Long-Term Bull Populates Mead Johnson Nutrition Post-Earnings
by Andrew Wilkinson - January 27th, 2011 4:52 pm
Today’s tickers: MJN, ETFC, GNK & CAT
MJN - Mead Johnson Nutrition Co. – The global provider of pediatric nutrition popped up on our scanners after long-dated call and put options changed hands in the January 2012 contract. Shares in Mead Johnson are down slightly by 0.40% as of 12:30pm to stand at $59.78. The Glenview, IL-based firm reported fourth-quarter earnings of $0.57 a share before the market opened, beating the average forecast by one penny, but revenues for the quarter came in at $803.7 million, which missed estimates of $808.0 million. It looks like one investor is positioning for Mead Johnson’s shares to increase substantially ahead of January 2012 expiration. The investor appears to have sold 1,900 puts at the January 2012 $50 strike at a premium of $2.68 each, in order to buy the same number of call options at the higher January 2012 $65 strike for a premium of $3.58 apiece. The net cost of the bullish risk reversal amounts to $0.90 per contract. Thus, the investor stands ready to make money should shares in MJN rally 10.2% over the current price of $59.78 to exceed the effective breakeven price of $65.90 by expiration day in one year’s time. Options implied volatility on the stock is down 16.4% at 26.00% in early afternoon trade.
ETFC - E*Trade Financial Corp. – Shares in the provider of online brokerage and other financial services rallied as much as 6.7% this morning to secure an intraday high of $16.85 despite a weaker-than-expected earnings report Wednesday evening. Analysts, on average, were expecting ETFC to earn $0.04 a share, but the fourth-largest U.S. retail brokerage said it lost $0.11 a share in the fourth quarter. The earnings miss has not stymied today’s rally in the price of the underlying shares, but traders are favoring…
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Bullish Player Rigs Up Call Spread on Oil Services HOLDRS Trust
by Andrew Wilkinson - January 18th, 2011 4:19 pm
Today’s tickers: OIH, AFFY, CAT, EBAY, IYT & RIG
OIH - Oil Services HOLDRS Trust – Shares in the Oil Services HOLDRS Trust are up 0.50% in the final hour of trading to secure an intraday- and new 52-week high of $147.34. One options player expecting shares to continue to hit new highs through February expiration initiated a debit call spread. Shares in the OIH, an issuer of depository receipts known as Oil Service HOLDRS that represent ownership in the common stock of companies engaged in drilling, well-site management and other services for the oil service industry, are up 5.25% year-to-date, and have surged 57.75% since touching down at a six-month low of $93.36 on July 1, 2010. The optimistic options trader looked to out-of-the-money calls expiring next month, buying 3,600 calls at the February $155 strike for a premium of $1.48 each, and selling the same number of calls up at the February $160 strike at a premium of $0.58 apiece. Net premium paid to initiate the spread amounts to $0.90 per contract. Thus, the investor is prepared to make money should the price of the underlying shares rally another 5.8% over today’s high of $147.34 to surpass the effective breakeven price of $155.90 by expiration day in February. Maximum potential profits of $4.10 per contract are available to the call-spreader should shares in the OIH jump 8.6% to trade above $160.00 before the contracts expire. Options implied volatility inched up 3.2% to 26.42% by 3:55pm in New York.
AFFY - Affymetrix, Inc. – Investors are buying call options on the biotechnology company today with shares in the Santa Clara, CA-based firm rising as much as 7.6% during the session to an intraday- and 6-month high of $5.67. Bullish players expecting shares in Affymetrix to continue to rally picked up…
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Thrilling Thursday – Comedy or Tragedy?
by Phil - January 6th, 2011 7:29 am
Russell 8-0-0, Russell 8-0-0! Wherefore art thou Russell8-0-0? Deny thy dollar and refuse to fall, or, if thou spike not, be but consolidating at resistance and I’ll happily Capitulate….
If it’s good enough for fair Juliet, it’s going to have to be good enough for us as the Russell finally makes it over our 800 target – the last barrier that was keeping us on the bearish side. Above these lines – it’s time to stop worrying and love the rally as we romanticize the deadly combination of QE2 the Obama tax cuts as: "A pair of star-crossed lovers take their life, whose misadventured piteous overthrows doth with their death bury their parents’ strife."
