Microsoft Ratio Spread Looks For Further Upside
by Option Review - July 17th, 2014 3:59 pm
A ratio call spread initiated on Microsoft Corp. (Ticker: MSFT) on Wednesday (July 16) suggests one big options market participant may be looking for shares in the software company to extend gains after the firm reports earnings on July 22nd. The stock jumped on Wednesday and is up again today after the company reported it will cut up to 18,000 jobs over the next year. The stock is currently up more than 3.0% at $45.54 as of 9:35 a.m. ET. The trader yesterday appeared to have sold 20,890 of the 15Aug’14 43.0 strike calls at a premium of around $1.04 each in order to buy roughly 3.3 times as many (68,899 contracts) of the higher 15Aug’14 45.0 strike calls at a premium of $0.34 apiece. The trade cost a little more than one nickel per contract to put on and positions the trader to make money if shares blow through the $46.00-level by expiration. The complexity of the ratio spread and the sale of in-the-money call options suggests the strategist may have a position in the stock, though the options trade itself was not tied to stock according to data available at the time of the transaction.
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MSFT Calls Active
by Option Review - June 13th, 2014 4:07 pm
Heavy trading in upside call options on Microsoft Corp. (Ticker: MSFT) suggests some traders are positioning for the price of the underlying to continue to push to fresh multi-year highs in 2014. The stock is currently up 1.85% to stand at $41.33 as of 2:10 pm ET. Earlier this month MSFT shares touched $41.66 and the highest level since 2003.
Traders looking for shares in the name to extend gains next week snapped up 20Jun’14 41.5 strike calls, with upwards of 21,000 of those contracts changing hands against open interest of just 320 positions. Time and sales data suggests most of the volume was purchased for an average premium of $0.27 apiece, and establishes an average breakeven price of $41.77. Bullish trading traffic was also concentrated at the Aug 43.0 strike, where more than 20,000 calls traded during the first half of the session. Most of the volume printed within the first hour of the trading day, and it looks like most of the calls were purchased for a premium of $0.69 apiece, on average. Buyers of the 43.0 strike calls stand ready to profit at expiration in the event that Microsoft’s shares rally another 6.0% over the current level to exceed the average breakeven price of $43.69.
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Weekly Options Active On Microsoft
by Option Review - April 22nd, 2013 9:10 pm
Today’s tickers: MSFT, GILD & PWER
MSFT - Microsoft Corp. – Reporting from CNBC’s David Faber this morning that activist fund ValueAct Capital Management LLC has acquired a $2 billion stake in Microsoft Corp. lifted shares in the world’s largest software maker today, with the stock up 3.5% at $30.80 as of 12:10 p.m. ET. Options volume on MSFT is fast approaching the stock’s average daily level, with roughly 210,000 contracts in play as of midday. Fresh interest in weekly call and put options suggests some traders are positioning for the price of the underlying to extend gains in the near term, while others are betting the shares will lose steam by the end of the week. The April 26 ’13 $31 strike is seeing the most volume among the weekly contracts, with around 6,000 calls and roughly 8,000 puts traded so far. Bullish strategists appear to have purchased most of the calls for an average premium of $0.25 each, and may profit at expiration in the event that MSFT’s shares top $31.25. Meanwhile, traders bracing for shares to reverse course snapped up around 6,000 of the $31 strike puts at an average premium of $0.35 apiece. Put buyers make money as long as the price of the underlying settles below the breakeven point at $30.65 by expiration. Overall trading traffic is favoring puts over calls as of the time of this writing, with the call/put ratio hovering around 2.6 as of 12:15 p.m. ET.
GILD - Gilead Sciences, Inc. – Upside call options are changing hands on Gilead Sciences today, with shares in the biotechnology company rising as much as 1.9% to a new 52-week high of $54.20 during the first half of the session. Trading traffic in the weekly options on Gilead suggests some traders anticipate fresh highs leading up to the firm’s first-quarter earnings report on May 2nd after the closing bell. The April 26 ’13 $55 strike calls are seeing the most volume, with upwards of 2,800 contracts changing hands versus open interest of…
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Which Way Wednesday – Probably Both Ways, Again
by phil - November 14th, 2012 8:31 am
What was that mess yesterday?
