Blackberry Bull Banks Profits as RIMM Shares Rebound
by Andrew Wilkinson - December 7th, 2009 4:13 pm
Today’s tickers: RIMM, BAC, VZ, CAG, NYB, RMBS, TEVA, DIS & NVDA
RIMM - Research in Motion Limited – Blackberry maker, Research in Motion, revealed a distribution deal with Digital China – a unit of Legend Holdings – aimed at expanding its business in China. Shares stood 2.5% higher to $60.22 thirty minutes before the closing bell. One option investor banked profits on a previously established call position in the January 2010 contract today. It appears the trader originally purchased 25,000 calls at the January 80 strike for 30 cents apiece on December 4, 2009. Today the investor shed all 25,000 lots for 43 cents each. Net profits on the closing sale amount to 13 cents per contract for total gains of $325,000. Option implied volatility on the stock is up slightly on the day to 59.91%.
BAC - Bank of America Corp. – A bearish risk reversal on Bank of America this afternoon suggests one investor expects shares to suffer significant declines by expiration in May 2010. BAC’s shares slipped 2% to $15.98 in late-day trading. It appears the pessimistic player shed 7,500 calls at the May 22 strike for 36 cents apiece in order to partially offset the cost of buying the same number of put options at the lower May 13 strike for 70 cents premium each. The net cost of the transaction amounts to 34 cents per contract. The effective breakeven point on the put options of $12.66 is 20.77% lower than the current price per BAC share. The investor responsible for the reversal could be taking an extremely bearish bet on Bank of America. If this is the case, the investor expects shares to nosedive down to lows experienced at the end of July 2009. Alternatively, the trader could be long the stock, and financing cheap downside protection by selling covered call options. The long puts serve as protection in case the stock tumbles, whereas the short calls suggest the investor is happy to have the underlying stock position called from him at $22.00 each. Shares of BAC would need to rally 38% from the current price in order for the March 22 strike calls to land in-the-money.
VZ - Verizon Communications, Inc. – Option traders displayed mixed near-term sentiment on the communications company this afternoon. Shares edged 2% higher to a new 52-week high of $33.36 with less than one hour remaining in the trading session. Bullish traders picked up…
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Mixed Sentiment on BAC Pits Bulls Against Bears
by Andrew Wilkinson - December 4th, 2009 4:11 pm
Today’s tickers: BAC, XRX, XLF, CAR, XLU, BIG, SLM, TTWO, MRVL & TSN
BAC - Bank of America Corp. – Investors employed two contradictory option strategies in the February contract on Bank of America today. One trader initiated a large bearish risk reversal while the other put on a bullish call spread. BAC’s shares rallied 3.5% this afternoon to $16.30. The pessimistic investor appears to have sold 30,000 in-the-money call options at the February 15 strike for 1.74 apiece in order to purchase 30,000 puts at the same strike for 84 cents each. The reversal results in a net credit of 90 cents per contract to the trader. Perhaps this individual expects shares to decline beneath the $15-level by expiration so he may retain the full 90 cent credit on the trade. Bullish trading in the same February 2010 contract suggests shares are set to rally higher in the next few months. An optimistic investor purchased 10,000 calls at the February 17 strike for 89 cents each, and sold the same number of calls at the higher February 19 strike for 34 cents apiece. The net cost of the spread amounts to 55 cents per contract. Maximum potential profits of 1.45 are available to the investor if shares increase more than 16.5% from the current price to a new 52-week high of $19.00 by expiration in February.
XRX - Xerox Corp. – One investor utilized the risk reversal strategy in order to take a long-term bullish stance on Xerox. Shares moved 1% higher this afternoon to $7.85. It looks like the trader sold 20,000 puts at the January 2011 7.5 strike for a premium of 1.15 each to partially finance the purchase of 20,000 calls at the same strike for 1.60 apiece. The net cost of the reversal amounts to 45 cents per contract. The investor profits if shares surpass the breakeven price of $7.95 within the next 12 months to expiration.
