Author Archive for Option Review

Delta Calls Active & Ralph Lauren Put Options In Play

From our friends at Interactive Brokers

Delta calls active as spread play indicates further bullish move

By Andrew Wilkinson

Overall option volume on Delta Air Lines Inc. (Ticker: DAL) by 11:45am ET on Monday of 50,000 contracts is already in line with the typical 10-day average reading. The stock is trading higher at $46.63 (+1.00%) and stands in the middle of a $10.00 range tracked during the past three months. Implied volatility on its options is about 2.5% higher at 31.4%. Much of today’s option activity results from a call spread involving 10,000 contracts at the 48.0 strike expiring in September, while the opposing leg involved the same-size sale at the 55.0 strike. At the individual strike prices it appears that implied volatility is slightly higher on the nearby strike and lower at the higher strike. The 7-point wide call spread appears to have taken place shortly after the market opened and at a net premium of $2.07. From the Strategy Performance Graph below we can see the turning points associated with the transaction. The breakeven for the trade expiring in 130-days is $50.07 while the maximum profit would occur should Delta’s share price reach $55.00, at which point the investor stands to max out the gain of $4.93 per contract.    

Chart – Strategy performance plot for September 48/55 call spread

 

Ralph Lauren Put Options In Play Ahead Of Earnings

By Caitlin Duffy 

Ralph Lauren shares are on the rise ahead of the company’s fourth-quarter earnings report on Wednesday. RL is up roughly $0.60 or 0.45% Monday morning to trade at $135.00, but the stock has had a rough first half of 2015, with shares down nearly 30% since reaching a 52-week high of $187.49 back on December 31, 2014. A ratio put spread initiated on the stock this morning suggests one trader may be positioning for shares to dip following the quarterly report midweek. It looks like the trader purchased 1,000 of the May 130.0 strike puts at a premium of $2.15 each and sold 2,000 of the May 125.0 strike puts at a premium of $0.85 apiece. Net premium paid for the position amounts to $0.45 per contract. The spread makes money in the event that shares in Ralph Lauren…
continue reading


Tags: ,




Apple Options Ahead Of Earnings Release

Not surprisingly, Apple options are active ahead of the company’s second-quarter earnings report after the bell on Monday. Shares are in rally mode, up almost 1.1% on the day at $130.06 on Thursday afternoon. Volume as of the time of this writing (3:30 pm ET) is approaching 786,000 contracts, which is approximately 105% of the average daily options volume traded on AAPL of around 750,000 contracts. Much of the volume changing hands during today’s session is in the Apr24 ’15 expiry weekly calls, which expire ahead of the company’s earnings release. But, a review of open interest on Apple reveals interesting patterns. Open interest is largest by far in 130.0 strike call options across all available expiries. There are approximately 505,000 open call positions at the 130.0 strike on Apple at present. Much of that open interest, roughly 20% of it, is in the regular May expiry 130.0 calls.

Chart – Apple put & call open interest

 


Tags: ,




Apple Options Volume

Courtesy of Caitlin Duffy of IB

Traders exchanged more than one million option contracts on Apple (Ticker: AAPL) today amid a 1.2% dip in the price its shares. The 1.04 million contracts traded so far in the session compares to an average daily options volume for Apple over the past 10 days of roughly 750,000 contracts. The below snapshot displays the day’s option volume split out into call and put options across active strike prices. The chart includes monthly expiration options, while excluding weeklys. The 125.0 strike April 17 ’15 expiry calls and puts are most active today, but cease trading as markets close out another week this afternoon.

 


Tags: ,




Volatility Sellers Step In As SPX Slips

Courtesy of Caitlin Duffy of IB

Implied volatility on the S&P 500 Index (Ticker: SPX) popped Friday morning amid a more than 1.0% decline in the index to the lowest level since April 9. The roughly 12% move higher in the reading of IV on SPX is perhaps the motivation for sellers of iron condors in the April 24 expiry options contracts. The trades were of different sizes and at different striking prices. One of the trades was constructed through the sale of the Apr 24 ’15 1875/1975 put spread against the sale of the Apr 24 ’15 2140/2210 call spread at a net premium of $0.55 per contract. The 1,500-lot trade makes maximum potential gains of approximately $82,500 as long as the SPX trades above 1975 and below 2140 at expiration next week. The smaller of the two condors yields a net credit of $0.50 per contract and involved the sale of the 1885/1985 put spread against the sale of the 2150/2210 call spread. The seller of the 500-lot iron condor stands ready to bank maximum possible profits of around $25,000 in the event that the index trades above 1985 and below 2150 at expiration. The chart below displays a one-week chart of the VIX, which rallied roughly 14% this morning to 14.44.

