Bank of America Bear Cleans Up
by Option Review - May 28th, 2010 5:41 pm
Today’s tickers: BAC, FXY, VALE, ATPG, CAT, EBAY, CSCO, KG, NE & AGN
BAC – Bank of America Corp. – Activity in out-of-the-money call options on Bank of America in the first half of the trading session appears to be the work of an investor taking profits on the closing purchase of a previously established bearish short call position. BAC’s shares surrendered 1.85% today to stand at $15.88 as of 2:45 pm (ET). It looks like the investor originally sold 20,500 calls at the November $24 strike for an average premium of $0.37 per contract back on April 28, 2010, when shares of the underlying stock were trading at a volume-weighted average price of $17.73 each. In the past four weeks since the initial sale of the calls, Bank of America’s shares declined 12.12% down to the current price of $15.88. The call seller was properly positioned to benefit from share price erosion, and today was able to buy back the same call options for just $0.10 apiece. Thus, the closing purchase of the calls yields net profits of $0.27 per contract to the responsible party.
FXY – CurrencyShares Japanese Yen Index Fund – A sizeable debit call spread enacted on the FXY, an exchange-traded fund designed to reflect the price of the Japanese Yen, indicates one options strategist is expecting shares of the underlying fund to rally sharply by expiration in January 2011. Shares of the fund are currently up 0.18% at $109.14 as of 1:52 pm (ET). The investor purchased 8,709 calls at the January 2011 $110 strike for a premium of $4.40 apiece, and sold the same number of calls at the higher January 2011 $125 strike for $1.00 in premium each. The net cost of the transaction amounts to $3.40 per contract, thus dictating a breakeven price – above which profits start to accumulate – of $113.40. Shares of the FXY must rally at least 3.90% from the current value of $109.14 before the responsible party starts to make money. Maximum potential profits of $11.60 per contract are available to the spread trader if shares jump 14.53% from the current value of the fund to $125.00 in the next eight months to expiration. It does not appear the fund’s share price has ever exceeded the current 52-week high of $115.40, attained back on November 30, 2009.
VALE – Vale S.A. – Shares of the world’s largest…
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Regions Financial options remain bearish
by Option Review - April 23rd, 2009 4:32 pm
Today’s tickers: RF, MSFT, F, VMW, FXI, AGN, WYE, XRT & COH
RF Regions Financial Corporation – The banking firm has slipped by more than 5% to $5.50 today, spurring option traders to heavily favor puts by a factor of four times to every call in action on the stock. We observed one investor looking to profit from further downward movement in shares by enacting a put spread in the near-term May contract. At the May 5.0 strike price he purchased 15,000 puts for an average premium of 50 cents apiece spread against the sale of 15,000 puts at the May 4.0 strike for 25 cents each. The net cost of the spread amounts to 25 cents and yields a maximum potential profit of 75 cents if shares decline all the way to $4.00 by expiration. He begins to garner profits to the downside beginning at the breakeven share price of $4.75. Another bearish trader targeted the now in-the-money May 6.0 strike price and appears to have bought 13,000 puts for an average premium of 1.05. Pessimism on the stock spread to the June 7.0 strike price where it appears that one investor sold 2,500 calls for 70 cents apiece in exchange for getting long 2,500 puts at the in-the-money June 7.0 strike price for 2.05 per contract. The net cost of the downside protection amounts to 1.35 and has already begun to amass profits for this investor as shares are currently below the breakeven point on the trade of $5.65.
MSFT Microsoft Corporation – Shares have dipped slightly by less than 1% to $18.65 ahead of its earnings conference call scheduled for 5:30 PM (EST) today. Street estimates place third quarter earnings at 39 cents per share. Our attention was drawn to one bullish investor looking to get long of call options in the October contract. It appears that this trader sold 5,113 puts at the October 16 strike price for a premium of 1.19 apiece in order to finance the purchase of 5,113 calls at the October 21 strike for 1.11 each. The investor has banked an 8 cent credit on the trade and is looking for shares to rally by about 13% by expiration in order to for the calls to land in-the-money, and for the premium on the calls to grow richer over time.