Of course Willie Shakespeare has nothing on Jimmy Cramer, who’s pearls of wisdom are also sure to be repeated centuries from now. Last night the Bard of Wall Street sang a veritable sonnet in praise of the stock market and foretold a tale of woe for anyone dumb enough to take profits into this rally:
We got the correction this morning, Dow fell 35 points… Today’s action was proof positive that you need to stop worrying and learn to love corrections… What scares me, and what should scare you, is that if you sell your stocks here, you won’t be able to get back in. You should be worried about stocks getting away from you, because I think we can be on the verge of something big – something very positive. FORGET the fact that stocks have run up a lot in the last 6 months. For more than 10 years, this market has done nothing, THAT is the most important frame of reference…
What’s changed? We are finally starting to see big breakouts from a slew of breakouts from several large cap companies including: CAT, UTX, FCX, SWK, CBE, ETN, CSX, UNP and so many other big industrials. Ladies and gentlemen, we have waited over a decade for this move and what do people want to do now that it has arrived? They want to sell! That’s right, they want to sell. That’s right. They want to dump the stocks (sell button sound effect) because they are up way too much short-term or because they think the moves are illusory or driven by short squeezes that will
…
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Call Options Fly Off the Shelves at AIG
by Andrew Wilkinson - December 27th, 2010 4:23 pm
Today’s tickers: AIG, CAT, DTV, WPI, PBR, DNR, V & M
AIG - American International Group, Inc. – The insurer’s shares rallied as much as 12.2% today to touch an intraday- and new 2-year high of $60.96 on news the firm secured $4.3 billion in bank credit lines. Mounting confidence in the insurance company along with the rising value of AIG shares inspired bullish options traders to purchase in- and out-of-the-money calls today. Weeklies were popular with options traders expecting to see shares end the year on a high note. Investors picked up more than 2,900 now in-the-money calls at the December ’31 $57.5 strike for an average premium of $0.93 each, and coveted upwards of 2,900 in-the-money call options at the higher December ’31 $60 strike at an average premium of $0.51 a-pop. Optimistic individuals also purchased some 1,300 call options at the December ’31 $65 strike for an average premium of $0.27 apiece. Options strategists looked to the January 2011 contract to place bullish bets, as well. Notable in-the-money call buying was observed here, as well as fresh interest in calls at the January 2011 $62.5 strike where more than 1,700 contracts were purchased for an average premium of $1.46 each. The sharp increase in demand for American International Group calls pushed the overall reading of options implied volatility on the stock higher by 25.2% to 50.30% in the final 15 minutes of the trading day.
CAT - Caterpillar, Inc. – It looks like some options investors expect the machinery maker’s shares to trend higher at the start of 2011. CAT-bulls are buying call options in the January 2011 contract this afternoon despite the 0.45% decline in the price of the underlying stock to $94.04. Options traders exchanged more than 7,200 calls at the January 2011 $95 strike by 3:10pm in New York trade. It looks like the majority, or approximately 5,300 of the call options, were purchased for an average premium of $1.58 a-pop. Call buyers make money if CAT’s shares rally more…
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Wednesday Worries – Ireland “Fixed” – Who’s Next?
by Phil - December 8th, 2010 8:28 am
So many things are pissing me off today.
I got my political outrage out of the way in my earlier post: "Thanks for the Gas Money, Mr. President," so we don’t need to talk about that again. Ireland, as of 7:45, has not actually voted to accept the EU’s deal, which will pull $20,000 per Irish family directly from national pension funds to pay for the speculative mistakes of Irish Banks. Additionally, the Irish people are being asked to borrow another $75,000 per family from the EU at about 6% interest, also to pay for the speculative mistakes made by the Irish Banks. While this may seem insane – it’s only a drop in the bucket compared to what Americans are spending to bail out our own speculators so why shouldn’t they join the club?
At least Ireland gets to vote for their obligations, we have a Federal Reserve System where a single man, known as "The Bernank" is able to spend what is now heading towards $3.5Tn of OUR MONEY to bail out his banking buddies. That’s $31,818 per American family spent over two years IN ADDITION to the stuff I complained about Obama and our spineless Government spending in the last post.
