Which Way Wednesday – Is the Appleconomy Over?
by phil - October 24th, 2012 8:32 am
AAPL is a total disaster.
There's no denying it now, they had their IPad Mini event yesterday and investors charged out of the stock, dropping it from a high of $633 (which is already 10% off the Sept highs) to close at $613 and that was finally weak enough to get us to capitulate and roll back our AAPL positions to longer-term trades that have less upside but, more importantly, less downside as we are no longer confident they'll be able to turn it around on Friday.
Notice how silly it seems to talk about how poorly AAPL is performing when the chart on the right pretty clearly indicates it's the greatest stock on Earth but that would be the logical conclusion for a company that's on track to earnings $43Bn this year, which is $81,811 a minute – more even than what they were tracking to make last month, when I set out bottom target at $600 (and that spread is an even better buy now) AND, only 68% of what they are projected to make next year!
We didn't really think it would hit $600 – that was our worst-case but here we are – at the worst case and, since we are no longer able to say with conviction that it can't get any worse, we had to back our short-term plays to something that buys us more time. In that same post we liked HPQ at $14.30 and at least they are holding that line and we also had a nice spread on that stock in the same post, which is still holding up as a new spread.
In that post I mentioned (as usual) our primary hedge being TZA and the straight-up April $15 calls mentioned there have gone up another .40, from $2.50 to $2.90 off our $2.10 entry (up 38%) – not bad against just a 15-point drop in the Russell (down 2%).
Yesterday, with our hedges already in place (see last Wednesday's TZA hedge and this Monday's DIA hedge) we had the luxury of doing some bottom-fishing yesterday with long trade ideas on TIVO at $9.78, USO at $31.75, AAPL at $623, CMG at $238 and our last trade idea for the day was SQQQ at $41.20 (that one, of…
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Bearish Play Points To Possible Post-Earnings Pullback In TiVo
by Option Review - August 24th, 2011 3:10 pm
Today’s tickers: TIVO, BHI, PBR & MU
TIVO - TiVo, Inc. – Large prints in TiVo call and put options indicate one big player is prepared for shares in the provider of home entertainment technologies to extend losses following the company’s second-quarter earnings report after the close. TiVo’s shares are down 3.3% at $7.98 as of 12:30 pm in New York. It looks like the investor responsible for nearly all of the volume generated in TiVo options thus far today sold out-of-the-money calls to partially finance the purchase of a bearish put spread in the front month. The trader may be hedging a long position in the underlying shares, or could be taking an outright bearish stance on the stock in the expectation that shares will drop in the next few weeks to September expiration. TiVo, Inc. was raised to ‘Above Average’ from ‘Average’ with a share price target of $11.00 by analysts at Caris & Co. this week.
The pre-earnings options combo play involved the sale of 7,000 calls at the September $10 strike for $0.19 apiece, spread against the purchase of the same number of puts at the lower September $8.0 strike for $0.60 each, as well as the sale of 7,000 puts at the September $7.0 strike at a premium of $0.19 a-pop. Net premium paid to initiate the three-legged transaction amounts to $0.22 per contract. The trader profits in the event that TiVo’s shares decline another 2.5% from the current price of $7.98 to breach the effective breakeven point on the downside at $7.78 by expiration next month. Maximum potential profits of $0.78 per contract pad the investor’s wallet if shares in TiVo plunge 12.3% to trade below $7.00 at expiration. The sale of the call options substantially reduces premium required to place a directional…
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Bulls Position for Near-Term Rally in TJX Companies
by Option Review - January 5th, 2011 4:58 pm
Today’s tickers: TJX, TIVO, BP, CSC, ANF, GT & OCR
TJX - TJX Companies, Inc. – Near-term bullish options traders are betting on a rebound in shares of the operator of the largest off-price retail chains, T.J. Maxx and Marshalls, by picking up call options in the January contract this afternoon. Shares in TJX Companies fell 1.30% in the final hour of the session to $43.01, recovering off an earlier intraday low of $42.55. TJX shares are down 4.0% since December 30, and have lost a total of 8.9% since November 5, 2010, when shares touched a 6-month high of $47.21. Investors positioning for a rally in TJX Companies are perhaps hopeful shares will rebound following the release of December same-store sales data. Optimistic traders scooped up more than 2,600 calls at the January $44 strike for an average premium of $0.49 apiece. Call buyers at this strike stand ready to accrue profits should shares rise 3.4% to exceed the average breakeven price of $44.49 ahead of January expiration. Bullish sentiment spread to the higher January $45 strike where nearly 1,000 call options were purchased at an average premium of $0.24 a-pop. Higher-strike call buyers make money if TJX shares rally 5.2% to trade above the average breakeven point at $45.24 before the contracts expire in a couple of weeks.