F Ford Motor Co. – Shares of the automotive company have…
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Pfizer options active in late trading
by Option Review - March 24th, 2009 4:58 pm
Today’s tickers: PFE, HPQ, EFA, C, AGN, VIX, LTD, XHB, SYK, IP & TGT
PFE Pfizer Inc. – Shares of the pharmaceutical company have declined slightly by less than 1% to stand at $13.93. Pfizer edged onto our ‘most active by options volume’ market scanner late in the afternoon after some interesting trades went through in the January 2011 contract. At the 15 strike one investor initiated a sold straddle by shedding 10,000 calls for a premium of 2.05 as well as 10,000 puts for 3.60 apiece. The gross premium enjoyed on the trade amounts to 5.65 and is retained in full if shares settle at $15 by expiration. This trader is expecting shares to remain mid-way between the 52-week low for Pfizer of $11.62 and the 52-week high at $20.32. In contrast, a bullish investor purchased 11,500 calls at the January 20 strike price for 80 cents per contract. This investor is hoping to see shares rally by 49% over the next 2 years to arrive at or above a breakeven share price of $20.80.
HPQ Hewlett-Packard Co. – Shares of the technology company have dipped slightly by less than 1% to $31.08. We observed a call-to-put ratio of about 3.0 which implies that call options traded three times for each put traded. However, the calls were nearly all sold. The November contract stood out with 8,400 calls sold at the 35 strike price for an average premium of 2.80. Another 11,000 calls were shed for 2.00 at the November 37.5 strike price. No open interest was previously recorded at either of these strikes, and therefore these calls were sold short by investors. Moving into the January 2010 contract, it appears that one individual sold 3,750 in-the-money calls at the 30 strike price for a premium of 5.50, while purchasing the same number of puts at the 32.5 strike for 5.80 apiece. This transaction leaves the trader with a net cost of 30 cents and a breakeven share price at which profits begin to amass on the downside at $32.20. Thus, the overall tapestry woven together by option trades depicted some species of large bear. One trade initiated in January ran counter to rest as one investor purchased 12,500 calls at the 32.5 strike price for a hefty premium of 4.35. Shares would need to rally by about 19% from the current price in order for the investor…
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Blackstone bulls line up
by Option Review - March 23rd, 2009 5:46 pm
Today’s tickers: BX, GCI, AA, LVS, XLF, JPM, C, AGN, RHT, SU & SWY
BX The Blackstone Group L.P. – The broader market experienced gains after fresh information from the Treasury Department was released regarding its plan to utilize private and public funds to relieve banks of bad credit and toxic assets. Shares of BX soared on the news by 23% to $7.77 because it is has now been widely reported that hedge funds and private-equity firms are likely to reap substantial gains from the public-private partnership. Blackstone jumped to the top of our ‘hot by options volume’ market scanner after one investor established a sold straddle in the May contract. At the May 7.5 strike price 10,000 calls were sold for 1.60 each while 10,000 puts were also sold for 1.10 each. The gross premium pocketed on the trade amounts to 2.70 and is fully retained if shares settle at $7.50 by expiration. Call volume has far outweighed put volume with a ratio of 2.4 calls to each put traded. We observed pure call buying in the April contract where traders picked up lots as high up as the 10 strike for a premium of 33 cents each. One investor paid a net cost of 40 cents in order to roll 4,350 in-the-money calls at the June 2.5 strike price forward to the same low strike expiring in January 2010. Optimistic traders also picked up 3,000 calls at the January 10 strike price for 1.86 each. Option implied volatility peaked at 120% today, but has since come off to the current reading of 105%.
GCI Gannett Co., Inc. – Shares of the international news and information company are up by more than 7% to stand at $2.30. GCI appeared on our ‘hot by options volume’ market scanner after one trader utilized options in search of gains on the rising stock. We believe that this investor likely purchased 1,000,000 shares of the underlying stock and simultaneously sold 10,000 calls at the April 2.5 strike price for a 15 cent premium. By selling the option contracts the trader effectively reduced the price of the shares to $2.00 each because the stock was trading at $2.15 at the time of the trade. Should the 2.5 calls land in-the-money by expiration this investor will have sustained gains of 23% if the shares get called away from him at the end of the…
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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...
Ilene is editor and affiliate program
coordinator for PSW.