Chart – One-week performance of the VIX

 





Smith & Wesson Guidance Triggers Bullish Action In Stock, Options

Option activity on Smith & Wesson Holding Corp. suggests some traders may have pulled the trigger on bullish positions on the firearms maker today. SWHC shares are soaring, up nearly 15% at $14.93 as of the time of this writing, after the company updated guidance for the fourth quarter and full fiscal 2015 year (ending April 30, 2015), stating that orders through the fiscal fourth quarter were stronger than previously expected. The company upped its guidance for the quarter, pushing shares in the name to the highest level since June 2014 and sparking heavier than usual options activity. With little more than 60 minutes remaining in the trading session, traders have pushed options volume on SWHC to more than 5,600 contracts as compared to the stock’s average daily options volume of around 400 contracts. The bulk of the activity is in call options, notably the May 15.0 strike contracts. Roughly 2,500 of the 15.0 strike calls have changed hands against zero open interest. Most of the volume appears to have been purchased at a premium of $0.45 each. Buyers of these options stand ready to profit at May expiration in the event that SWHC shares continue to rally, specifically if the stock tops an average breakeven price of $15.45. Smith & Wesson fourth-quarter earnings are estimated for release in the back-half of June.

Chart – SWHC 15.0 strike options most active, specifically May expiry calls


Tags: , ,




General Electric options just as bullish

General Electric options just as bullish

By Andrew Wilkinson

Heavy trading volume in shares of industrial conglomerate General Electric (Ticker: GE) caused its price to surge by 9.1% to $28.08 on Friday on news of further divestiture and a stock buyback program. Gains have accelerated in the afternoon following heavy option positioning earlier in the session. Some 225mm shares had traded by 2pm ET in comparison to typical volume of around 30mm. The share price jumped straight through the June high of $27.53 after call buying in the June series hinted of further gains. Some 49,000 call options have changed hands on Friday at the 29.0 strike price at an average premium of about 40-cents. The breakeven price for buyers of $29.40 implies a further gain for its shares of 4.7%, where the company last traded in April 2008. More recently, the stock peaked in December 2013 at $28.13 before arresting its decline at $23.41 in January. Before trading on Friday, investors held less than 3,000 open positions at the 29.0 strike for June expiration.

Chart – June 29 strike calls were the most actively traded contract as General Electric gains 9.1%

 

 





Cypress Semi Draws Bullish Option Plays

Bullish trades abound in Cypress Semiconductor options today, most notably a massive bull call spread initiated in the July expiry contracts. One strategist appears to have purchased 30,000 of the Jul 16.0 strike calls at a premium of $0.89 each and sold the same number of Jul 19.0 strike calls at a premium of $0.22 apiece. Net premium paid to put on the spread amounts to $0.67 per contract, thus establishing a breakeven share price of $16.67 on the trade. Cypress shares reached a 52-week high of $16.25 back on Friday, March 13th, and would need to rally 4.6% over the current level to exceed the breakeven point of $16.25. The spread generates maximum potential profits of $2.33 per contract in the event that CY shares surge more than 20% in the next four months to reach $19.00 by July expiration. Shares in Cypress are down 1.0% at $15.54 as of the time of this writing.

Chart – Three-month chart of CY (magenta line: b/e point, blue line: max profit)


Tags: ,




Bearish oil options bear fruit

Bearish oil options bear fruit

Courtesy of Andrew Wilkinson

With stories and analysis pointing to fewer and fewer physical places to store crude oil coupled at the hip with an ever-strengthening dollar, it’s hard to get optimistic on the outlook for energy prices. The cost of a barrel of WTI for April delivery has fallen again ahead of the Fed’s March meeting by 3.4% to $43.33 helping drive down shares in the United States Oil Fund (Ticker: USO) to a fresh 52-week low.

Since the start of March the price of USO shares have fallen from above $19.00 to $16.18 (-15%). Option traders posturing for even lower oil prices appear to be riding the crest of a wave. The number of open positions in bearish strike prices from 16.0-19.0 in the USO has increased by 44% to 1.33 million in the past two weeks and compares to bullish open interest at the same strikes of 370,600 contracts. Bears have built positions of 300,000 at the 15.0, 16.0 and 17.0 strikes as the slide in crude oil prices has picked-up its pace. Since the rebound ran out of steam on March 4, implied volatility in the April series has jumped from 42% to 54% today. In the options market, that implies traders currently expect the USO to land within a price range of $14.90 and $18.10. By the same token, May expiration crude prices, where implied volatility is running at 57%, currently dictate a price range covered by $37.75 and $50.25 for the cost of a barrel of crude.

