Big Bearish Bet on Dell Pops Up Ahead of Earnings After the Close
by Andrew Wilkinson - February 15th, 2011 4:33 pm
Today’s tickers: DELL, AKAM, NWL & EEM
DELL - Dell, Inc. – Bearish sentiment on the personal computer maker is building in options land this afternoon ahead of Dell’s fourth-quarter earnings report after the final bell. Shares in the tech company are currently down 1.5% to stand at $13.88 just after 12:30pm in New York. One big options strategist is well-positioned to benefit from limited downside movement in the price of the underlying shares through March expiration. The investor purchased a massive put spread, picking up 25,000 lots at the March $13 strike for a premium of $0.24 each, and selling the same number of puts at the lower March $12 strike at a premium of $0.08 apiece. Net premium paid to initiate the pessimistic play amounts to $0.16 per contract. The trader starts to make money in the event that Dell’s shares drop 7.5% from the current price of $13.88 to breach the effective breakeven point on the spread at $12.84 ahead of expiration day. Maximum potential profits of $0.84 per contract are available to the put player should shares in the name plunge 13.5% lower to trade below $12.00 in the time remaining to March expiration. Dell, Inc. options are popular ahead of earnings, with more than 137,000 contracts having changed hands in early-afternoon trade. Options implied volatility is up slightly by 3.0% to stand at 36.29% as of 12:40pm.
AKAM - Akamai Technologies, Inc. – A three-legged bullish options combination play on the provider of cloud optimization services caught our eye this morning. The strategist responsible for the transaction is positioning for Akamai’s shares to continue to rise ahead of March expiration. Shares in AKAM are currently up 1.2% at $42.60 just before 11:30am in New York. The stock took a big hit last week, falling as much…
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Dell Call Options Active in Afternoon Trading
by Phil - October 12th, 2010 5:45 pm
Today’s tickers: DELL, AGU, EEM, GERN, SPY, IP, SFD & CHS
DELL - Dell, Inc. – Speculation that Michael Dell, Chairman and CEO of Dell, Inc., may buy the computer company or pay a special dividend lifted shares of the world’s third-largest PC maker this afternoon and spurred demand for out-of-the-money call options. Dell’s shares rallied nearly 3.00% today to touch an intraday high of $14.14, but are currently up 1.50% at $13.94 as of 3:05 p.m. Options traders honed in on October $14 strike calls, exchanging more than 23,100 of those contracts by 3:00 p.m., versus previously existing open interest of 10,783 calls at that strike. It looks like roughly 11,800 of those call options were purchased at an average premium of $0.21 a-pop. Call buyers make money if Dell’s shares exceed the average breakeven price of $14.21 by October expiration on Friday. Other optimistic signaling on the stock involved the sale of some 2,100 in-the-money puts at the October $14 strike where investors received an average premium of $0.34 per contract. Options implied volatility is up 15.2% to stand at 41.52% with less than one hour remaining before the final bell.
AGU - Agrium, Inc. – Shares of Canada’s second-largest fertilizer producer rallied as much as 3.2% today to reign in an intraday high of $85.66 after corn futures jumped to a near two-year high. Agrium was upgraded to ‘sector outperformer’ from ‘sector performer’ at CIBC World Markets where analysts upped their target share price on the company to $100.00 from $70.00. One options trader was prepared for the bullish move in the Agrium’s shares and opted to book profits, as well as extend optimism on the stock in the November contract. It looks like the investor purchased 10,000 calls at the November $85 strike for an average premium…
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Once IBM’s Tormentor, Dell is Now the Tormented
by ilene - October 7th, 2010 4:00 am
Once IBM’s Tormentor, Dell is Now the Tormented
Courtesy of YCharts
Dell (DELL), with its ultra-low-cost manufacturing and narrow focus on personal computers, helped drive IBM (IBM) out of the PC business. IBM, of course, went on to remake itself into a higher-margin software-and-service provider. And now Dell wants to follow Big Blue’s example. Can Dell pull off the transformation and is its stock cheap enough for investors to take on that certainty?
Right now, Dell shares aren’t terribly cheap; the stock got a little bump after Dell reported a revenue jump of 21%, to $30.4 billion, for the six months ended July 30. Dell’s p/e is actually higher than IBM’s or Hewlett-Packard’s (HPQ).
And Dell’s earnings yield – how much in trailing-twelve-months-profit it had for every dollar you might invest today – is lower than IBM and HP.
Make no mistake, Dell is scrambling to remake itself. It has closed and sold plants, turning instead to cheaper contract manufacturers. That led to severance and facility charges of a combined $883 million for the past three fiscal years. Dell has also lined up new distribution channels beyond its own traditional sales force, web site and 800-number, turning to retailers and resellers.