As I said, things are pissing me off today! I should be in a better mood – we had a fabulous day trading in Member Chat yesterday. In yesterday’s post, I closed with "One last stab at making some bearish profits for us (see Morning Alert)" and you can click on that Alert, which was posted on Seeking Alpha and check out our trade ideas for the $10,000 to $50,000 Portfolio which included (at 7:22 am yesterday) QID Jan $10 calls, which opened at $1.80 and finished at $2 (up 11%), DIA Dec $114 puts, which opened at .80 and finished at $1.33 (up 66%), XRT Jan $44 puts, which opened at .35 and finished at .55 (up 57%), USO Jan $36 puts, which opened at .66 and finished at .90 (up 36%), PCLN weekly $400 puts, which opened at $50 and finished at $1.40 (up 180%) and NFLX Jan $155 puts, which opened at $1.70 and finished at $2.30 (up 35%) but should look much better this morning, where we will exit.
Of course I featured the idea to short NFLX last Thursday…
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RIMM Bear-Butterfly Strategist Prepares for the Worst
by Andrew Wilkinson - August 31st, 2010 4:22 pm
Today’s tickers: RIMM, HRB, CAT, DF, XLE, SKS, OCR & NEM
RIMM – Research in Motion, Ltd. – Shares in BlackBerry maker, Research in Motion Ltd., took a severe beating today after a Sanford C. Bernstein Ltd. survey revealed more firms are choosing rival devices such as the iPhone, a sign the firm is relinquishing its share of the corporate market to its competitors. RIMM’s shares dropped 6.30% to an intraday- and new 52-week low of $42.72 in the final hour of trading. The price of the underlying stock, which reached a 13-month high of $88.08 on September 23, 2009, has since collapsed 51.5% lower to reach today’s value of $42.72. But, one options trader populating the longer-dated January 2011 contract today positioning for RIMM’s shares to nearly halve again by expiration. The investor initiated a bearish put butterfly spread, buying 1,100 puts at the January 2011 $27.5 strike for premium of $0.80 apiece, selling 2,200 puts at the January 2011 $22.5 strike for premium of $0.37 per contract, and buying 1,100 puts at the January 2011 $17.5 strike for premium of $0.18 each. The net cost of the spread amounts to $0.24 per contract. The investor stands prepared to accumulate profits if shares of the mobile device maker plummet 36.2% from the current price to breach the effective breakeven point at $27.26 by expiration day. Maximum potential profits of $4.76 per contract are safe inside the trader’s piggybank if the Canadian company’s shares collapse 47.3% lower to settle at $22.50 at expiration. The majority of options traders populated the near-term September contract where the September $40/$42.5/$45 strike puts were the most active.
HRB – H&R Block, Inc. – Bearish investors bombarded the provider of tax, banking, business and consulting services in afternoon trading after Standard & Poor’s Ratings Services lowered its rating outlook on the company to stable from positive. The downgrade weighed heavily on HRB’s shares, which fell as much as 6.20% to an intraday- and new 52-week low of $12.54. Shares are currently down 4.95% at $12.71 with one hour remaining before the closing bell. Given the new 52-week low of $12.54, HRB’s shares are down 21.5% since trading at $15.97 on August 2, 2010. The stock has lost a total of 46.15% of its value since January 21, 2010, when shares reached the current 52-week high of $23.29. Investors wary of continued bearish movement in…
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Testy Tuesday – Bottom Busting or Big Bounce?
by Phil - June 29th, 2010 8:27 am
Wheeee, what a ride!
Finally all our very boring sitting around at 75% cash makes us feel smart as the market makes what we hope is that final blow-off bottom to re-test our lows. I already sent out an Alert to Members this morning so a lot of this is old news to them but nothing has changed since 4:30 so here’s a quick reprise – What we are mainly seeing in the futures this morning is 2 major factors that are driving the markets lower:
1) Japan, where too strong Yen (88.6), -0.1% industrial output, -1.7% exports, rising unemployment (just 5.2%) AND lower houshold spending (-0.7%) numbers sent the Nikkei down 1.25% today to 9,570. If you think about it though, pretty much all of that is a strong Yen issue because it lowers demand for the exports (making them more expensive) and then factories slow down and people get laid off and household spending drops from that PLUS the fact that it’s now cheaper for them to buy imports so they can buy the same stuff at lower prices.
