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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Three-Legged Bears Tackle Emerging Markets Options
by Andrew Wilkinson - January 19th, 2011 4:14 pm
Today’s tickers: EEM, MRVL, BCSI & XRT
EEM - iShares MSCI Emerging Markets Index ETF – A number of large-volume spreads on the emerging markets fund this morning signal investor pessimism on the sector through February expiration. Shares of the EEM, an exchange-traded fund designed to measure equity market performance in the global emerging markets, fell 0.50% to $47.62 by 12:20pm in New York. Three-legged bearish spreads, wherein investors sold out-of-the-money calls to partially finance the purchase of put spreads, are popular with strategists populating the EEM today. The larger of two similar bearish plays involved the sale of 15,500 calls up at the February $52 strike for a premium of $0.05 each, purchase of the same number of puts at the February $47 strike at a premium of $0.96 apiece, and the sale of 15,500 puts at the lower February $43 strike for premium of $0.19 each. The net cost of the transaction amounts to $0.72 per contract and positions the responsible party to profit should shares in the EEM decline another 2.80% from the current price of $47.62 to breach the effective breakeven point to the downside at $46.28 ahead of February expiration day. Maximum potential profits of $3.28 per contract are available to the trader should shares in the ETF drop 9.7% lower to trade below $43.00 before the contracts expire next month. A like-minded tactician established a similar spread, but sold call and put options at closer-to-the-money strikes to further reduce the premium required to take a bearish stance on the fund. This options player sold 14,000 of the February $50 strike calls, picked up 14,000 puts at the February $47 strike, and sold the same number of puts at the February $43 strike. The trader paid a net premium of $0.24 per contract and breaks even on the spread if the EEM’s shares decline 1.80% to trade below $46.76 ahead of expiration. Maximum potential profits of $1.76 per contract pad the investor’s wallet should shares dip below $45.00 at expiration next month. Selling calls at the February $50 and $52 strikes reduces the cost of the bearish spreads, but is not a riskless tactic to employ. Investors are on the hook to deliver…
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Nvidia Pops After Healing Chip Strategy
by Andrew Wilkinson - November 12th, 2010 4:44 pm
Today’s tickers: NVDA, GMCR, EEM & GLD
NVDA - Nvidia Corp. – It appears that Nvidia’s strategic change might be paying off after challenges to its core chipset business from AMD and Intel threatened to derail its fortunes. Earlier results showed profits beat expectations albeit by a penny but prompted the company to raise revenue forecasts in a sign of a revival in personal computer demand. The company’s revival involves new products in the market for chips that run add-in graphics to computers. The success is reviving investors’ appetite for the stock, which had earlier lost one-third of its value during 2010. On September 24, our market scanners picked up on a brace of bullish calendar call spreads on the stock using nearby January and March options against January 2012 call options. At the time there were also suggestions in the market that Oracle might be looking to acquire Nvidia. Following a near-8% pop in the stock today to $13.63 the investors appears to be taking a healthy profit on at least part of the trade by selling almost 20,000 January calls at the $14 strike and buying back a similar short position in the January 2012 calls at the $22.50 strike. The bullish positioning at the time cost this investor a mere 16 cents to enact and from what we can tell this morning the trade was closed at a healthy 81% gain.
GMCR - Green Mountain Coffee Roasters Inc. – We’re not quite sure the reason behind a three-day slump in shares at operator of the fast-growing Keurig single-cup coffee brewer is, but shares have slumped by 11% to $31.05 on Friday. Perhaps investors are expecting demand destruction as a shortage of beans sends coffee futures above $2.00 per pound. However, perhaps growing threats to the niche market are…
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Impending Q3 Earnings Report Spurs Demand for Viacom Options
by Andrew Wilkinson - November 10th, 2010 4:22 pm
Today’s tickers: VIA B, BJ, MRK, EEM, PETM & C
VIA B - Viacom, Inc. Class B – Options on the global entertainment content company are active ahead of the release of the firm’s third-quarter earnings report before the opening bell tomorrow. Investors are establishing both bullish and bearish positions on Viacom using near-term put and call options. Viacom’s shares are currently up 0.15% at $38.09 with just fewer than thirty minutes remaining in the trading session. Traders fearing the price of the underlying stock could fall following earnings initiated bear put spreads. Put players picked up approximately 3,000 in-the-money puts at the November $38 strike for an average premium of $0.77 each, and sold about the same number of puts at the lower November $36 strike for an average premium of $0.14 a-pop. Average net premium required to purchase the spread amounts to $0.63 per contract. Thus, investors are prepared to profit, or realize downside protection, in the event that shares in Viacom fall 1.9% from the current price of $38.09 to breach the average breakeven point at $37.37 by expiration day. Maximum potential profits of $1.37 per contract are available if VIA’s shares plunge 5.5% lower to trade below $36.00 by November expiration. Meanwhile, investors taking bullish stances ahead of earnings looked to the November $39 strike to purchase approximately 1,600 calls for an average premium of $0.32 per contract. Call buyers profit if Viacom’s shares rally 3.2% to surpass the average breakeven price of $39.32 by expiration day.