But adding a middleman crimps margins. The leverage an investor would like to see in Dell’s income statement – profits rising faster than sales – isn’t there yet. The first half net income rose 16%, trailing revenues by five percentage points. And gross margin narrowed to 16.8% during the first half from 18.2% a year earlier.
Dell bought Perot Systems in November 2009 for $3.9 billion, and that adds to service revenue and broadens the work Dell can do for large corporate and government clients. To better compete against IBM and HP in those markets, though, Dell will likely need to make more acquisitions. Lots of them. Happily, Dell has stockpiled cash and compares favorably in that category with its larger rivals.
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Hartford Financial Services Group Call Options in High Demand
by Andrew Wilkinson - September 11th, 2010 7:30 am
Today’s tickers: HIG, EW, GENZ, AWK, STEC, DELL, HTZ, DBRN & OVTI
HIG – Hartford Financial Services Group, Inc. – Call options on the insurance and financial services firm are flying off the shelves today with shares trading higher by as much as 2.95% to tie down an intraday high of $22.99. As of 2:20 pm ET, more than 14.1 calls have changed hands on HIG for each single put option in action on the stock thus far in the session. The sharp increase in demand for calls bumped up the insurer’s overall reading of options implied volatility 26.4% to today’s high of 56.57%. While some investors populating HIG are selling calls, the majority of calls traded were purchased by traders positioning for continue appreciation in the price of the underlying shares. Near-term optimists picked up roughly 7,500 calls at the September $23 strike for an average premium of $0.50 each. Call buyers at this strike make money if HIG’s shares rally above the average breakeven price of $23.50 by expiration day next Friday. Other bulls purchased some 4,600 calls at the September $24 strike for premium of $0.23 each. Another 2,800 calls were scooped up at the higher September $25 strike at an average premium of $0.16 a-pop. More than 10,800 calls changed hands at the September $26 strike versus previously existing open interest of just 3,300 lots. The vast majority of those calls, some 7,000 contracts, traded to the middle of the market at a premium of $0.12 apiece. Bullish sentiment on the insurance company spread to the October $24 strike where some 2,000 calls were coveted at an average premium of $0.76 each. Investors holding these contracts stand ready to accumulate profits if HIG’s shares jump 7.7% over today’s high of $22.99 to exceed the average breakeven price of $24.76 by October expiration. An additional 2,000 calls were picked up at the October $25 strike for premium of $0.70 a-pop. Traders long the calls make money if shares surge 11.8% to trade above $25.70 ahead of expiration day next month. Options traders exchanged more than 66,700 contracts on Hartford Financial Services Group by 2:30 pm ET.
EW – Edwards Life Sciences Corp. – The provider of products and technologies created to treat advanced cardiovascular disease popped up on our ‘hot by options volume’ market scanner after one options player initiated a sizeable bearish transaction in the November…
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Monday – Merger Mania Continues
by Phil - August 30th, 2010 8:22 am
It’s another busy Monday for M&A activity.
SNY announced a $18.5Bn CASH offer for GENZ ($69/share), INTC buy’s INNNY’s wireless unit for $1.4Bn in CASH and DELL and HPQ are still in a bidding war over PAR (and HPQ thinks their own shares are so cheap they are buying back $10Bn worth of them). The biggest winner in this weekend’s acquisition game is – ME! I live in northern NJ and, with the merger of CAL and UAUA going through, Continental is forced to diffuse some of their concentration at Newark airport and that ends up giving LUV 18 slots, bringing some much-needed additional competition to Newark, which has been pretty much dominated by Continental for years. LUV is a great buy at $11.13 and a fun way to play is the Jan $10/11 bull call spread at .60, selling the Jan $10 puts for .55, which is net .05 on the $1 spread with a 1,900% upside and your worst-case scenario is you own LUV at net $10.05 – what’s not to LUV?
Speaking of diffused concentration, the Glenn Beck rally was a bit of a disappointment with just 87,000 people showing up (Fox had a permit for 300,000 and keeps using that number as if that’s how many came while Beck himself has been claiming between 300,000 and 650,000 were there and Michele Backmann (R-Minn) claims it was the biggest rally ever held in Washington, with no fewer than 1M people in attendance). This has now backfired on Beck, Palin and the Tea Party as a "show of strength" becomes a show of apathy (to the people who can count, anyway) - it probably would have been smarter to hold the rally next weekend but Fox wanted to time the rally for the start of Jon Stewart’s vacation, although it didn’t stop him from commenting in absentia (where I hear Jon has a lovely bungalow). For a more "fair and balanced" view of the rally, see the very nice coverage from Reason TV.