As you can see from David Fry's SPY chart, we went up and finished down but the volume was a bit lower to the upside than the sell-off into the close. MSFT and INTC led us to the downside – no surprise really as we discussed both this weekend as Dow components to avoid in the current cycle.
There was no significant economic data, just the usual nonsense about Greece and, of course, the drumbeat of fear regarding the US fiscal cliff that the MSM is banging 24/7. "What's up with that fiscal cliff" is now how 90% of my conversations begin with anyone who knows what I do for a living.
I now find that it's easier to say "Oh, we're all totally doomed" than to explain why we're not because when, for example, I say this to one of my Mother's friends – they nod wisely and agree with me while, if I try to explain why they shouldn't worry so much – they get all confused and then say to my Mom – "I thought he was supposed to understand the stock market."
I guess I should have tried this with my children. Rather than sitting up for 15 minutes or so explaining why there are not monsters under their bed – I could have just agreed with them and said "Yep, big hungry ones!" Maybe they'd never sleep again but at least I'd sound knowledgeable about monsters and the imminent dangers they posed to sleeping children.
Stocks are now at 3-month lows and it's been a month since we strung together 2 up days in a row (Oct 15-17) with the S&P falling from 1,470 on Oct 5th to yesterday's low of 1,371 fir a 99-point drop in 25 trading sessions (6.8%) – losing an average of 4 S&P points a day with 1,360 being our Must Hold line on the Big Chart. The S&P and the NYSE are both, so far, holding their lines (NYSE is 8,000) and they are our broadest indexes but we're pretty close to having to layer our disaster hedges as we cross those -7.5% lines.
The S&P was at 1,440 when we put up our latest round of disaster hedges on the 20th of October. Before that, we had just been using TZA as our primary hedge –…
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TGIF – Happy Crashiversary – Are You Prepared for the Next One?
by phil - October 19th, 2012 8:30 am
25 years ago today, the market fell 22%.
You never know what's going to panic the markets – since then we've had many other sudden corrections like Black Friday just 2 years later and Black Wednesday in September 1992, we've had the dot.com collapse and 9/11 and whatever you call 2008 and recently we had Dubai and Greece leading to sudden crashes and the ubiquitous flash crash and whatever happened last August (Europe again).
So stock markets are dangerous places to keep your money, on the whole. That's why TZA (ultra-short Russell) is our primary hedge in the Income Portfolio and, as I mentioned in last Wednesday's post, should the S&P fail to hold 1,440, then the Dow has little support all the way down to 13,295 as well. Just this Tuesday, I reiterated a TZA spread Members could use for general portfolio coverage:
Ultra hedges/Bdon – You just can't beat TZA at $15. The Jan $12/15 bull call spread is $1.50 so 100% upside if TZA simply doesn't go any lower. If they do go lower, you can sell the April $11 puts, now .50 for $1 (the Apr $12 puts are .92) before your $1.50 is even out of the money and then you'd be in the Jan $12s at net .50 and worst case is you get assigned at net $11.50 in April but, of course, you can roll or simply accept the assignment and cover and then you have more long-term protection.
We like to buy our protection when the market is going up – it's cheaper that way! TZA was at $14.75 at yesterday's close and the Jan spread was still about the same $1.50 but it's $2.75 in the money – all we need is for TZA to not go down (Russsell not to go up) and we make a tidy profit. That's a good way to hedge because the only way that hedge loses money is if the market breaks higher.
We're not turning bearish yet but, as we're seeing some pretty serious misses (GOOG and CMG yesterday, for example) and some pretty strong reactions to those misses – it is a good time to make sure people do remember the value of hedging. If nothing else, it's a piece of mind that lets us ride out these dips without worry. Also, of course, it's good to…
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Friday Failure – Weak Bounce Levels Turn Into Resistance
by phil - May 25th, 2012 8:30 am
Resistance is, unfortunately, not futile for our indices.
On Monday we discussed our expectations for a 2% weak bounce for the week, which would be a 20% retrace of the 10% drop I had predicted we'd have way back (and a bit early) in March. That constitutes a WEAK bounce and not a rally and they almost fooled us on Monday by taking back most of that 2% on day one but, since then – it's been pathetic and we've essentially done nothing the rest of the week.