BJ - BJ’s Wholesale Club, Inc. – Reports that the warehouse club operator is considering hiring an advisor to review options including a potential sale to a leveraged-buyout firm in a deal that could net as much as $3 billion sent shares flying higher today and drew speculators to the…
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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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Bullish Player Acts on Gymboree Corp. Speculation with Ratio Call Spread
by Andrew Wilkinson - October 2nd, 2010 6:32 am
Today’s tickers: GYMB, EQIX, JPM, SLV, STI, MBI, EEM, SNP & GDX
GYMB - Gymboree Corp. – One options player populating the retailer of children’s clothing and accessories waited until the twilight of the final trading day of the week to initiate a bullish stance on the stock. Gymboree’s shares surged as much as 21.425% at the start of the session to touch an intraday high of $50.44 on speculation the firm may put itself up for sale. The rumors drove implied volatility on Gymboree up 20.10% to 48.52% this morning along with the price of the underlying shares and spurred demand for options. Shares as well as volatility cooled somewhat by late afternoon, with shares up 16.5% at $48.40 and volatility higher by 13.5% to 45.85%, as of 3:00 pm ET. The patient bullish player looked to the February 2011 contract to establish a ratio call spread, purchasing 1,050 calls at the Feb. 2011 $48 strike at a premium of $4.80 each, and selling 2,100 calls at the higher Feb. 2011 $55 strike for a premium of $1.85 a-pop. Net premium paid to initiate the spread reduces down to $1.10 per contract. Thus, the trader is poised to profit should GYMB’s shares rally 1.45% over the current price of $48.40 to surpass the effective breakeven price of $49.10 by February expiration day. Maximum potential profits of $5.90 per contract are available to the ratio-spreader if the retailer’s shares surge 13.6% to settle at $55.00 at expiration. The greater proportion of sold calls expose the trader to losses should Gymboree’s shares explode higher to exceed the effective upper breakeven price of $60.90 ahead of expiration day in February. Analysts at Susquehanna raised their share price target on the stock to $60.00 from $48.00 after the Wall Street Journal’s website said bankers were looking into the possibility that Gymboree could be sold to private equity.
EQIX - Equinix, Inc. – The provider of global data center services appeared on our ‘hot by options volume’ market scanner in…
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Strangle Strategist Sees Range-Bound Shares at The Cheesecake Factory
by Andrew Wilkinson - September 7th, 2010 4:03 pm
Today’s tickers: CAKE, LVS, IYR, TEVA, EEM, S, CREE & EXPE
CAKE – The Cheesecake Factory, Inc. – One premium-hungry options strategist sold a strangle on the full-service dining restaurants operator this afternoon in the expectation that its shares are set to trade within a narrow range through October expiration. Cheesecake Factory’s shares fell 1.45% late in the session to trade at $25.38 by 3:35 pm ET. The investor sold 3,000 puts at the October $25 strike for premium of $1.05 apiece and sold 3,000 calls at the October $26 strike at a premium of $1.05 each in order to pocket gross premium of $2.10 per contract. Full retention of the premium received today occurs as long as shares of the underlying stock trade between $25.00 and $26.00 through October expiration. Wayward shifts in the price of CAKE’s shares could give this strangle-player a severe stomachache as losses start to build should shares rally above the upper breakeven price of $28.10, or if shares dip under the lower breakeven point at $22.90, ahead of expiration day in October.
LVS – Las Vegas Sands Corp. – Shares in casino resort operator Las Vegas Sands commenced the session in the red but rallied in afternoon trading to stand 1.05% higher on the day at $31.32 as of 3:45 pm ET. Earlier in the day shares increased as much as 1.5% to secure a new 52-week high of $31.46. One long-term bullish investor hoping to see continued appreciation in the price of the underlying stock established a covered call in the March 2011 contract. The trader sold 10,000 calls at the March 2011 $40 strike for premium of $1.73 per contract. The transaction had a delta of .30 and was tied to the purchase of LVS shares at $31.20 each. Premium received on the sale of the calls effectively reduces the price paid by the investor to get long the stock. The bullish player is poised to accumulate maximum potential gains of 35.7% on the run up in LVS shares from an effective purchase price of $29.47 to $40.00 if the calls land in-the-money at expiration and the underlying position is called away from the trader at that time.