TIVO - TiVo, Inc. – Massive prints in deep out-of-the-money call options on TiVo today appear to be the work of outright bullish players speculating that shares in the television technology firm could more than double by May expiration. Shares in TiVo are up sharply by 8.07% this afternoon to stand at $9.78 as of 2:40pm in New York. TiVo, Inc. is participating in the Citi 21st Annual Global Entertainment, Media and Telecommunications Conference today. Investors hoping to see TiVo’s shares rebound to prices not seen since April of 2010 purchased debit call spreads during the first half of the trading session. Approximately 20,000 calls were picked up at the May $17.5 strike for an average…
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Vale SA Entices Bulls and Bears to Options Arena
by Option Review - June 14th, 2010 4:42 pm
Today’s tickers: VALE, TIVO, MS, CNQ, LVS, PBR & AMD
VALE – Vale SA – Two opposite-minded options strategists initiated directional plays on the Brazilian metals and mining firm in the July contract today. Shares of the world’s biggest iron ore producer are currently flat at $27.03 as of 3:30 pm (ET). One of the investors populating the July contract purchased a bearish put spread while the other trader enacted a bullish risk reversal. The pessimistic player picked up 6,000 puts at the July $26 strike for a premium of $0.81 apiece, spread against the sale of the same number of puts at the lower July $22 strike for a premium of $0.20 each. The net cost of the put spread amounts to $0.61 per contract. The put-spreader is positioned to profit should shares of the underlying stock decline 6.05% from the current price to breach the effective breakeven point to the downside at $25.39 by expiration. Maximum available profits of $3.39 per contract pad the investor’s wallet if Vale’s shares plummet 18.6% to $22.00 ahead of expiration day in July. In contrast to the bearish put spread, another options strategist initiated a bullish risk reversal, selling 4,000 puts at the July $25 strike for a premium of $0.57 each, in order to purchase the same number of calls at the higher July $30 strike for a premium of $0.46 apiece. The responsible party pockets a net credit of $0.11 per contract, and keeps the full amount as long as Vale’s shares exceed $25.00 through July expiration. Additional profits accumulate if shares of the underlying stock rally 11% to surpass the $30.00-level by expiration day next month. Options implied volatility on Vale SA is higher by 7.7% to 46.29% just before 3:40 pm (ET).
TIVO – TiVo, Inc. – Shares of the provider of technology and services for TiVo® subscription-based digital video recorders shot up as much as 8.25% today to touch an intraday high of $8.26 on speculation DirecTV is considering a buyout. The rally in the price of the underlying stock and takeover chatter inspired bullish options activity on TIVO during the session. One long-term optimist purchased a plain-vanilla debit call spread to position for sharply higher shares by expiration in January 2011. The investor picked up 1,000 calls at the January 2011 $11 strike for a premium of $1.16 each, and sold the same number of calls…
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BP Shares Hemorrhage, Options Activity Explodes
by Option Review - June 9th, 2010 5:59 pm
Today’s tickers: BP, ALKS, MO, NFLX, APC, MDCO, LVS, TIVO, CAR, MDRX & XLK
BP – BP PLC – Options volume on beleaguered oil company, BP PLC, is fast approaching 750,000 contracts, fueling a more than 79.7% upward shift in the stock’s overall reading of options implied volatility to a 5-year high of 120.96%. Utter pandemonium erupted in BP options after the firm’s shares plunged 16.00%, crashing straight through the now defunct 52-week low of $34.15, to touch an intraday and new 5-year low of $29.13. Catalysts for the squall are not difficult to come by with analysts suggesting an increased probability BP will cut dividends to help pay for the disaster in the Gulf of Mexico. The first half of the trading day was relatively calm with shares increasing 1.62% over the opening price of $33.90 to an intraday high of $34.45. But, by noon time on the east coast, BP’s shares had already begun their descent. Options activity on the stock can easily be described as frenzied as volume continues to grow in both call and put options across multiple expiries. Investors are displaying a slight preference for put options, with roughly 1.35 put contracts exchanged to each single call option in play thus far in the trading day. Put buyers are out in full force, scooping up at least 1,600 of the bearish contracts at the June $17.5 strike for an average premium of $0.25 apiece. Buying interest in the front month is heaviest in now in-the-money puts at the June $30 strike where more than 43,000 contracts changed hands by 3:05 pm (ET). Investors buying these contracts now face an asking price of $2.85 apiece. Other pessimistic players cast doubts for a near-term recovery by selling call options. Less than 60 minutes remain in the current trading session. Option volume on BP has surpassed 710,000 contracts and continues to steadily rise.