Chart – Bearish USO put option open interest has surged to 1.3 million at strikes from 15.0 to 19.0

 





Volatility softens on Lumber Liquidators

Volatility softens on Lumber Liquidators

Courtesy of Andrew Wilkinson

Shares in Lumber Liquidators (Ticker: LL) continue to rebound and last traded higher by 11.2% at $36.40 following the company’s investor call on Thursday. Implied volatility on its options has fallen by 12.1% to 87.7% having reached 127% as a result of the recent scandal. Option volume of 61,000 contracts is evenly split between calls and puts as implied volatility at higher strikes continues to soften faster than at lower strikes. The following chart from the IB Volatility Lab compares implied volatility readings in the April 17 expiration across available strikes with the volatility structure of one week ago. Under normal conditions, the cost of a 10% out-of-the-money call should be around the same as a 10% out-of-the-money put. Last week, downside volatility of 99.2% was 3.2-points higher than upside volatility. As the entire volatility structure softens in response to a rising share price, option traders are softening the volatility level at higher strike prices, forcing the difference to widen to 4.2-points. As the chart shows, downside volatility remains elevated at increasingly lower strike prices.

Chart – Time lapse skew on Lumber Liquidators options

 





Petrobras implied volatility continues to climb

Petrobras implied volatility continues to climb

Courtesy of Andrew Wilkinson

ADR shares in Brazil’s state-controlled oil and gas giant Petrobras (Ticker: PBR) continue to jump around following the recent announcement that investigations were underway connecting politicians with payouts from company officials. How that goes, nobody knows. The revelation is further bad news for investors who have seen PBR shares slump in the last six months from almost $21.00 to $5.28 on Wednesday. Around a month ago, when the shares stood at $6.45, investors plowed into bearish options in a big way, taking on a position of 107,000 puts expiring in July. At the time the positions were made, shares in Petrobras would have needed to fall by a further 22% to land at the 5.0 strike price. Option implied volatility that day at 67% has increased today to 72% as uncertainty grows. Meanwhile, the options have gained in value, boosted by rising volatility and stand today at 71-cents. We figure that without the volatility boost, the options would be worth 8-cents less. Still, that’s a healthy gain from the initial 42-cent premium paid back in February. 

Chart – Despite a rebound, implied volatility continues to reflect uncertainty

 





 
 
 

Phil's Favorites

Antibodies in the blood of COVID-19 survivors know how to beat coronavirus - and researchers are already testing new treatments that harness them

 

Antibodies in the blood of COVID-19 survivors know how to beat coronavirus – and researchers are already testing new treatments that harness them

A person who has recovered from COVID-19 donates plasma in Shandong, China. STR/AFP via Getty Images

Ann Sheehy, College of the Holy Cross

Amid the chaos of an epidemic, those who survive a disease like COVID-19 carry within their bodies the secrets of an effective immune response. Virologists like me...



more from Ilene

Biotech/COVID-19

Antibodies in the blood of COVID-19 survivors know how to beat coronavirus - and researchers are already testing new treatments that harness them

 

Antibodies in the blood of COVID-19 survivors know how to beat coronavirus – and researchers are already testing new treatments that harness them

A person who has recovered from COVID-19 donates plasma in Shandong, China. STR/AFP via Getty Images

Ann Sheehy, College of the Holy Cross

Amid the chaos of an epidemic, those who survive a disease like COVID-19 carry within their bodies the secrets of an effective immune response. Virologists like me...



more from Biotech/COVID-19

Zero Hedge

US Consumer Comfort Suffers Biggest 2-Week Crash... Ever

Courtesy of ZeroHedge View original post here.

Having reached near-record high levels of consumer comfort in late-January, Bloomberg's Consumer Comfort Index has plunged to its lowest since June 2018.

Source: Bloomberg

This is the biggest two-week drop in comsumer comfort... ever...

Source: Bloomberg

“Th...



more from Tyler

The Technical Traders

Founder of TradersWorld Magazine Issued Special Report for Free

Courtesy of Technical Traders

Larry Jacobs owner and editor of TradersWorld magazine published a free special report with his top article and market forecast to his readers yesterday.

