Appetite For Diamond Foods Options Rises As Shares Tumble
by Option Review - February 9th, 2012 1:55 pm
Today’s tickers: DMND, MHS & TRIP
DMND - Diamond Foods, Inc. – Investors sent shares in the maker of Pop Secret and Emerald snack nuts sharply lower on Thursday after the Company said it will replace its top two executives and restate earnings for the past two years. The already hard-hit stock opened down more than 40.0% this morning to touch an intraday- and multi-year low of $21.44. Options on Diamond Foods attracted all kinds today, with some strategists nibbling at calls and selling puts, while others position for further downside in the name. Investors expecting shares to somewhat recover in the next six trading sessions picked up call options in the front month. Approximately 1,400 calls were purchased at the Feb. $25 strike for an average premium of $0.86 each. Call buyers may profit at expiration next Friday in the event that DMND’s shares rally 11.2% off the current price of $23.25 to top the average breakeven price of $25.86. Meanwhile, out-of-the-money put selling in the front month may mean some traders expect the stock is unlikely to tumble much further from here within the next week. Put sellers looked to the Feb. $20 strike, selling around 1,500 of the contracts to receive an average premium of $0.64 per contract. Traders keep the full amount of premium as long as shares in Diamond Foods exceed $20.00 through expiration. Options volume on the food products company today currently exceeds 95,000 contracts, an active day for the stock, which has 158,981 contracts comprising overall open interest.
MHS - Medco Health Solutions, Inc. – Shares in the pharmacy-benefits-manager (PBM) are off slightly this morning, down 0.20% at $60.70 as of 11:30 a.m. in New York, but options activity in the name suggests the stock…
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Arch Coal Set to Rebound?
by Option Review - June 3rd, 2011 4:41 pm
Today’s tickers: ACI, MHS & JPM
ACI - Arch Coal Inc. – We’re scratching our heads trying to fathom out why an investor is plundering deeply monied put options in Arch Coal on Friday. Shares in the mining behemoth have slumped recently and indeed today have filled a technical gap to the November high at $26.62. Buyers have resumed and the stock could easily land in the black today. Yesterday investors drove shares lower after the company announced the issuance of $1.3 billion worth of fresh stock to be partially used to finance the purchase of International Coal Group later in June. The secondary IPO was offered at a discount to an already weakening market cap to entice buyers and once swallowed, one investor appears to be banking on a recovery. A credit put spread was deployed earlier Friday with an investor taking in a net premium of $1.35 by writing the $30 puts and buying the less costly $28 puts. We can only assume that this bull expects a rebound to lift the stock back above $30 rendering both options worthless leaving him holding the cash.
MHS - Medco Health Solutions Inc. – A rally in healthcare company, Medco saw its shares surge from $51.80 in late-March to $64.92 in mid-May. This week it cratered back to $56.50 before steadying and today its shares stand at $58.27 having lost a contract to provide the Federal Employee Program (FEP) with mail-order and specialty pharmacy benefits. FEP awarded its 2012 contract to CVS Caremark instead and follows the loss of a key contract to provide Calpers employees with health services. A call option butterfly expiring in July has one bold option trader banking on a summer rebound to $65.00. The investor bought 12,000 calls at each of the $60 and $70 strikes…
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Bulls Position for an Energy Select Sector SPDR rally
by Option Review - March 17th, 2011 4:05 pm
Today’s tickers: XLE, MHS, GMR & DE
XLE - Energy Select Sector SPDR ETF – Signs of bullish sentiment on the XLE, an exchange-traded fund that tracks the performance of the Energy Select Sector of the S&P 500 Index, appeared in the April contract this morning with shares in the fund rising 2.6% to $75.67 by 11:15am in New York. According to a report out from Bloomberg reporter Arie Shapira, analysts at Goldman recommended buying call options on certain energy stocks, many of which are holdings in the XLE. Like-minded traders looked to Energy SPDR options today to position for a sector rally. A couple of call spreads were purchased on the ETF earlier in the session. The use of this strategy reduces the premium required to get long the closer to-the-money strike calls as opposed to buying the contracts outright. It looks like traders picked up a total of 10,000 calls at the April $79 strike for an average premium of $0.76 each, and sold the same number of calls at the April $82 strike at an average premium of $0.205 apiece. The average net cost of initiating the bullish stance amounts to $0.555 per contract. Thus, call-spreaders stand prepared to profit should the price of the underlying fund surge 5.1% to surpass the average breakeven price of $79.555 by April expiration. Investors could walk away with maximum potential profits of $2.445 per contract if shares in the XLE jump 8.4% over the current price of $75.67 to trade above $82.00 by expiration day next month. Shares in the fund last traded above $82.00 back in July 2008.
