Bullish Predictions Payoff For Skechers Call Buyers
by Option Review - July 28th, 2011 4:54 pm
Today’s tickers: SKX, RCL, OSK & TWI
SKX - Skechers USA, Inc. – The footwear designer’s decision to purge inventory of some 2 million pairs of its Shape-ups sneakers in exchange for a $21 million loss pleased investors reviewing the somewhat ugly second-quarter earnings report released from Skechers USA on Wednesday. Shares in the Manhattan Beach, CA-based company sky-rocketed 25.0% on Thursday morning to an intraday high of $17.88 despite the shoe retailer’s reported net loss of $0.62 a share on 14% lower revenue for the quarter. Steps taken by the company to clear out inventory as well as promising international growth prospects seem to have overshadowed weaker-than-expected top- and bottom-line results. Bullish momentum in the shares was also aided by an analyst at BB&T Capital Markets who raised Skechers to ‘Buy’ from ‘Hold’ with a 12-month target share price of $18.00.
On Monday we noted bullish call buying taking place in the September and October contracts, and suggested traders long those calls may benefit from a post-earnings pop in the price of the underlying. Lo-and-behold, shares are soaring and some investors have seen the value of their positions more than double this week. For example, traders purchased around 2,200 October $15 strike calls on Monday for an average premium of $1.07 apiece. Today investors could turn around and sell those calls for an average premium of $2.65 a-pop, or hold onto their positions in the hope that shares continue to rally in the next few months. Like-minded bulls picked up around 500 of the September $15 strike calls on Monday at an average premium of $0.85 each, while the last-traded price on the contract now stands at $2.35.…
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Bullish Investors Flock to Popular, Inc. as Shares Reach a New 52-Week High
by Option Review - April 13th, 2010 4:40 pm
Today’s tickers: BPOP, SLV, XRT, RCL, USO, MRO, AVP, PG & CROX
BPOP – Popular, Inc. – Shares of the largest bank in Puerto Rico surged 26.5% during the trading session to a new 52-week high of $3.86 after the firm was raised to ‘buy’ from ‘neutral’ and given a target share price of $3.50 at B. Riley & Co. Popular’s shares took off running on news the company may sell its Evertec unit and some other businesses for $1 billion. Options traders enacted bullish strategies on the stock to position for continued upward movement in the price of the underlying stock. Plain-vanilla call buying took place at the April $3.5 strike where approximately 9,400 now in-the-money contracts were picked up for an average premium of $0.14 apiece. Other traders displayed optimism on Popular, Inc. by shedding put options. Roughly 4,500 puts were sold short at the April $3.0 strike for a premium of $0.06 each. Investors keep the premium received as long as shares trade above $3.00 through expiration day on Friday. Similar bullish activity was observed in the May contract today. Investors paid an average premium of $0.28 per contract to take ownership of nearly 8,000 in-the-money call contracts at the May $3.5 strike price. Additionally, traders expecting shares of BPOP to remain above $3.50 through May expiration shed 6,200 put options at the May $3.5 strike to receive an average premium of $0.33 each. Put sellers at this strike price keep the full premium pocketed on the trade as long as shares of the underlying stock exceed $3.50 through expiration day. Investors short the puts are apparently happy to have BPOP-shares put to them at an effective price of $3.17 each should the put options land in-the-money at expiration. Options players exchange 83,855 contracts at Popular, Inc. as of 3:00 pm (ET), which represent more than 55% of the total existing open interest on the stock of 151,847 contracts.
SLV – iShares Silver Trust ETF – Shares of the silver ETF, an exchange-traded fund whose share price typically reflects the price of silver owned by the Trust at any given time less the Trust’s expenses and liabilities, increased 0.35% in late afternoon trading to stand at $17.87. Options activity on the stock, however, indicates at least one investor is expecting the price of the underlying shares to decline ahead of July expiration. It looks like the bearish…
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Citi-Bull Sheds Just Under a Quarter Million Put Options
by Option Review - March 18th, 2010 4:21 pm
Today’s tickers: C, ERTS, ATVI, DNDN, HIG, DD, RCL, SFD & AMR
C – Citigroup, Inc. – One investor established a mammoth bullish stance on Citigroup in the first 20 minutes of the current trading session. Citigroup’s shares at the time of the transaction were trading at approximately $4.05, but have since slipped lower and are down 0.50% to $4.03 as of 2:45 pm (ET). It looks like the Citi-bull sold 240,000 put options outright at the April $4.0 strike to take in a premium of $0.16 per contract. Premium received on the sale, which represents maximum potential profits, amounts to $3.840 million to the investor if Citigroup’s shares trade above $4.00 through expiration day. The short stance in put options implies the investor is willing to have 24 million shares of the underlying stock put to him at an effective price of $3.84 each should the puts land in-the-money at expiration.
ERTS – Electronic Arts, Inc. – An enormous bullish debit call spread purchased on video game software publishing company, Electronic Arts, Inc., indicates one big options investor is expecting shares of the underlying stock to rally sharply ahead of expiration in January 2011. Electronic Arts’ shares are up 2.40% this afternoon to $18.57. The options player purchased approximately 61,000 call options at the January 2011 $25 strike for an average premium of $0.60 apiece, and sold roughly the same number of contracts at the higher January 2011 $30 strike for $0.14 each. The net cost of the spread amounts to $0.46 per contract, thus yielding maximum potential profits of $4.54 apiece if shares surge through $30.00 by expiration day next year. ERTS shares must increase at least 37% from the current price in order for the investor to break even on the trade at $25.46. Maximum profit acquisition of $4.54 per contract, or total gains of $27.694 million, requires a 61.55% rally in shares to $30.00 by January expiration. The 122,000 call options utilized in the transaction represent a staggering 44.58% of total existing open interest on the stock of 273,639 contracts.
