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Wednesday, December 6, 2023

Hewlett-Packard Bull Dabbles in Call Options

Today’s tickers: HPQ, GS, XLE, QCOM, JPM, TM, SLV, EK, GMCR & TYC

HPQ – Hewlett-Packard Co. – Shares of technology giant, Hewlett-Packard Co., are down 3.5% to $47.70 this afternoon, but the actions of one option trader indicates the stock may rebound by expiration in March. Call activity in the March contract effectively mimics a ratio call spread strategy, which positions the investor to benefit from a move higher in share price in the next couple of months. The ratio call spread took place at the March $46 strike where 5,000 in-the-money calls were purchased for a premium of $3.20 apiece. At the higher March $50 strike, 10,000 call options were sold for an average premium of $1.15 each. Assuming both trades are the work of one investor, the net cost of the bullish move amounts to $0.90 per contract. Maximum potential profits of $3.10 per contract accrue to the upside if shares of the underlying rally to $50.00 by expiration. We note that shares of Hewlett-Packard last traded above $50.00 as recently as January 21, 2010.

GS – Goldman Sachs Group, Inc. – A couple of contrasting option trades caught our eye this afternoon on investment banking institution, Goldman Sachs Group. Goldman’s shares edged 1.15% higher in late-day trading to stand at $153.22. The first and nearer-term of the two transactions appeared in the March contract. The sale of more than 6,800 call options at the March $160 strike for an average premium of $4.58 apiece is a bearish signal. Investors selling the calls apparently expect to keep the premium received today because they do not see Goldman’s share price rebounding to- or above $160.00 by expiration in March. Contrary to the call selling described previously, the April contract attracted bullish sentiment. One investor purchased a call spread by picking up 2,000 calls at the April $160 strike for a premium of $5.78 each, marked against the sale of 2,000 calls at the higher April $175 strike for about $2.05 apiece. The trader paid a net $3.73 per contract to position for a rebound in GS shares by expiration in three months time. Shares must rally approximately 7% from the current price before the call-spreader breaks even at a price of $163.73. Maximum potential profits of $11.27 per contract amass if shares surge more than 14% (from $153.22) to $175.00 ahead of April expiration.

XLE – Energy Select Sector SPDR ETF – The energy exchange-traded fund, which invests in companies from the oil, gas and energy industries, experienced a more than 1% decline in the value of its shares to $55.47 today. A number of option trades on the fund appear to be the work of bearish traders positioning for continued downward movement in the price of the underlying. One investor purchased 15,000 puts at the March $48 strike for a premium of $0.53 per contract. The put position may indicate that the investor expects shares of the XLE could fall another 14.5% from the current price to breach the breakeven price of $47.47 by expiration day on March 19, 2010. Additional pessimism appeared in the contract expiring on March 31, 2010. The March $48 strike price in this contract attracted a bearish individual who purchased 2,200 puts for an average premium of $0.66 apiece. Both transactions point to potentially significant declines in the price of the underlying shares in the next couple of months.

QCOM – Qualcomm, Inc. – Bearish investors took action on wireless equipment maker, Qualcomm, right out of the gate this morning after the firm lowered its 2010 sales outlook and forecast second-quarter earnings below the average estimates of analysts. Option traders exchanged more than 232,600 contracts on the stock by 12:30 pm (EDT), helping to lift the reading of options implied volatility by 15.2% to 32.59%. Qualcomm’s shares are currently down 14.5% to $40.35. Pessimistic traders purchased at least 3,600 puts at the February $40 strike for an average premium of $0.84 apiece. Investors long these contracts are perhaps expecting shares to continue lower to trade beneath the breakeven price of $39.16 by February expiration. The short sale of 4,400 out-of-the-money calls at the February $44 strike price afforded investors an average premium of $0.24 per contract, which they keep if shares trade below $44.00 through expiration day. Similar call-selling and put-buying patterns appeared in the March contract, as well. Contrarian players, however, purchased 5,100 call options at the February $42 strike for $0.81 apiece, perhaps to position for a potential rebound in the price of the underlying. Finally, it looks like one trader was prepared for the decline in shares. The purchase of 17,000 calls at the April $45 strike for a premium of $0.78 today likely represents the closing portion of a previously established short call position, for which the investor initially received a minimum premium of $2.92 per contract. In such a scenario, the trader walks away with net profits of at least $2.14 per contract.