XLF - Financial Select Sector SPDR ETF – Shares of the XLF rallied 0.75% in afternoon trading to stand at $14.46. Bullish options activity on the fund suggests shares are likely to appreciate within the next several months. Optimistic investors purchased 69,000 in-the-money call options at the March 14 strike for an average premium of 1.36 per contract. XLF shares must rise 6% from the current price before profits accumulate above the breakeven point at $15.35. Shares last traded above $15.35 back on October…
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Gold Bulls and Bears Place Bets on Bullion
by Andrew Wilkinson - December 3rd, 2009 4:12 pm
Today’s tickers: GLD, MTG, ACN, BAC, HUN, PSS, ARO, HUN, APWR & FDO
GLD - SPDR Gold Trust ETF – Surprise, surprise…shares of the gold exchange-traded fund reached another record high by climbing up to $119.42 today. We observed one investor initiate a contrarian play in the January 2010 contract. The trader established a bearish risk reversal by selling 4,000 calls at the January 120 strike for 3.65 apiece, spread against the purchase of 4,000 puts at the same strike for 4.60 each. The net cost of the spread amounts to 95 cents per contract. The trader, if long shares of the underlying, enacted downside protection to hedge against potential declines in the price of gold through expiration in January. Perhaps this investor believes gold has peaked, at least as far as the next couple of months are concerned. In contrast, longer-term trading in the September contract was decidedly bullish. The trader sold 5,750 puts at the September 117 strike for 9.35 apiece in order to finance the purchase of the same number of calls at the higher September 140 strike for an average premium of 5.88 each. The investor banks a net credit of 3.47 per contract on the transaction, which he retains in full as long as shares remain higher than $117.00 through expiration. Additional profits amass if shares jump 17% to surpass the $140-level by expiration in September.
MGT - MGIC Investments Corp. – Bullish investors populated MGIC Investments Corporation with various optimistic option strategies throughout the trading day. Shares surged 20% to $5.10 after its Wisconsin regulator waived minimum capital requirements for two years. This permits the company to continue selling coverage despite nine straight quarterly losses. Investor reacted by picking up nearly 5,000 calls at the now in-the-money December 5.0 strike for an average premium of 30 cents apiece. Call-buyers will profit if MTG’s shares surpass the breakeven price of $5.30 by expiration. Additional bullish transactions appeared in the January 2010 and March 2010 contracts. Optimistic individuals shed 3,000 puts at the January 5.0 strike for 60 cents premium apiece. Investors retain the premium received on the sale if shares remain above $5.00 through January’s expiration day. Put-sellers stand ready to have shares of the underlying stock put to them at an effective price of $4.40 per share if the puts land in-the-money. Finally, another chunk of 5,000 puts were sold at the March 5.0 strike for 1.35 each.…
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Bank of America Call Options Fly Off the Shelves
by Andrew Wilkinson - November 24th, 2009 4:09 pm
Today’s tickers: BAC, GE, SEED, EWZ, DE, STLD, LCC, SEED & DLTR
BAC - Bank of America – Long-term Bank of America bulls are out in full force today, scooping up call options like they’re going out of style. BAC’s shares are off slightly by less than 1% to $16.19. Plain-vanilla call buying in the January 2011 contract indicates investors expect shares to surge over the next 13 months. A large chunk of 50,000 calls were picked up at the January 25 strike for an average premium of 86 cents apiece. Shares must rally 60% from the current price to breach the $25.86 breakeven point on the trade. Twice as many calls were coveted at the higher January 30 strike where 100,000 calls were purchased for 45 cents each. The investor responsible for the massive position breaks even if shares jump 88% to $30.45 by expiration. Finally, another BAC-optimist established a ratio call spread in the same contract. The investor purchased 20,000 calls at the January 20 strike for 1.95 apiece, spread against the sale of 40,000 calls at the higher January 30 strike for 46 cents premium each. The net cost of the spread amounts to 1.03 per contract and positions the trader to profit if shares exceed $21.03 by expiration in January of 2011. Maximum potential profits available on the transaction amount to 8.97 per contract. Option implied volatility on Bank of America is currently 38.65% – a scant 2.93% above the 52-week volatility low of 35.77% – attained back on October 20, 2009.
GE - General Electric – A massive bullish bet on General Electric today indicates one investor expects shares to surge 43.8% in the next 13 months. Shares are currently up just under 1% to $16.16. It looks like a staggering 131,500 calls were purchased at the January 2011 22.5 strike for a premium of 76 cents per contract. The trader is apparently expecting GE’s shares to jump at least 43.8% to the breakeven point at $23.26 by expiration in January of 2011. Option implied volatility on General Electric is down to a one-year low of 29.46%.