ALKS – Alkermes, Inc. – A three-legged bullish options combination trade enacted on biotechnology company, Alkermes, Inc., this afternoon indicates long-term optimism by one savvy strategist today. Alkermes’ shares are up 1.10% to $11.00 as of 3:12 pm (ET), but earlier rallied more than 4.75% to touch an intraday high of $11.40. The bullish player essentially sold short a chunk of put options in order to finance the purchase of a debit call spread in the November contract. The trader picked up 5,000 calls at…
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Visa Traders Turn Call-Sellers After Regulatory Change
by Option Review - May 14th, 2010 4:28 pm
Today’s tickers: V, VIX, SY, TIVO & MDR
V – Visa Inc. – The decision to allow the Federal Reserve to regulate and therefore pressure fees charged by debit-card companies hampered shares at Visa today and in late morning trading they are 8% lower at $79.00. The slide slices the share price right through two five-dollar-wide strike prices and with options expiration next weekend, call sellers were quick to capture premiums available at the May 80 strike where 10,000 contracts have traded within a price range of $2.32 to $1.18. At its present share price those call options are worth nothing but the hope value they carry in the event of a recovery next week. Investors also boosted put premiums from a close yesterday at 73 cents to as high as $3.50 per contract at the May 80 line. Implied options volatility rose a further 8% to 38.7% today as uncertainty for the financial sector grew.
VIX – CBOE Vix Index – As investors’ trading screens once again turn a familiar red as Eurozone fears grow, the flashing red light of the CBOE’s Vix index heads inevitably higher. On Friday the index leapt 17% to stand at 31.33. It’s still well beneath the panic-driven peak of last week when it ran up to 42.15, yet today’s reading is the highest point in between then and now. One investor appeared to extend a bet that volatility is set to remain omnipresent using a 50,000 lot calendar call spread that appears to roll forward protection from May expiration to the June contract. The order combined the same amount of May call options at the 35 strike with June calls at the 37.5 strike. The net cost of the trade was $1.20 per contract.
SY – Sybase Inc. – Option trading indicates little upside room for Sybase after Germany’s SAP said it would pay $65 per share to acquire the enterprise software business. Having shot up from $40 before the deal to more than $65 yesterday option sellers appear to be writing chunks of $65 strike calls in the June and September contracts probably because they expect to see further declines in volatility and little improvement in an already generous deal that boosted the company’s capitalization by 63% in a stroke. The June call options carrying a $65 strike price have traded 13,000 times mainly at a 25-cent premium, while the September contract…
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Tenet Healthcare Receives Bullish Three-Legged Options Combo Play
by Option Review - March 22nd, 2010 4:09 pm
Today’s tickers: THC, F, TIVO, HIG, LVS, XME, AET & SHW
THC – Tenet Healthcare Corp. – Shares of the provider of health care services surged 9.39% today to $6.29 following the passage of health-care reform legislation through the U.S. House of Representatives. Intriguing bullish options trading transpired on Tenet Healthcare during the current session as investors secured positions that yield profits if the firm’s shares continue to appreciate through expiration in January 2011. One optimistic player enacted a three-leg options combination play by selling short put options to partially finance the purchase of a debit call spread. The investor picked up 10,000 calls at the January 2011 $7.5 strike for a premium of $0.65 apiece, and sold 10,000 calls at the higher January 2011 $10 strike for $0.10 each. Next, the trader shed 10,000 puts at the January 2011 $5.0 strike for $0.55 premium apiece. The investor’s combination play was essentially enacted at zero cost because of the financing provided by the sale of higher-strike calls and out-of-the-money put options. Maximum potential profits of $2.50 per contract are available to the Tenet-bull if shares of the underlying stock jump 59% from the current price to $10.00 by expiration next year. The short position in put options implies the trader is willing to have Tenet’s shares put to him at $5.00 each should the put contracts land in-the-money ahead of expiration day in January. Options implied volatility on the stock slumped 20.9% this afternoon to 46.67% following the passage of the health care bill in the House.