ATVI – Activision Blizzard, Inc. – The producer of online, console and hand-held games received a vote of confidence by one large options player anticipating bullish movement in the price of its shares through expiration in January 2011. Activision’s shares rallied 2.12% to $12.05 in the first half of the trading session. The optimistic investor established…
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Option Players Construct Conflicting Strategies on EBAY
by Option Review - March 5th, 2010 4:09 pm
Today’s tickers: EBAY, RCL, RAI, VLO, VRSN, USU, JAS, NUAN, TIVO & DNR
EBAY – eBay, Inc. – Two different options strategies employed on online auction-house, eBay, Inc., today indicate conflicting medium-term sentiment on the stock. One trader is positioning for a significant rally in the price of the underlying, while another individual anticipates shares will remain range-bound through July expiration. EBAY’s shares increased 3.35% during the current session to stand at $24.58. The uber-bullish stance taken on the stock involved the purchase of 10,000 call options at the July $30 strike for a premium of $0.22 per contract. The investor holding the calls stands ready to amass profits should shares of the underlying stock surge 22.95% from the current price to surpass the effective breakeven point on the calls at $30.22 by expiration in five months time. In contrast, the other options player initiated a sold strangle, which yields maximum benefits only if shares trade within a specified range through expiration. The investor sold 3,500 calls at the July $26 strike for a premium of $1.10 apiece in combination with the sale of the same number of puts at the lower July $21 strike for a premium of $0.58 each. Gross premium enjoyed on the trade amounts to $1.68 per contract. The investor keeps the full amount of premium if shares trade between $21.00 and $26.00 through expiration. However, losses accrue on the position if EBAY’s shares trade above the upper breakeven point at $27.68, or if shares slip beneath the lower breakeven price of $19.32 by expiration day. If the call-buying optimist ends up accurately predicting EBAY’s future share movements, the strangle seller will lose out big time. But, if shares do remain range-bound, the call-buyer only ever risks losing $0.22 per contract, or the price paid to take ownership of the call contracts.
RCL – Royal Caribbean Cruises Ltd. – The cruise operator received an upgrade to ‘neutral’ from ‘sell’ with a target share price of $27.00 at Goldman Sachs Group yesterday, and today nearly reached the target price amid a 2.60% rally in the price of the underlying shares to $29.70. Option trading in the June contract today is likely the work of a bullish trader investing in married put options. It appears the investor purchased shares of the underlying stock for about $29.36 apiece in conjunction with the purchase of approximately 39,000 puts at the…
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Bearish Risk Reversal Anchored in Royal Caribbean Cruises
by Option Review - November 30th, 2009 4:10 pm
Today’s tickers: RCL, GE, YHOO, XLF, X, FCX, AIG, CF, JAVA & UAUA
RCL – Royal Caribbean Cruises Ltd. – Bearish option traders clawed-aboard global cruise company, Royal Caribbean, today despite the 0.5% increase in shares during the trading session to $24.24. A large-volume risk reversal in the June 2010 contract indicates rougher seas could cloud RCL’s horizon. One investor sold 20,000 calls at the June 30 strike for an average premium of 1.70 apiece, spread against the purchase of the same number of put options at the lower June 20 strike for 2.25 each. The net cost of the reversal amounts to 55 cents per contract. The investor responsible for the trade is likely long shares of the underlying stock. If this is the case, the long put position established today, provides downside protection beneath the effective breakeven point at $19.45. Conversely, if shares surge during the next seven months, the underlying stock position will be called away from the trader if shares exceed $30.00 by expiration in June.
GE – General Electric Co. – A sold straddle on General Electric this afternoon indicates one investor expects shares to settle at $16.00 by expiration in June of 2010. Shares edged slightly lower by less than 0.50% to $15.88 in late afternoon trading. The trader looked to the June 16 strike to sell approximately 5,000 calls for a premium of 1.61 apiece and 5,000 puts at the same strike for 1.89 each. The gross premium pocketed by the investor amounts to 3.50 per contract. The trader keeps the full 3.50 premium on the straddle if shares center at $16.00 through expiration. The investor may take profits ahead of expiration by buying back the short straddle for less than 3.50 per contract. Premiums on both calls and puts are elevated today because of the 6% increase in option implied volatility on the stock to 35.50%. The trader benefits from lower volatility on GE and from eroding time value of option premiums. Both factors drag option premiums lower and allow the trader to buy back the straddle in a profitable manner.
YHOO – Yahoo!, Inc. – The 0.5% decline in shares of the internet company to $14.93 did not deter one investor from taking a bullish stance in the April 2010 contract today. It appears the trader put on a ratio call spread to position for a rebound in shares by expiration.…
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Genworth Financial Rallies Amidst Reversal Positioning Through Options
by Option Review - August 12th, 2009 5:23 pm
Today’s tickers: GNW, ERTS, RCL, WFT, PETM, BBY, AKAM, KR, & FITB
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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.