SEED - Origin Agritech Ltd. – Frenzied options activity continues today on Beijing-based seed producer, Origin Agritech, following yesterday’s announcement that the firm received approval from China’s Ministry of Agriculture to sell its genetically modified phytase corn. Shares are currently up 4% to $10.86, down from an intraday high – and 52-week high –…
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25% Off the Top Tuesday
by Phil - November 17th, 2009 8:09 am
10,500 - that’s 75% of 14,000 in the Dow!
On the S&P we topped out all the way up at 1,550 in October, 2007 so 1,162 would be the target there. For the Nasdaq it’s 2,100 (already over), 7,750 on the NYSE is still far away and 637 on the Russell is tantalizingly close (5%ish). The SOX still need to gain 30% to get back to 400 and the the Transports are going to need a lot of gas to get back to 2,250. (see Fallond’s breakout charts here)
Oil was $100 a barrel in October 2007 so $75 is right on track and gold is clearly our over-achiever, UP 42% from 2 years ago and that is "obviously" according to the pundits, because the dollar is trading 1.5% lower than it was back then. We are being led higher by great companies like XOM who, at $75 are well above their 75% level at $67. This is VERY impressive since they earned $9.4Bn in Q3 ‘07 and just $4.7Bn last Q on 20% less sales but that doesn’t stop investors (or at least tradebots) from snapping them up at these prices.
TRV was added to the Dow and that stock is now OVER the 2007 highs of $52.50, which is really impressive as they are doing it with less revenues ($200M) and less earnings ($263M, 21%). Perhaps we are seeing a pattern? Earn 50% less, like XOM and get valued 16% lower, earn 21% less, like TRV and get valued 5% HIGHER. CAT was at $70 in Q3, 2007 with $11.4Bn in sales and a $927M profit so OF COURSE they are at $60 now (down just 14%) on $7.3Bn in sales and $404M in profits. Just like XOM, 56% less earnings equals a 14% haircut on the stock price. After all, you can’t fool these savvy investors, can you?
I’ll be going through the Dow in detail this weekend as we set up our new Buy List for Members as (if we are going to accept the premise that these investors are not crazy) there are certainly some bargains in the Dow like VZ (got ‘em already), who earned $1.3Bn on $23.8Bn in sales 2 years ago and earned $1.2Bn on $27.3Bn in sales last Q, yet they are still trading 25% below where they were. INTC made more money on less sales but they are trading 20% off while DIS made more money on more…
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Toppy Tuesday Morning
by Phil - November 10th, 2009 8:05 am
That was some day yesterday.
We even had to flip bullish in the afternoon (slightly and reluctantly) but, when push came to shove and they asked me for my opinion on TV, I had to tell them I still thought we were toppy. I said that despite the Fast Money crew sitting in the studio right below me actively advising their viewers to chase the performance and, right after them, our friendbuddypal Jim Cramer told his viewers that no news is good news and the market is in a "a positive and delicious void" where we don’t have to worry about any pesky facts interfering with our buying premise.
To that end, Cramer suggests chasing AAPL, GOOG, GS, BAC and WFC and anything else that is not nailed down. "There are only 35 days of trading left in the year," Cramer says, "so we can expect money managers to pile into these companies when they realize the 2010 numbers are too low. Retail investors should be sure they aren’t left behind." Yes, we should blindly follow the money managers because they’ve never steered us wrong before (end sarcasm font).
Does it bother me to have be on the other side of the trade from "the finest minds on Wall Street"? A little, to be honest. As I pointed out yesterday in reminding you about what happened in 1999 and as John Maynard Keynes reminded us all decades ago: "The market can remain irrational longer than you can remain solvent." We discussed this logic back on October 12th, when I warned the bears that you can’t keep supporting the wrong team when they are clearly losing the game.
We had stayed about 55% bearish into the weekend but quickly covered up in the morning after all that stimulus talk against the declining dollar. In my 9:43 Alert to Members I said: "If we break over 10,120, then the selling the DIA $103 puts, now $2.55 are a great momentum play if you have the longer covers to protect you." Those puts finished the day at $1.70, a nice, quick 32% gain on the day and that’s how fast you can rebalance using index covers and those profits came AFTER buying back the Dec $99 puts we sold for $2.50 at $1.80 - 28% from Friday to Monday.