During an interview on "Fox News Sunday," which was filmed after Saturday’s rally, Beck claimed that Obama "is a guy who understands the world through liberation theology, which is oppressor-and-victim – People aren’t recognizing his version of Christianity," Beck added. Beck’s attacks represent a continuing attempt to characterize Obama as a radical, an approach that has prompted anxiety among some Republicans,…
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Bullish Options Combo Player Foresees Rally in Goldman Sachs’ Future
by Andrew Wilkinson - August 23rd, 2010 4:05 pm
Today’s tickers: GS, BA, RHT, DTG, DELL, ISLN & WHR
GS – Goldman Sachs Group, Inc. – A three-legged bullish options combination play initiated on Goldman Sachs this afternoon indicates one strategist is positioning for a sharp rebound in the price of the underlying stock by October expiration. GS shares, unable to hold onto gains realized earlier in the session, are currently down 0.65% to arrive at $147.27 just after 3:30 pm ET. It looks like the options optimist sold puts in order to partially finance the purchase of a debit call spread. The investor shed approximately 2,000 puts at the October $135 strike for an average premium of $2.74 each, purchased roughly the same number of calls at the October $150 strike for an average premium of $5.46 apiece, and sold about 2,000 calls at the higher October $160 strike at a premium of $1.89 a-pop. The average net cost of the transaction is reduced to just $0.83 per contract. Thus, the options player responsible for the trade is positioned to make money as long as Goldman’s shares rally 2.4% over the current price of $147.27 to surpass the average breakeven price of $150.83 by October expiration day. The trader may accumulate profits of up to $9.17 per contract if GS shares surge 8.6% to trade above $160.00 at expiration in a couple of months. Goldman Sachs’ shares last traded above $160.00 back on April 29, 2010.
BA – Boeing Co. – The second-largest U.S. satellite maker attracted the attention of one bullish options player this afternoon perhaps on news the firm expects to receive a minimum of $2 billion of orders for military communications satellites from a Defense Department contract announced in the previous week. Boeing’s shares slipped 1.95% to $63.34 in late afternoon trading, but the price erosion did not deter one trader from initiating a bullish risk reversal on the stock. It looks like the investor sold 7,000 puts at the October $60 strike for an average premium of $1.83 each in order to buy the same number of calls at the higher October $70 strike for premium of $0.95 apiece. The risk reversal was tied to the purchase of some 371,000 shares of the underlying at a price of $63.94 each. The responsible party received a net credit of $0.88 per contract on the reversal play. The investor is long the stock, short put…
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Optimist Enacts Bullish Risk Reversal on Dollar Tree Stores Ahead of Earnings
by Andrew Wilkinson - August 9th, 2010 5:46 pm
Today’s tickers: DLTR, SPWRB, VZ, AMKR, NXY, CMCSK, MYL, DELL & ZGEN
DLTR – Dollar Tree Stores, Inc. – An investor expecting shares in Dollar Tree to rally significantly by November expiration initiated a bullish risk reversal on the stock today with the price of the discount retailer’s shares up 2.55% at $43.10 as of 3:05 pm ET. It looks like the trader sold approximately 4,825 puts at the November $40 strike for an average premium of $1.30 each in order to partially finance the purchase of the same number of call options at the higher November $45 strike for an average premium of $1.60 apiece. The net cost of putting on the risk reversal trade amounts to $0.30 per contract. Thus, the investor is prepared to make money should Dollar Tree Stores’ shares jump 5.1% to trade above the average breakeven price of $45.30 by expiration day in November. The investor may also be making a bullish wager on DLTR ahead of the firm’s second-quarter earnings report scheduled for release before the opening bell on August 19, 2010.
SPWRB – SunPower Corp. – News that solar energy developer, Etrion Corp., agreed to purchase the two initial phases of Italy’s largest solar park from SunPower Corp. for roughly $63.5 million in cash plus debt today sent SunPower’s shares up as much as 5.4% today to an intraday high of $12.59. Shares are currently trading 4.25% higher on the day to arrive at $12.45 as of 3:15 pm ET. The move higher in the price of the underlying stock attracted bullish options players to the August contract. Investors hoping to see SunPower’s shares continue to appreciate ahead of August expiration purchased roughly 1,000 calls at the August $12.5 strike for an average premium of $0.50 each. Call buyers make money if SPWRB’s shares can rally another 4.4% to surpass the average breakeven price of $13.00 by expiration day. Other optimistic individuals sold 1,100 in-the-money puts at the August $12.5 strike to take in an average premium of $0.60 apiece. Put sellers retain the full premium enjoyed on the transaction as long as SunPower’s shares are trading above $12.50 through August expiration. Investors short the puts are ready and willing to have shares of the underlying stock put to them at an effective price of $11.90 in the event the put contracts land in-the-money at expiration day.