MHS - Medco Health Solutions, Inc. – The pharmacy-benefits management company drew heavy options trading volume today with its shares declining as much as 6.3% today to touch an intraday low of…
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Large Prints in Energy SPDR ETF Put Options
by Option Review - March 12th, 2011 11:53 am
Today’s tickers: XLE, TM, MHS & QCOR
XLE - Energy Select Sector SPDR ETF – Options volume on the XLE jumped following the opening bell this morning with most of the activity concentrated in April contract puts. It looks like one big player kicked things off in the first 20 minute of the session by unraveling a massive bear put spread on the fund. Shares in the XLE rose sharply today, gaining as much as 1.95% in early afternoon-trade to hit $75.27 by 12:20pm. The trader responsible for the largest put spread print certainly seems to have a keen sense of timing, initiating the debit put spread near the XLE’s top, and taking the spread down this morning ahead of the intraday move higher. The investor appears to have initiated the spread back on February 28, 2011, when shares in the XLE reached a session-high of $78.69. The big player sat with the trade, watching shares hit fresh highs as uncertainty over turmoil in the Middle East and its effect on the price of oil continued to flourish, until the price of XLE shares started their decline on March 7. The fund’s shares fell 7.2% to today’s low of $73.03 in the 3 weeks since the trade was established, pushing the long-leg of the puts in-the-money. Today, the trader anticipated the bounce higher in XLE shares and ditched the bearish position by selling at least 66,000 in-the-money puts at the April $75 strike for a premium of $2.79 each, and buying the same number of the lower April $70 strike puts at a premium of $1.00 apiece. Given an approximate purchase price on the original spread of around $0.98 per contract on February 28, it looks like the put player walks away with net profits of $0.81 per contract by taking the trade down this morning. The unraveling of the transaction may be a sign this trader believes shares in the XLE are set to rise higher, at least through April expiration.…
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Bullish Player Adjusts Sizable Stance in EMC Corp. Call Options
by Option Review - February 10th, 2011 5:05 pm
Today’s tickers: EMC, MHS, AA & AEO
EMC - EMC Corp. – Large blocks of in- and out-of-the-money call options exchanged on EMC Corp. during the first 25 minutes of the trading session appear to be the work of one investor taking profits off the table on the one hand, and ultimately extending bullish sentiment on the stock on the other. Shares in the provider of information infrastructure technologies and solutions are currently up a slightly 0.10% to stand at a fresh 52-week high of $27.11 just before 12:00pm. It looks like the options trader originally purchased 30,000 calls at the April $24 strike for $1.00 per contract back on January 3, 2011, when shares in the name were trading around $23.23. The subsequent rally in the price of the underlying lifted premium on the now deep in-the-money calls, allowing the investor to sell all 30,000 call options at that strike today for a premium of $2.86 apiece. Net profits on the transaction amount to $1.86 per contract. Next, the trader paid a premium of $0.83 per contract to buy a fresh batch of 30,000 calls up at the July $29 strike. The investor starts to make money on the new bullish stance in the event that EMC Corp.’s shares increase another 10.0% to exceed the effective breakeven share price of $29.83 by expiration day in July.
