More Monday Morning Foolishness – Playing a Rigged Game
by phil - August 13th, 2012 8:29 am
Think Mcfly, THINK!
Forget the rhetoric, forget what Cramer says – or any of the other idiots on what used to be accurately called "the idiot box." Just look at this one, simple chart (thanks Doug Short) and tell me – why on earth would the Fed step in and take emergency action when the market is at a multi-year high?
Have they EVER done this before? EVER? Has ANY Central Bank EVER taken emergency liquidity measures when their stock market was at or near their all-time highs? And look at the interest rates (the red line) – there's nowhere to go folks – not unless the Fed is going to start PAYING US to borrow money. In which case – sign me up for $10Bn…
This is the point that was made this week on the cover of Stock World Weekly, and my comments in "The Week Ahead" section were:
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Wednesday Whiplash – Coordinated CB Action Traps Bears!
by phil - November 30th, 2011 8:17 am
The new Beige Book is here, the new Beige Book is here!
I'm sorry but I get very excited about this kind of stuff. I love data, especially the kind of data our policy-makers rely on to make their future decisions. Although the BBook is a gathering of anecdotal evidence from the Fed's 12 regions (see map below), the data comes from businessmen that are respected by each Fed Governor so THEY take it seriously and if they take it seriously, you'd better too.
We'll have to wait until 2pm for today's main event but we get early sentiment readings out of New York with the ISM Report and at 9:45 we get the Chicago PMI. We already got a TERRIBLE number on Mortgage Applications (down 11.7%) but we'll call that a holiday thing (hopefully) and we'll see if that's confirmed or denied in the 10am Pending Home Sales Report.
We have Challenger Job Cuts and Productivity Numbers and Oil and OH MY GOD – SCREW THAT – MORE FREE MONEY IS HERE!!!
The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank are today announcing coordinated actions to enhance their capacity to provide liquidity support to the global financial system. The purpose of these actions is to ease strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity.
These Central Banks have agreed to lower the pricing on the existing temporary U.S. dollar liquidity swap arrangements by 50 basis points so that the new rate will be the U.S. dollar overnight index swap (OIS) rate plus 50 basis points. This pricing will be applied to all operations conducted from December 5, 2011. The authorization of these swap arrangements has been extended to February 1, 2013. In addition, the Bank of England, the Bank of Japan, the European Central Bank, and the Swiss National Bank will continue to offer three-month tenders until further notice.
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Option Player Reenergizes Bullish Stance on RRI Energy, Inc.
by Option Review - December 17th, 2009 4:29 pm
Today’s tickers: RRI, USO, GLD, MT, AEM, INTC, ESRX, C, KO & GEOY
RRI – RRI Energy, Inc. – A large-volume call option combination play launched RRI Energy onto our ‘most active by options volume’ market scanner this afternoon. The investor responsible for the activity banked profits by selling-to-close a previously established long call position. The trader also initiated a new bullish stance on the stock to position for a near-term rebound in shares of the underlying. RRI’s shares are down more than 2.5% today to $5.58. It appears the investor originally purchased 35,000 calls at the now deep in-the-money December 4.0 strike for a premium of 1.30 apiece in early November when shares were at $5.15. Today the trader sold the chunk of call options for 1.55 each, banking net profits of 15 cents per contract. Finally, the RRI-optimist established a fresh bullish stance at the in-the-money January 5.0 strike by buying 35,000 calls for a premium of 85 cents apiece. Shares must rally about 5% from today’s price in order for the investor to break even at $5.85 by expiration next month. The increase in demand for option contracts on the stock lifted option implied volatility significantly. Volatility on RRI Energy increased 21.66% from an intraday low of 55.31% to a high of 67.29%.
USO – United States Oil Fund LP – Shares of the USO fund slipped slightly lower during the trading session, falling less than 1% to $36.50, as of 3:00 pm (EDT). Short strangle plays in the July contract suggest shares of the fund are likely to remain range-bound for the next seven months to expiration. Investors shed 2,500 calls at the July 38 strike for a premium of 3.56 apiece, in conjunction with the sale of the same number of puts at the lower July 33 strike for a premium of 2.75 each. Short-stranglers receive a gross premium of 6.31 per contract on the trade. They keep the full amount of premium if USO’s shares trade within the strike prices described through expiration. Shares of the fund traded within the range of $33-$38 for the four month period starting July 15, 2009, and ending October 12, 2009. Perhaps today’s short strangle sellers expect to see similar inertia in USO shares for the next seven months to expiration.