F – Ford Motor Co. – Bullish options activity on the automobile manufacturer picked up as the trading day progressed amid a 4.5% rally in the price of the underlying stock to $13.90. One optimistic individual initiated a bullish risk reversal transaction in the June contract to position for continued upward momentum in the price of Ford’s shares through expiration. The investor sold 5,000 puts at the June $10 strike for a premium of $0.23 per contract in order to partially offset the cost of buying the same number of call options at the higher June $16 strike for $0.44 apiece. The net cost of the reversal play amounts to $0.21 per contract. Thus, the investor responsible for the trade stands ready to accrue profits if Ford’s shares surge 16.60% over the current price to surpass the breakeven point at $16.21 by expiration…
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Wrong Way Weekly Wrap-Up
by phil - March 6th, 2010 8:34 am
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This whole week did not feel right to me.
We were too bearish as I had expected a bogus commodity rally in last weekend's wrap-up but I didn't expect it to persist for a week, even as the dollar held it's ground above 80, a 10% pullback off the top, when oil was $40, copper was $1.50 and gold was $850. Now oil is $80 (up 100%), copper is $3.35 (up 123%) and gold is $1,135 (up 33%). Let's say gold is a true indicator of dollar weakness – that means that only 33% of oil and copper's move up can be attributed to the 10% drop in the dollar (not that even that makes sense but we'll give it to them). Can the rest be attributed to demand?
Certainly not with copper. Global copper consumption was down 1.9% in 2009 and Q1 2010 is lower than any quarter since Q1 2009 and even Barclays' very aggressive targets for China growth only bring global demand up 2.5% this year – whch would just about bring us back to 2007 levels of consumption. That, of course, also assumes a rebound in housing construction – something we are not seeing at the moment. Also, China spent $700Bn last year stimulating their economy and one of the ways they did this was to stockpile copper. As you can see from the chart – that too appears to be winding down and even Goldman Sachs has abandoned the bullish side of copper at this point.
Oil is just as silly. According to the EIA, global oil consumption is not expected to return to 2007 levels until late 2011 – and that is with some very rosey estimates of a global econonomic recovery – exactly the type of thing that can be derailed by high oil prices! Mighty China's consumption is projected to go from 8.66Mbd this year to 9.13Mbd in 2011, a 500,000 barrel increase. Last week, the US had a build in inventories of 4Mb – we just send those over to China and everyone is happy! I've already had my say on oil demand this this weekend, so let's just move on…
Let's just say I'm a little skeptical about any market moves that are…
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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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Strangle Strategist Tightens Grip on JPMorgan
by Option Review - March 4th, 2010 4:15 pm
Today’s tickers: JPM, TIVO, RHT, UTX, CSCO, CI, BA, XRX, DIS, AKS & M
JPM – JPMorgan Chase & Co. – A long strangle enacted on JPMorgan today indicates one investor is expecting the firm to experience a significant shift in the price of its shares by June expiration. The investment banking and financial services giant realized a 1% rally in share price during the current session to $41.94. The investor initiated the strangle strategy by purchasing 9,000 calls at the June $46 strike for a premium of $1.06 apiece and by picking up 9,000 puts at the June $36 strike for $0.96 each. The net cost of the transaction amounts to $2.02 per contract. Strangle-players benefit from drastic moves in share price, but lose out if the value of the stock stagnates. In this specific trade, the investor profits if JPM’s shares rally above the upper breakeven price of $48.02 by expiration, or if shares trade below the lower breakeven point at $33.98, by June expiration. The trader is looking for increased volatility in the price of the underlying shares, but also may benefit from higher options implied volatility. Moves higher in options implied volatility corresponds with greater option premium on both calls and puts. Thus, the investor could potentially sell the strangle at a profit ahead of expiration day if combined premium on the trade exceeds the $2.02 per contract paid today. We note that JPM’s shares have not exceeded $47.47 in the past year, but did trade as low as $14.96 back on March 6, 2009.
TIVO – TiVo, Inc. – Shares of the innovator of digital-video recording services surged as much as 61.30% to an intraday high of $16.42, the highest price recorded for TiVo’s shares in at least five years. TiVo was named the victor today after a U.S. appeals court ruled that Dish Network Corp. and EchoStar Corp. are “still infringing its patent and should stop providing digital-video recording services.” Options traders had a field day with the news and exchanged upwards of 275,300 contracts on the stock by 3:10 pm (ET). Today’s options trading volume on TiVo represents just under 80% of the total existing open interest on the stock of 348,203 contracts. Investors populated the stock with a plethora of trading strategies. Some traders banked profits on the rally, while others employed the use of strangles. Plain-vanilla call buying and put selling…
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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.