The levels we were looking for were laid out in Monday's Member Chat and in Tuesday morning's post and were:
- Dow – 12,750 (12,540 is 20% retrace/weak bounce), now 12,529 – off by 11
- S&P – 1,343 (1,319), now 1,320 – off by 1
- Nas – 2,900 (2,840) , now 2,839 – off by 1
- NYSE – 7,720 (7,560), now 7,552 – off by 8
- RUT – 780, (765), now 766
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Thrill-Ride Thursday – Here We Go Again
by phil - April 19th, 2012 8:28 am
Wheeeeee!
We are just loving these crazy-assed market moves. Every morning we have a pump job to short into and every afternoon there is a BS stick-save to re-establish our shorts. It's merely a matter of time before those floors begin to crack. I mean, really – how much of this abuse can they take?
Notice, in Dave Fry's SPY chart, the high-volume selling followed by low-volume pumping – that's the very unhealthy pattern the "rally" was built on, which means there really aren't any buyers waiting to scoop up shares when they dip – just Trade Bots that tease the indexes higher so the IBanks can keep pulling in the bag-holders as the "smart money" stampedes for the exits.
Yesterday was great fun. As I noted in the morning post, we went short on the Oil Futures (/CL) at $104.50 in our morning Member Chat and even in the morning post there was still time to catch it at $104. Oil sold off all the way to $102.60 at 2:10 and my 2:14 comment to Members nailed the turn as I said:
Oil coming right to our goal at $102.50 ($38.50 USO) so let's not be greedy and look to take $1.20 off the table on those 1/2 USO positions in the $25KP and $5KP as it's better to get out while the gettin's good.
That's what we mean when we talk about taking non-greedy exits (I had set $38.50 as my USO target for our exit at 11:08 but it didn't look like we'd get it so we got out). We caught the bottom and got out clean and this morning we got a chance to re-load our shorts at $103.50 on that predictable morning pump. Sure, you can say the markets aren't fixed and maybe we just have amazingly good timing – either way we make the same money!
We did manage to find a few things we liked, one of which was CHK, as the stock plunged to $17.20 on much ado about not too much as people took issue with the CEO borrowing money to invest in their wells. We didn't think it was such a big deal and our trade idea at at 10:23 in Member Chat gave us a good opportunity to buy right into the day's…
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Top 1% Tuesday – $105,637 for Me, $80 for You!
by phil - March 27th, 2012 7:34 am
Wheeeeeee – isn't this economy FANTASTIC?
It sure is for those of us in the top 1% (1.4M) - people earning over $352,000 in annual income. We made $105,637 more Dollars in 2010 than we did in 2009 – thanks in large part to the Fed's fantastic policy of printing more and more money, which lets us borrow cheaply or invest with leverage in inflating equity as the Dollar collapses. Sure the Dollar collapsing hurts everyone – but an extra $105,637 keeps us ahead of inflation, right?
I'm stil jealous of course (good Capitalists are always jealous), as the top .01% (14,000 of us) – who earn an average of $23.8M, were able to add another $4.2M to their annual incomes in 2010. That's 52,500 TIMES the average $80 increase earned by the bottom 99% (thank goodness we're not one of THEM!). That's right, somehow, the riff-raff in the bottom 99% managed to grab 7% of the Nation's total increase in income – clearly Congress needs to make immediate changes to prevent this travesty from happening again!
Steve Rattner has a different opinion, saying: "The only way to redress the income imbalance is by implementing policies that are oriented toward reversing the forces that caused it. That means letting the Bush tax cuts expire for the wealthy and adding money to some of the programs that House Republicans seek to cut. Allowing this disparity to continue is both bad economic policy and bad social policy. We owe those at the bottom a fairer shot at moving up."
That's Commie talk! If we allow the bottom 99% to make a fair share of the money, they would make 5% more and you know they would only SPEND it on stuff they need TO LIVE. Then our companies would have to provide more goods and services to the bottom 99% and jobs would be created and we, at the top, would have to WAIT for the money to trickle UP from the bottom as only companies that do a good job servicing the bottom 99% would increase in value. Even worse, we may have to WORK (a four-letter word) to provide goods and services for the people who have money in order to EARN (another four-letter word) our Incomes. That's no fun for us at all!