GLD – SPDR Gold Trust ETF – A bullish risk reversal on the gold exchange-traded fund suggests…
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Transportation ETF Sees Bearish Options Combo
by Option Review - September 23rd, 2009 5:05 pm
Today’s tickers: IYT, WYN, BBBY, XLU, ERTS, MSFT, ALTH & MT
IYT - Shares of the IYT are currently down 0.5% to $71.43. One option trader appears to have exchanged 19,500 contracts on the ETF to take a bearish stance through expiration in December. The three-legged trade executed on the IYT today exceeds the existing open interest of 13,323 lots by more than 6,000 contracts. The trader likely holds a long position in the underlying shares of the fund because of the placement of the options play. It appears the investor funded a put spread by selling out-of-the-money calls short. He sold 6,500 calls at the December 76 strike for 2.45 apiece. The put spread involved the purchase of 6,500 puts at the December 73 strike for 5.10 each against the sale of 6,500 puts at the lower December 67 strike for 2.70 per contract. The investor is left with a net credit of 5 pennies, which he will ultimately retain in full as long as shares of the IYT remain beneath $76.00 through expiration. Additional gains – or downside protection on a long stock position – have already kicked in for the trader given the breakeven price of $73.00 on the trade. The put spread provides maximum protection if shares decline 6% from the current price to $67.00 by expiration in December. – iShares Dow Jones Transportation Average Index –
WYN - The hospitality company appeared on our ‘hot by options volume’ market scanner this afternoon due to greater than normal call activity. Bullish option traders made moves on the stock despite the slight 0.25% dip in shares to $16.01. Traders looked to the November 20 strike where approximately 1,000 calls look to have been bought for an average premium of 45 cents each. The higher November 22.5 strike had about 8,000 calls coveted by investors who paid an average of 19 cents per contract. Call-buyers at the higher strike may garner profits if shares surge 42% from the current price to surpass the breakeven point at $22.69 by expiration in November. Wyndham has traded beneath the breakeven price described since May 20, 2008. We note that option traders exchanged 21,290 contracts on WYN today, which represents 36% of the existing open interest on the stock of 59,774 lots. – Wyndham Worldwide Corp. –
BBBY - The home-furnishings retailer received an upgrade to ‘neutral’ from ‘sell’ at FTN Equity today ahead…
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Lexmark Call Buyers Out In Force
by Option Review - July 14th, 2009 4:16 pm
Today’s tickers: LXK, EEM, MT, VIX, HUM, IPI, MIR & UNH
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Microsoft options looking bullish
by Option Review - April 14th, 2009 4:12 pm
Today’s tickers: MSFT, XLF, VRTX, X, MT, TIF, JCG & AIG
MSFT Microsoft Corporation – Some option traders laughed in the face of a 2% decline in MSFT’s shares and were seen making some bullish plays on the stock which currently stands at $19.16. One trade of note was the sale of 5,000 puts at the July 17 strike price for a premium of 90 cents apiece spread against the purchase of 5,000 calls at the July 22 strike price for 74 cents each. This optimistic investor accepts a 16 cent credit on the trade and appears to be looking for shares to rally by about 19% through the breakeven point at $22.74 by expiration. Other bullish investors selected the July 23 strike price where more than 11,000 calls were purchased for an average premium of 44 cents per contract.
XLF Financial Select Sector SPDR – Shares of the XLF have plunged more than 5% to $10.50 today. However, we observed one options investor looking for a recovery in financials by September’s expiry. The financials ETF was one of the top tickers on our ‘most active by options volume’ market scanner with more than 406,000 contracts traded throughout the day. The trade we chose to highlight involved the purchase of 20,000 puts at the September 8.0 strike price for 80 cents apiece spread against the sale of 10,000 puts sold for a premium of 2.79 per contract. This ratio spread yields a credit of 1.19 to the trader (2.79*1 – 0.80*2 = 1.19). The investor will retain the full credit if shares rise through $12.00 by expiration in September. The purchase of twice as many puts at the lower 8.0 strike price serves to cap the investor’s losses at a maximum of 2.81 should shares continue to fall all the way to $8.00 by expiration.
VRTX Vertex Pharmaceuticals, Inc. – The pharmaceuticals company has seen its shares give back gains experienced earlier in the trading day, and is currently off by less than 1% to stand at $27.10. Option implied volatility has jumped from 72% yesterday to the current value of 82% amid unconfirmed rumors reported by one source that Johnson & Johnson may be eyeing VRTX. Option traders took bullish stances on the company by purchasing calls in the April and May contracts. The in-the-money April 25 strike price had 1,100 calls bought for 3.27 apiece, while the April…
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Vulcan Materials calendar put spreads predicts continued slide
by Option Review - March 11th, 2009 5:11 pm
Today’s tickers: VMC, ORCL, XLU, XHB, XTO, C, MS, HIG & MT
VMC Vulcan Materials Company – The distributor of construction materials must feel a bit left out given its failure to join in the market rebound festivities. Its shares are flat at $36.35 today, just a scant 5% off the 52-week low of $34.32. Vulcan edged onto our ‘hot by options volume’ market scanner after one investor established calendar spread positions in the April and May contracts. We reckon that this investor has already established a short position on the shares which have declined by more than 50% since the start of 2009. By selling April puts and buying those at the same strike in May the investor is opening the door to having stock put to him should the price settle in-the-money by expiration in the nearby April contract. By establishing the long May put positions the investor retains his short position, although only via options since the short stock position was already put back to him. The trade employed 3,000 spreads at each of the 30 and 35 strike contracts, which also lowered the full premium paid for the May put options. This provides a longer amount of time for this trader to watch the stock’s movement, yet enables him to lock down profits should exercise occur. The worst case scenario would be if shares were to rebound above $35 in April because this would devalue his short position, although the April puts would expire worthless while the May puts would decrease in value. Optimally, this trader would like to see shares decline below $30 by expiration in April as the value of the long puts in May would greatly increase and the puts in April would allow him to take delivery of the underlying shares.
ORCL – Oracle Corp. – Despite a drop of 1.5% to $14.86 in shares of the software and server manufacturer, option investors spent 75 cents scooping up calls expiring in January at the 20 strike. Some 20,000 contracts changed hands adding to an existing 70,000 of open interest at the strike. While these investor are setting lofty expectations about an ultimate increase of more than one third for Oracle’s shares within nine months, it wouldn’t take that much to shift the premium on the calls. The 0.27 delta indicates gains of around a quarter for each dollar recovery in…
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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.