JPM – JPMorgan Chase & Co. – Two large-volume call spreads, utilizing a total of 100,000 call options, were transacted in the June contract on JPMorgan today. It looks like the big player responsible for the trades is anticipating a significant rebound in shares by expiration in five months time. The investor initiated one debit call spread and one credit call spread, suggesting an upper limit on the proposed rally in the underlying. Shares are currently down 0.60% to $39.10. The debit spread portion of the trade involved the purchase of 25,000 calls at the June $40 strike for an average premium of $2.90 each, marked against the sale of 25,000 calls at the higher June $48 strike for a premium of $0.61 apiece. The net cost of the debit spread amounts to $2.29 per contract, positioning the investor to breakeven given an 8.15% rally in shares to $42.29 by expiration. The spread leaves room for maximum available profits of $5.71 per contract to accumulate in the event that the stock surges 22.75% from the current price to $48.00. The credit spread portion of the transaction implies the investor does not expect JPMorgan’s shares to breach $50.00 ahead of expiration. A net credit of $0.30 per contract was pocketed by the investor on the sale of 25,000 calls at the June $50 strike for $0.39 each, spread against the purchase of 25,000 calls at the higher June $60 strike for $0.09 apiece. The trader keeps the full $0.30 per contract credit as long as shares fail to rise to $50.00 in the next five months time. Maximum potential losses on the credit spread could be as great as $9.70 per contract, but in order to accrue such devastating losses, JPM’s shares would need to explode 53.45% above the current price to $60.00 by June expiration day. The investor responsible for the spreads is hoping for a rebound, but not a miracle.

TM – Toyota Motor Corp. ADS – Shares of the world’s largest carmaker continue to suffer declines today following the firm’s recall of another 1 million vehicles, which drives the total number to 5.35 million vehicles pulled off the roads in the United States. Toyota’s shares are down about 3.6% to $76.92 as of 12:15 pm (EDT). Option bears utilized both calls and puts in the February contract, populating the stock with pessimistic signals. Put buyers targeted the February $75 strike where at least 1,300 contracts were picked up for an average premium of $1.62 apiece. Investors long the puts are perhaps expecting Toyota’s shares to fall beneath the breakeven price of $73.38 by expiration day next month. Other traders shed 1,100 calls at the higher February $80 strike for about $1.98 each. Investors pocket the premium in exchange for bearing the risk that shares rebound ahead of expiration. However, these traders appear more than willing to accept such risk because they doubt current dismal affairs at the automaker will clear up anytime soon. Option implied volatility is up roughly 5.9% to 35.44%.

SLV – iShares Silver Trust ETF – Shares of the silver exchange-traded fund, which generally mirrors the price of silver owned by the trust, slipped 1.5% lower today to $16.01. The move lower in the value of the underlying prompted a one investor to establish a bearish risk reversal in the April contract. The transaction suggests the trader is medium-term pessimistic on the SLV. The reversal play involved the sale of approximately 33,500 in-the-money call options at the April $16 strike for a premium of $1.12 apiece, spread against the purchase of 33,500 puts at the same strike for an average premium of $0.92 each. The trader pockets a net credit of $0.20 per contract on the spread, which he keeps in full as long as SLV shares decline to or below $16.00 by expiration in April. Additional profits accumulate for the investor if shares of the fund trade beneath $16.00.

EK – Eastman Kodak Co. – Kodak’s shares are soaring 19.50% higher this morning to $5.68 in the first hour of the trading day. The imaging technology firm posted profits for the most recent fourth quarter for the first time in five consecutive quarters ahead of the opening bell. Kodak reported earnings of $1.08 per share, which blew right past average analyst estimates of $0.18 a share. Option traders exchanged more than 15,500 contracts on the stock by 10:30 am (EDT). Bullish players purchased 1,800 calls at the March $6 strike for an average premium of $0.54 per contract. Call-buyers are positioned to accumulate profits if EK’s shares rally another 15% to surpass the effective breakeven price of $6.54 by expiration in March. Option implied volatility contracted 10.92% from Wednesday’s closing value of 82.33% to attain an intraday day low of 73.34%.

GMCR – Green Mountain Coffee Roasters, Inc. – Shares of specialty coffee retailer, Green Mountain Coffee Roasters, are up 7.70% in morning trading to a new 52-week high of $86.17 after the firm improved its fiscal 2010 earnings forecast. GMCR posted earnings of $0.27 per share for the first quarter, which bested street estimates of about $0.16 a share. According to one news piece, the coffee distribution company’s sales jumped 77% over the prior-year on sales of Keurig single-cup portion packs, brewers and accessories. Investors looking to take near-term bullish positions purchased nearly 6,000 calls at the February $90 strike for an approximate premium of $1.74 each. Call volume at that strike has exploded to more than 21,500 contracts, which is just about twice that of existing open interest at the strike of 11,351 lots. We will be sure to keep an eye on options trading on Green Mountain Coffee today. Option implied volatility collapsed 34.97% to 39.70% following earnings.

TYC – Tyco International Ltd. – Tyco, whose ADT unit is the largest provider of security systems in the world, posted firth-quarter profits of $0.65 per share in the first-quarter. Though earnings exceeded average analyst expectations $0.64 per share, the value of Tyco’s underlying share price is down 0.75% on the day to $36.23. At least one options investor has decided to throw in the towel on the firm. It looks like the trader initially purchased 8,500 calls at the April $39 strike for a premium of $0.75 apiece on January 7, 2010, in order to establish a bullish stance on the stock. However, today we observed the sale of those 8,500 call options for just $0.55 apiece. Net losses on the transaction are approximately $0.20 per contract.

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