We like it when we get ALL the money and we create just the jobs we choose by buying really…
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Fall-Back Thursday – Time To Get Real?
by phil - March 22nd, 2012 8:34 am
Do you REALLY think this will go on forever?
On the right is the AAPL quarterly chart but it could also be the quarterly chart of SHLD, NFLX, FOSL, STX or PCLN (Bespoke Chart), all of whom are up more than AAPL (which is up 50%) in 2012. We've discussed PCLN as one of my favorite shorts and we had a good discussion in Member chat last night comparing PCLN to EXPE, who drop the same amount of cash to the bottom line (before buybacks and dividends) but have just 1/8th of the market cap of PCLN.
Sure you can say that PCLN is twice as good as EXPE (it isn't, but you can say it) but can you say it's 4 times as good? How about 8 times? EXPE nets $500M a year – 8 times that is $4Bn – more money than the entire travel sector makes! How, exactly, will PCLN grow into that valuation? Eliminate all competition and then grow the sector by 50%? Well, that's pretty much what AAPL did but how many AAPLs can you have in one market?
THAT is the problem my friends. Aside from the macro concerns we discussed in yesterday's post, we have a sort of value mania that is driven by the very real success of one company, much the way we had a dot com boom in the late 90s driven by the very real success of just a few companies. Back then, everyone was the next QCOM, YHOO, MSFT, CSCO – whichever category you were supposed to be the best. Qualcomm, in fact, was the best performing tech stock of 1999, gaining 2,619% that year and finishing right about $100. By the end of July, 2002, they were trading at $10 but hey, what a ride!
In fact, here's the CNet story from Dec 29th, 1999 titled "Qualcomm Jumps on $1,000 Price Target" and coming on the heels of "Qualcomm to offer Net2Phone services in Eudora" it's no wonder people were super-excited! AMZN was "only" up 25% that year to $100 but Jeff Bezos was Time's Man of the Year and yes, their business has been growing at an amazing rate for the past 12 years and they have crushed their competition and dominated the sector – and gained less than 6%…
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Easy Money Monday – Robbing Peter to Pay Portugal
by phil - December 12th, 2011 8:27 am
That was easy!
Who'd have thought Europe's problems could be over just like that? Certainly not us, as I was quite skeptical Friday Morning (see yesterday's Stock World Weekly for the Executive Summary of the Week's Events). As I noted in Friday morning's post, we had ended the day on Thursday very bullish – too bullish I decided on Friday morning and I called for cashing out into the weekend at the end of the morning post. In the morning Alert to Members, I repeated:
When in doubt, sell half and, in this case, I want to get back to more cash by the day’s end in the White Christmas Portfolio as the WCP is too bullish and I’m just not in the mood to risk it so we’re not going to be too brave if the "rally" stops or even slows down.
The markets were very kind to us, heading higher all day long and giving us great exits. Heading into the close, we got a bit more bearish and, aside from existing hedges like our EDZ spread (mentioned as our key hedge in last week's Stock World Weekly), we added DXD (ultra-short Dow) Jan $15 calls at $1.25 but we offset those with short FCX Feb $33 puts at $1.25 in our virtual White Christmas Portfolio, with 10 of those contracts on each side netting a free spread with unlimited upside (with the downside being owning FCX cheaply). As I pointed out to Members, DXD was $18.50 just 3 weeks ago.
At 3:26, just before the close, we added the SQQQ (ultra-short Nasdaq) Jan $16/19 bull call spread for $1.50, which I pointed out had a nice 100% potential upside all by itself but you could also, for example, offset it with things you REALLY want to own if they get cheap – like shorting a GOOG Jan $500 put ($1.20) or an AAPL Jan $320 put ($1.25) or a MSFT 2013 $20 put ($1.10) – the idea is to just thing of what stock you REALLY want to be jumping in and buying if the market throws a 20% off sale. If there's nothing, then you should be thrilled with the 100% potential gain on the raw spread.
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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. She manages the site