What is really exciting is that this forecast for all assets has played out exactly as expected from the stock market crash within his time window to the gold rally, and sharp sell-off. These forecasts have just gotten started the recent moves were only the first part of his price forecasts.

There is only one article in this special supplement, click on the image or link below to download and read it today!

...

more from Tech. Traders

ValueWalk

Paycheck Protection Program: Not Enough To Help Restaurant Industry

By Jacob Wolinsky. Originally published at ValueWalk.

Below is a statement from the Independent Restaurant Coalition on the start of the Paycheck Protection Program, which comes a day after the Department of Labor announced a historic surge in unemployment claims. In the last week, over 6.6 million Americans filed for unemployment bringing the total people out of work to over 10 million.

“The short-term relief made available through the Paycheck Protection Program in the CARES ...



more from ValueWalk

Kimble Charting Solutions

S&P 500 Price Pattern Similar to 2008 Market Crash?

Courtesy of Chris Kimble

Last week’s sharp rally off the lows, gave bulls some relief.

But if the bulls are going to have reason to cheer, they will need to see another move higher… and fast!

Why? Just look at today’s “weekly” price chart of the S&P 500 Index. 

This key broad-based index broke a 10-year bull market trend line in March. And it’s now kissing the underside of the trend line at (2).

The last stock market crash saw a similar pattern in 2008. And after a failed “...



more from Kimble C.S.

Insider Scoop

Nestle CEO Says Snack Foods 'Just As Important As Essential Nutrients'

Courtesy of Benzinga

Global food behemoth Nestle (OTC: NSRGY) is "scrambling to meet demand" to keep the world fed, but doesn't want to take much credit, as "this is our main purpose at this hour," CEO Mark Schneider said Wednesday during a "Mad Money" interview with Jim Cramer.

Nestle...

http://www.insidercow.com/ more from Insider

Chart School

Big moving Averages and macro investment decisions

Courtesy of Read the Ticker

When price is falling every one wonders where demand will come in.


RTT black screen Tv videos study the simplest measure of price (simple moving average). What has happen before guides us now. 














Changes in the world is the source of all market moves, to catch and ride the change we believe a combination of Gann Angles, ...

more from Chart School

Members' Corner

10 ways to spot online misinformation

 

10 ways to spot online misinformation

When you share information online, do it responsibly. Sitthiphong/Getty Images

Courtesy of H. Colleen Sinclair, Mississippi State University

Propagandists are already working to sow disinformation and social discord in the run-up to the November elections.

Many of their efforts have focused on social media, where people’s limited attention spans push them to ...



more from Our Members

Digital Currencies

While coronavirus rages, bitcoin has made a leap towards the mainstream

 

While coronavirus rages, bitcoin has made a leap towards the mainstream

Get used to it. Anastasiia Bakai

Courtesy of Iwa Salami, University of East London

Anyone holding bitcoin would have watched the market with alarm in recent weeks. The virtual currency, whose price other cryptocurrencies like ethereum and litecoin largely follow, plummeted from more than US$10,000 (£8,206) in mid-February to briefly below US$4,000 on March 13. Despite recovering to the mid-US$6,000s at the time of writin...



more from Bitcoin

Promotions

Free, Live Webinar on Stocks, Options and Trading Strategies

TODAY's LIVE webinar on stocks, options and trading strategy is open to all!

Feb. 26, 1pm EST

Click HERE to join the PSW weekly webinar at 1 pm EST.

Phil will discuss positions, COVID-19, market volatility -- the selloff -- and more! 

This week, we also have a special presentation from Mike Anton of TradeExchange.com. It's a new service that we're excited to be a part of! 

Mike will show off the TradeExchange's new platform which you can try for free.  

...

more from Promotions

Lee's Free Thinking

Why Blaming the Repo Market is Like Blaming the Australian Bush Fires

 

Why Blaming the Repo Market is Like Blaming the Australian Bush Fires

Courtesy of  

The repo market problem isn’t the problem. It’s a sideshow, a diversion, and a joke. It’s a symptom of the problem.

Today, I got a note from Liquidity Trader subscriber David, a professional investor, and it got me to thinking. Here’s what David wrote:

Lee,

The ‘experts’ I hear from keep saying that once 300B more in reserves have ...



more from Lee

Mapping The Market

How IPOs Are Priced

Via Jean Luc 

Funny but probably true:

...

more from M.T.M.





About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

Learn more About Phil >>


As Seen On:




About Ilene:

Ilene is editor and affiliate program coordinator for PSW. Contact Ilene to learn about our affiliate and content sharing programs.