In the morning post, I had set up a chart for the week and added our 25% targets of Dow 10,250, S&P 1,100, Nasdaq 2,187, NYSE 7,000 and Russell 600 and,…
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Bank of America Bearish Option Position Closed – Shares Rally
by Andrew Wilkinson - November 5th, 2009 4:33 pm
Today’s tickers: BAC, MCD, ADM, XRT, CVS, STT, PFE, CVS, FSYS & AEO
BAC - Bank of America Corp. – One investor banked profits today by unraveling a massive bearish credit spread established back on October 28, 2009. The trader’s decision to take profits ahead of expiration could be a bullish sign for BAC. Shares are trading up 2% near the end of the trading day to stand at $15.00. The investor originally sold approximately 130,000 calls at the November 16 strike for an average premium of 49 cents apiece, spread against the purchase of the same number of calls at the higher November 17.5 strike for 15 cents each. The trader received a net credit of 34 cents per contract on the transaction. Today, the investor left money on the table by closing out ahead of expiration. It appears he sold the upper strike calls for 4 pennies and bought back the lower strike calls for 19 cents apiece. Net profits received for unraveling the spread amount to 19 cents per contract for a total of $2.47 million. One might interpret such a decision as a bullish signal for BAC because the trader decided to walk away with 19 cents – half of the maximum profit potential of 34 cents. The investor would only have been able to retain the full 34 cents if shares traded beneath $16.00 through expiration day in November.
MCD - McDonald’s Corp. – A bullish risk reversal in the January 2010 contract significantly reduced the price paid by one investor establishing an optimistic stance on the fast-food chain. Shares of MCD are trading 1.5% higher today to $61.20 despite yesterday’s downgrade to ‘hold’ by analysts at EVA Dimensions. The investor sold 13,000 put options at the January 60 strike for an average premium of 1.91 apiece to partially offset the cost of purchasing 13,000 in-the-money calls at the same strike for 2.51 each. The net cost of the reversal amounts to 60 cents per contract.
ADM - Archer Daniels Midland Co. – Food products company, Archer Daniels Midland, jumped onto our ‘most active by options volume’ market scanner this afternoon due to bullish activity in the March 2010 contract. Shares edged 0.5% higher to $32.37 during the trading session after the firm revealed better-than-expected first-quarter profits of 77 cents per share. One investor sold out-of-the-money put options to partially finance the purchase of a bull call spread. The call spread…
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All-Time High for Amazon has Option Traders Raising the Bar
by Phil - October 27th, 2009 6:17 am
Today’s tickers: AMZN, MU, ETH, AMR, WYN, TBT, BAC, PCS, DE, ING, RSH & BCRX
AMZN - Amazon.com, Inc. – Shares of the online retailer surged to an all-time high of $125.44 during the trading session. Investors exchanged approximately 241,000 option contracts on AMZN by 3:00 pm (EDT), which represents about 41% of the total existing open interest on the stock of 591,993 lots. Bullish investors expecting Amazon to rally even higher purchased 7,000 calls at the November 135 strike for an average premium of 1.84 apiece. Optimism spread to the higher November 140 strike where 2,800 calls were picked up for 1.05 each. Super bullish traders looked to the highest available strike price in the front month – the November 150 strike – to purchase 1,000 calls for an average premium of 31 cents per contract. Shares of Amazon.com rallied 36% to reach today’s intraday high of $125.44, climbing up from an intra-week low of $91.98 on Thursday October 22, 2009. Investors holding calls at the November 135 strike will profit by expiration if shares of AMZN gain 9% over the high of $125.44 to breach the breakeven price of $136.84. Finally, near-term put options were also in demand by investors looking to lock in gains enjoyed during Amazon’s recent run-up. Traders shelled out an average of 6.92 per contract to buy 3,100 puts at the November 125 strike.
MU - Micron Technology, Inc. – Option traders invested in April contract call options on the semiconductor manufacturer despite the 0.5% decline in shares to $7.41. It appears some 9,200 calls were purchased by MU-optimists at the April 8.0 strike for an average premium of 1.08 per contract. Call-buyers apparently expect shares to rally significantly within the next six months. Investors holding the call options will profit by expiration if shares of MU rally at least 22.5% to the breakeven point at $9.08.