So, overall, nothing people shouldn’t have expected but ugly to read about.
2) China, where the Shanghai fell 4.27% today to 2,427, which is a lot because they are a 10% limit down market on individual stocks so you can bet the selling isn’t done if the AVERAGE was down 4.27%. The Hang Seng was ugly too, falling 2.3% to 20,248. What sent China off a cliff was kind of silly. The Conference Board, which is a NY-based research firm had reported that Chinese economic indicators rose 1.7% in April – something at the time (June 15th) we thought sounded a bit high. Well, funny thing is it turns out the people at the Conference Board must have been high on something because it turns out they made a "calculation error" and the correct number was just 0.3%.
There is a third factor in play and, earlier this morning I thought it was too silly to be considered but, apparently, you can panic retail investors over pretty much anything. On Thursday, there are $547.5Bn worth of bank-loans from last year’s special liquidity program that are due to roll over and there are rumors circulating that the ECB won’t renew the facility at all. The ECB has, in fact, already promised to replace it with rolling 3-month loans at the…
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Bulls Eye Caterpillar, Inc. Put and Call Options
by Andrew Wilkinson - June 15th, 2010 4:10 pm
Today’s tickers: CAT, BBY, NVTL, XLF, GME, ANF & GMCR
CAT – Caterpillar, Inc. – Bullish options traders stampeded machinery maker, Caterpillar, Inc., today with the firm’s shares rallying more than 2.75% to stand at $62.70 as of 12:55 pm (ET). CAT’s shares increase as much as 3.4% to touch an intraday high of $63.10 in the first half of the trading day. Near-term optimists sold at least 2,200 puts at the June $62.5 strike for an average premium of $1.06 apiece. Investors selling the puts could be ditching downside protection, or may be selling the contracts outright to pocket available put premium. CAT-bulls also purchased some 1,800 now in-the-money calls at the June $62.5 strike for an average premium of $0.88 apiece. Call buyers at this strike price are poised to profit should shares of the tractor manufacturer rally above the average breakeven price of $63.38 before the contracts expire on Friday. Caterpillar’s overall reading of options implied volatility is down 5.3% to 38.11% in afternoon trading.
BBY – Best Buy Co. – Contrarian options players are taking advantage of the more than 6.5% decline in Best Buy’s shares to $38.37 today by initiating near-term bullish transactions in the June contract. Shares of the world’s largest consumer-electronics retailer fell as much as 7.6% to touch down at an intraday low of $37.93 after the firm reported weaker-than-expected first-quarter profits of $0.36 a share, which underwhelmed analysts expecting average net income of $0.50 a share for the quarter. Best Buy bulls expecting the electronics retailer’s shares to rebound purchased 1,100 calls at the June $39 strike at an average premium of $0.54 apiece. Shares of the underlying stock must rally 3.05% from the current price of $38.37 before June $39 strike call buyers start to make money above the average breakeven point at $39.54. Buying interest spread to the higher June $40 strike where 2,300 calls were coveted for an average premium of $0.25 per contract. Investors long the calls profit if BBY’s shares surge 4.9% to trade above the average breakeven price of $40.25 by June expiration on Friday. Other optimistic investors engaged in put selling to take advantage of richer available premium. Bulls shed 3,600 puts at the June $38 strike to pocket an average premium of $0.53 per contract. Put sellers at this strike keep the full premium received on the transaction as long as BBY’s shares…
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Bears Binge on Put Options as Diamond Offshore Drilling, Inc. Shares Nosedive
by Andrew Wilkinson - June 8th, 2010 4:21 pm
Today’s tickers: DO, GAP, RIG, WMS, IMA, BAX, IGT, CAT, CCJ, CVS & WM