MHS - Medco Health Solutions Inc. – The healthcare company and provider of pharmacy services popped up on our ‘hot by options volume’ market scanner this morning after one strategist initiated a delta neutral strategy using calls, puts and Medco stock. Shares in the name are currently up 0.50% to arrive at $62.29 in early afternoon trade. It looks like the investor purchased 295,800 shares in MHS at a price of $61.88 each, purchased 5,100 puts at the January 2012 $55 strike for a premium of $3.60 each, and sold the same number of call options up at the January 2012 $72.5 strike at a premium of $2.50 apiece,…
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Bulls Bombard Research in Motion Ahead of BlackBerry 9800 Launch
by Option Review - July 28th, 2010 5:21 pm
Today’s tickers: RIMM, INTU, LVS, RRC, MHS, HSP & CHS
RIMM – Research in Motion Limited – Optimistic options players populated the Blackberry maker’s August contract, selling puts and buying calls to prepare for the price of the underlying stock to continue climbing ahead of expiration day next month. RIMM’s shares rallied as much as 4.53% today to an intraday high of $55.59 on reports the Canadian company will reveal its new touch screen BlackBerry in New York next Tuesday. Investors are chomping at the bit to see if the BlackBerry 9800 can give iPhone maker, Apple, a run for its money – or market share. RIMM’s shares have bounced up off their early-July lows, but the recovery could be short-lived if the 9800 turns out to be a disappointment. Traders hoping to see a successful launch of the touch screen device, and subsequent share price appreciation, employed bullish strategies. Investors picked up at least 3,800 calls at the now in-the-money August $55 strike for an average premium of $2.15 apiece. Buying interest spread to the higher August $57.5 strike where 3,900 calls were purchased at an average premium of $1.16 each. Uber-bulls bought roughly 2,900 call options at the August $60 strike for an average premium of $0.68 a-pop. Investors long the August $60 strike calls are poised to profit should RIMM’s shares surge 9.25% to surpass the average breakeven price of $60.68 by August expiration. The sale of out-of-the-money put options is another bullish signal investors are itching for the current rally to continue. Traders sold some 2,000 puts at the August $50 strike for an average premium of $0.55 each, and shed another 5,200 puts at the higher August $52.5 strike for an average premium of $1.21 apiece. In total, options players exchanged more than 91,300 contracts on Research in Motion by 3:40 pm ET. Options implied volatility on RIMM is up 3.4% to 43.85% ahead of the final bell.
INTU – Intuit Inc. – The provider of business and financial management solutions popped up on our ‘hot by options volume’ market scanner late in the trading session after one options strategist initiated a bearish transaction in the October contract. Intuit’s shares are down slightly by 0.15% to stand at $39.50 as of 3:15 pm ET. It looks like the trader bought a plain-vanilla debit put spread, buying 6,346 puts at the October $37.5 strike for a…
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Bulls Go Bananas for Chiquita Call Options
by Option Review - July 22nd, 2010 4:15 pm
Today’s tickers: CQB, BX, BAC, SWY, LLY, NFLX, MHS & UPS
CQB – Chiquita Brands International, Inc. – Shares of the marketer and distributer of bananas and other fresh produce surged 5.2% this afternoon to an intraday high of $12.68, giving bullish players a healthy appetite for call options on the stock just one week before the firm is slated to report second-quarter financial results. Chiquita Brands International popped up on our ‘hot by options volume’ market scanner after investors coveted approximately 2,900 calls at the now in-the-money November $12.5 strike for an average premium of $1.52 a-pop. Call buyers make money if, by expiration, Chiquita’s shares jump 10.6% over today’s high of $12.68 to trade above the average breakeven point to the upside at $14.02. CBQ shares last traded above $14.02 back on June 15, 2010, but traded as high as $16.84 on April 26, 2010. Investors long the calls are well positioned to accumulate significant profits should the price of the underlying shares rebound to the value recorded at the end of April.
BX – The Blackstone Group LP – Activity observed in LEAPS on the global asset manager and provider of financial advisory services suggests one strategist expects Blackstone’s shares to rise significantly by expiration in January 2012. BX’s shares are up 3.9% at $10.71 as of 3:15 pm (ET), but earlier increased as much as 5.00% to secure an intraday high of $10.83. It looks like the investor enacted a three-legged bullish transaction, selling put options to partially finance the purchase of a debit call spread. The trader sold 4,700 puts at the January 2012 $10 strike for premium of $2.30 each, purchased 4,700 calls at the January 2012 $10 strike at $2.60 in premium apiece, and finally sold 4,700 calls at the higher January 2012 $17.5 strike for a premium of $0.40 a-pop. The transaction yields a net credit of $0.10 per contract, which is safe in the investor’s wallet as long as Blackstone’s shares trade above $10.00 at expiration day. Additional profits accrue above a share price of $10.00, with maximum potential profits of $7.60 per contract available to the trader if the price of the underlying stock jumps 63.3% to trade above $17.50 by expiration day in January 2012. Bullish trading in options on the world’s biggest buyout firm arrived after the release of its second-quarter earnings report before today’s open. The company…
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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.