ETH - Ethan Allen Interiors, Inc. – Home-furnishings retailer, Ethan Allen, experienced a more than 14% decline in shares today to $14.30 after the firm forecast a wider-than-expected loss of 21-23 cents for the first quarter. Analysts predicted an 8 cents per share loss before the firm lowered guidance last week. Long-term downside protection is in demand as traders picked up some 5,500 puts at the May 12.5 strike for an average premium of 1.76 apiece. Investors holding long positions in the underlying stock will find protection kicks in if shares slip beneath…
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Weekly Wrap-Up - 10,000 or Bust!
by Phil - October 17th, 2009 8:27 am
I think I was right on the money last week when I said:
The bar for corporate earnings is still set at very easy to beat levels yet, like this limbo-playing child, when they announce their beats of very low expectations we’re going to get all excited and tell them how great they are doing. The problem is, these are not kids who we hope may grow up one day to be President or CEOs of major companies. these ARE CEOs of major companies and they are being paid top salaries for top performance and we, the stock purchasing public, are paying top dollar for what should be SPECTACULAR performance, not beating 75% off last year’s earnings by a penny!
In that post, I rattled off a list of stocks that seemed overpriced to me: AMZN, BIDU, AM, PALM, NFLX, PCLN, URBN, UHS, CERN, CREE, GMCR, CY, SWM, TRLG, BKE and you would have had a fabulous week just shorting those stocks as only NFLX, URBN and CREE stayed positive. Now most newsletter writers would quit right there and make a giant ad saying they were 12 for 15 on the week but, as our members know, THAT’S NO BIG DEAL AT PSW! I’m just going to remind members that they can refer friends to FREE advice like that in our trial newsletter and earn 20% or more off their subscriptions for doing it.
Picking stocks is easy but a few percent here and a few percent there isn’t much fun is it? On that list, the two we attacked were AMZN and BIDU, both of which ran (in our opinion) way too high AND had very liquid and very overpriced call options that we could sell to collect premiums. AMZN is a staple short in our $100K Portfolio and we had set up BIDU the week before, selling Oct $420 calls for $8.30 and the Oct $430 calls for $7,20. While both went higher on Monday, the fact that we had a plan for managing the trade kept us from panicking and, thankfully, Monday was the only day those positions gave us trouble and both finished the week worthless (100% profit for us).
Adjusting our positions kept us busy this week as we STILL have a slightly bearish bias and I apologize for that but, as I said in Friday’s post: Every time I try to get a little more bullish, they pull me back in! It’s the curse of being a fundamentalist, it’s not enough…
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Frightening Friday - You Mean Markets Can Go Down Too?
by Phil - October 16th, 2009 8:10 am
Every time I try to get bullish, they pull me back in!
We have struggled for two weeks trying to get more bullish but even at yesterday’s exciting close we remained 55% bearish and decided to hold that stance into the weekend. As I updated our $100K Portfolio last night, I was surprised and disappointed that I could find no justification to raise my targets on AMZN, BAC, C, GE, UYG or XLF, sticking with our generally bearish positions, even though they burned us this week. While both GE and BAC beat on earnings this morning, both companies missed on revenues and what’s surprising is how sharply the markets reacted to such small misses.
We’ve been saying for quite some time that revenue projections are in fantasy land. Overall wages may be up 0.2% for the year but the average workweek is down 7% and 10% of our population isn’t taking home a paycheck at all - of course revenues are going to be down, how is that even surprising? For the week, revenues of reporting companies are down about 18% so I consider a winner anyone who’s ahead of the curve (not counting financials, who were given special gifts this year). Even with that gift, it was the financial unit that dragged GE down, with GE Capital’s profits down 87% for the quarter, dragging corporate earnings down to just 23 cents a share, but better than the .20 expected by analysts (see my weekend rant against low expectations).
We also have low expectations for today’s Industrial Production and Capacity Utilization Report. Pretty much anything better than terrible is likely to be celebrated after looking at this chart:
The bounce we got in last month’s report was due to an increase in the production of foods and beverages (up 1.6%) as well as chemicals (up 0.7%) and utility production (up 1.9%) and, of course, the Auto Sector, where Cash for Clunkers ramped up motor vehicle assemblies 12.1% overall. Outside of motor vehicles, production was up just 0.4%, which is what is expected for this month. As expected by the unemployment numbers, Cap Utilization is hovering around 69%, 11% lower than "normal," a strong indication that you do still need people to run those machines despite decades of robotics advancement. 
Hey, there’s an idea - let’s create an army of robot shoppers and equip them with American Express Black Cards and program them to go out and BUYBUYBUY. They’ve been programming the American people to be shopping…
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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 Favorites backup site
(