DO – Diamond Offshore Drilling, Inc. – Shares of the world’s largest U.S. deep-water oil driller fell as much as 7.6% to an intraday low and new 52-week low of $54.70 after businessinsider.com reported the firm’s Ocean Saratoga rig is leaking crude into the Gulf of Mexico. Goldman Sachs’ ratings cut of Diamond Offshore shares to ‘sell’ from ‘neutral’, as well as a downgrade to ‘underperform’ from ‘market perform’ with a 12-month target share price of $54.00 at FBR Capital Markets, also helped drive the stock lower today. Bearish options investors populated the stock with pessimistic plays, buying near-term put options and selling calls in the June contract. Traders expecting Diamond’s shares to continue to decline purchased 1,200 now in-the-money puts at the June $58.63 strike for an average premium of $4.07 apiece. Investors holding these contracts profit if shares trade beneath the average breakeven price of $54.56 by June expiration. Buying interest spread to the lower June $54.88 strike where 1,100 puts were picked up for an average premium of $2.26 each. Another 1,100 puts were purchased at the June $53.63 strike for a premium of $1.82 per contract. Finally, uber-bearish players coveted 1,600 put options at the lower June $49.88 strike by paying an average premium of $0.92 apiece. Shares of the underlying stock must plunge 10.5% from the current intraday low of $54.70 before June $49.88 strike put buyers start to garner profits beneath the average breakeven price of $48.96. Investors not expecting Diamond’s shares to rally ahead of June expiration sold short 1,300 calls at the June $61.75 strike to pocket an average premium of $0.61 per contract. The premium is safe in call-sellers’ wallets as long as shares of the underlying stock trade below $61.75 through expiration day. Options implied volatility on Diamond Offshore Drilling is up 15.1% to 59.94% as of 3:10 pm (ET). Earlier implied volatility surged roughly 18% to 61.42%, DO’s highest reading of volatility in at least one year.
GAP – Great Atlantic & Pacific Tea Co., Inc. – Investors bought put options on the operator of conventional supermarkets, combination food and drug stores and discount food stores today with shares of the underlying stock trading lower by 4.45% to stand at $4.08 as of 2:38 pm (ET). Pessimistic traders expecting GAP’s shares to continue to decline…
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The Worst-Case Scenario: Getting Real With Global GDP!
by Phil - June 6th, 2010 8:27 am
$10,500.
That is the per capita average GDP for the 6Bn ape-like creatures on this planet who have pockets and purses. Of the still hairy and pocketless apes, there are only about 1M left and they are mainly prisoners so we won’t be worrying about them but it would be nice to consider the plight of our ancestors once in a while… Anyway, so 6Bn of us fill in those last 3 images in the planetary labor pool with the vast majority of us STILL FARMING and, of course, a select group of us are still hunting and gathering and contributing very little to the GDP.
None of our problems are new – as noted in this 2005 cartoon:
The United States of America with it’s highly evolved population of shopoholics has a per capita GDP of $46,381 – VERY IMPRESSIVE but we rank 6th! Brunei does a little better than we do and Singapore is up at $50,523 (so let’s hear it for corporal punishment) and Norway (one of my top choices of countries to flee to when it all hits the fan) is at $52,561 but Luxembourgh ($78,395 – banking) and Qatar ($83,841 – oil) simply trounce us in earnings power per person. For those of you who like to think Capitalism is all about keeping score – they must be better than you because they make more money, right?
Below the US, per capita GDP drops off fairly quickly. Rounding out the top 10 are Switzerland ($43,007 – watches and more bankers), Hong Kong ($42,748 – don’t tell China!), Netherlands ($39,938 – legal drugs!), Ireland ($39,468 – free beer when on wellfare!) and Australia ($38,911 – beer comes in oil cans plus gigantic bouncing rats). 20th on the list is Germany at $34,212, Greece is 25th at $29,882 (but not for long), 30th is South Korea at $27,978, 40th is Slovakia at $21,245. Lithuania comes in at 50 with $16,542 (1 ahead of Russia) and it steadies out there with emerging market star Brazil in 75th place with $10,514 and, keep in mind – that is where you FINALLY get to the average leverl of economic activity for the world.
Another BRIC in the global wall is mighty China, with a per capita GDP of $6,567 for each of their 1.2Bn persons and India’s Billion people average out at less than half of that, at $2,941, ranking 128th and still ahead of 53…
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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
(