VZ – Verizon Communications,…
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Which Way Wednesday – Topping or Popping?
by Phil - July 14th, 2010 8:14 am
Wheee, what a ride!
We only had one trade idea for Members all day Monday and that was the DIA $103 calls for .52 from the 9:46 Alert. It is extremely rare that we only have one trade in a day but there really wasn’t anything for us to do as we had been BUYBUYBUYing all last week so there was nothing to do but watch. The calls finished yesterday at $1.12 for a nice 115% gain in 24 hours but we took the money and ran at 10:04 on a spike up to $1.25 because it’s too close to expirations to mess around. They actually topped out at $1.55 near the close but - better safe than sorry. Anyway, we replaced them with IWM calls later in the day and those doubled up and we were out at the close – again, it just doesn’t pay to be greedy.
It’s fun to day trade options on expiration weeks because the premiums go way down and we get fantastic leverage. Our longer-term trades turned mixed for the first time in 2 weeks (we had been 100% bullish) and we went from one to a dozen trade ideas a day as we used DXD for an overall hedge and took bullish positions on AAPL (2), GOOG (2), INTC, T, TZA (which is really a bearish position) and bearish positions on DIA (2) and MA. Of course ALL of our bullish plays were hedged already so the mix was a real indication of how exhausted the rally was starting to look.
Too much, too fast was the watchword for Tuesday as we were already up 5% for the week so we expected a gap fill back to the open (didn’t come yet) before we get serious about taking out our levels (Dow 10,290, S&P 1,102, Nas 2,257, NYSE 6,930 and RUT 651). We expected good news from INTC (we did a bullish ratio spread aimed at $22) and now we’ll see if it’s good enough to get the Nas up to 2,257 but it was the NYSE that worried us yesterday as they were close but no cigar at our 6,930 target.
Gap filling would be nice and normal and would take us back to test Dow 10,200, S&P 1,075, Nas 2,200, NYSE 6,800 and Russell 620. If we can show a little support there and consolidate for the next run, we’ll be in pretty good shape to continue this run but FIRST we have to test them WITHOUT everyone freaking out and…
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Bullish Strategist Positions for Rebound in Plains Exploration & Production Co. Shares
by Andrew Wilkinson - June 28th, 2010 5:49 pm
Bullish strategist positions for rebound in Plains Exploration & Production Co. shares
Today’s tickers: PXP, MRVL, SRE, RIMM, MU, AFL, BMY & DELL
PXP – Plains Exploration & Production Co. – The implementation of a three-legged bullish options combination play on Plains Exploration & Production Co. drew our attention to the November contract where one investor utilized call and put options to position for a rebound in the price of the underlying stock. Shares of the independent oil and gas company soured in late afternoon trading, slipping 3.2% lower to stand at $20.98 by 3:35 pm (ET). PXP’s current price of $20.98 represents a 40.4% decline in value since April 15, 2010, when the stock touched an intraday high of $35.41. But, the options activity observed in the November contract today indicates one trader is expecting the stock to rebound sharply ahead of expiration in five months time. The investor essentially sold short put options in order to partially finance the purchase of a debit call spread. The trader purchased 10,000 calls at the November $22.5 strike for a premium of $2.45 each, sold 10,000 calls at the higher November $28 strike for a premium of $0.70 each, and finally sold 10,000 puts at the November $17.5 strike for a premium of $1.30 a-pop. The net cost of the transaction amounts to $0.45 per contract. Thus, the investor responsible for the three-legged play is positioned to make money as long as PXP’s shares rally 9.4% to surpass the effective breakeven price of $22.95 by expiration day in November. Maximum potential profits of $5.05 per contract are available to the trader if Plains’ shares surge 33.5% to surpass $28.00 by November expiration.
MRVL – Marvell Technology Group Ltd. – Global semiconductor maker, Marvell Technology Group Ltd., popped up on our ‘most active by options volume’ market scanner in the second half of the trading session due to rampant bearish options activity in the July and August contracts. Marvell’s shares edged 1.50% lower this afternoon to stand at $17.11 just ahead of the closing bell. Pessimistic traders expecting shares to continue lower ahead of July expiration sold 3,100 calls at the July $17 strike for an average premium of $0.74 each. Call selling spread to the August $15 strike where 2,300 in-the-money calls were sold at an average premium of $2.52 per contract. Perhaps in-the-money call sellers are hoping to keep…
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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
(