December contract, suggesting the stock is not likely to recover by expiration in a couple of weeks. Traders sold 1,600 calls at the December 30 strike for an average premium of 86 cents apiece. Option bears also shed 1,900 calls at the lower December 29 strike for 1.03 each. Investors selling the call options retain the premiums received as long as shares trade beneath the strike prices described through expiration.

HUN – Huntsman Corp. – Option implied volatility on the manufacturer of commodity chemical products is soaring 22.65% higher to 54.46% this morning with shares up more than 4% to a new 52-week high of $10.32. Call options on the stock are in high demand, particularly in the near-term December contract. More than 12,200 calls changed hands at the now in-the-money December 10 strike. The majority of the calls were purchased. Early-bird investors secured a first-mover advantage by buying the contracts for roughly 30 cents apiece. Traders purchasing the calls now (10:00 am EDT) are paying 140% more premium to pick up the same contracts for 65 cents each. We are not sure what is driving the bullish frenzy, but stay tuned for more information.

APWR – A-Power Energy Generation Systems Ltd. – Shares of the designer of power generation systems to factories in the People’s Republic of China are up nearly 6% to $16.24 this morning despite lower-than-expected third-quarter earnings. The stock was down 7% before the opening bell after the firm posted earnings of 28 cents per share, which failed to meet analyst expectations of 31 cents per share. Option implied volatility contracted 24.55% to 83.10% following earnings. Investors exchanged roughly 5,400 option contracts on the stock by 10:10 am (EDT).

FDO – Family Dollar Stores, Inc. – The chain of retail stores revealed that sales at stores open for at least one year rose 2.4% in the first-quarter. Despite the seemingly positive news, shares slumped 7% this morning to $28.61. Investors scooped up approximately 3,000 puts at the December 27.5 strike for about 35 cents apiece. These contracts were perhaps purchased by traders seeking downside protection on long underlying stock positions. Downside protection kicks in if FDO’s shares decline through the breakeven price of $27.15 by expiration.

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