IYR – iShares Dow Jones U.S. Real Estate Index ETF – The construction of a debit put spread on the IYR, an exchange-traded fund that corresponds to the Dow Jones U.S. Real Estate Index…
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Mixed Action on ETF Country Plays
by Andrew Wilkinson - August 13th, 2010 4:30 pm
Today’s tickers: EFA, EEM, DYN & RMBS
EFA – iShares MSCI EAFE Index Fund – One investor appears nervous over a continued slide lower for global stocks and used a put option combination in the index fund tracking Europe, Asia and Far Eastern markets in an effort to profit from a further 10% slide. The iShares ETF is trading at an unchanged $50.89 on Friday while one investor has paid a $980,000 net premium to help reduce the cost of taking a nearby bearish position on the prospects for the fund. If the fund does crash to $45.00 before the option play expires in September, the investor stands to make profits of $4,020,000. The position could be full or partial protection against a long stock position in which case options profits are offset by rising losses as the share price declines. In order to make a profit at expiration the investor must see the share price settle at less than $49.02.
EEM – iShares MSCI Emerging Markets Index Fund – An alternative to the strategy above was offered possibly by the same investor using a put spread in the emerging markets ETF. With the fund having rebounded from about $40.00 per share yesterday, the fund gave of 6.2% of its recovery. This seems to have provoked this investor to seek short-term gains by betting against a further slip in emerging markets. The investor again focused on the September expiration and with shares trading now at $40.63 used the $38.00 and $33.00 strikes to write a credit spread. Instead of buying the higher strike, it appears to have been sold in exchange for puts at the lower $33.00 strike. The purpose is to bank the net premium of 49 cents per contract from making the play. The investor this time faces losses beneath an expiration price $37.51 and see them increase to a maximum of $4.51 per contract in the event markets do face a meltdown over late summer. In order to reach breakeven the shares would need to decline by 7.7% from today’s trading price and to leave the investor facing maximum pain would need to slide by 18.8%.
DYN – Dynegy Inc. – The announcement by Blackstone that it was making a $4.50 a share bid for the power generating company created a groundswell of demand for shares in Dynegy, which rose 60% pennies short of the deal price.…
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Bullish Investor Enacts Options Combo Play on Goldman Sachs Group, Inc.
by Andrew Wilkinson - July 16th, 2010 9:45 pm
Today’s tickers: GS, BP, XLV & EEM
GS – Goldman Sachs Group, Inc. – One options strategist initiated a three-legged bullish options combination play on Goldman Sachs this morning in order to position for the company’s shares to increase significantly ahead of October expiration. The global investment banking firm’s shares rallied more than 4.6% today, adding to Thursday’s 3.8% bullish move in the price of the underlying stock, to secure an intraday high of $152.00 after the firm agreed to pay $550 million to settle with U.S. regulators. The investor responsible for the three-legged bullish transaction sold short put options in order to partially offset the cost of buying a debit call spread. The trader sold 1,750 puts at the October $130 strike for a premium of $3.50 each, purchased 1,750 calls at the October $160 strike for a premium of $5.50 apiece, and sold 1,750 calls at the higher October $175 strike for a premium of $1.86 a-pop. Net premium paid to establish the spread is reduced to just $0.14 per contract. Thus, the options strategist if prepared to profit should Goldman’s shares rally 5.35% over today’s high of $152.00 to surpass the effective breakeven price at $160.14 by expiration day. The investor walks away with maximum potential profits of $14.86 per contract if shares of the underlying stock surge 15.1% to exceed $175.00 by October expiration.
BP – BP PLC – The 3.75% decline in the price of BP’s shares to $37.46 this morning did not deter one optimistic options player from purchasing a bull call spread in the August contract. It looks like the investor purchased 2,500 in-the-money calls at the August $35 strike for an average premium of $4.34 apiece, and sold the same number of calls at the higher August $40 strike for an average premium of $1.74 each. Net premium paid to purchase the spread amounts to $2.60 per contract. The investor responsible for the transaction makes money as long as the oil company’s shares trade above the average breakeven point on the spread at $37.60 by August expiration day. Maximum potential profits of $2.40 per contract are available to the trader if the price of the underlying stock increases 6.8% over the current price of $37.46 to exceed $40.00 at expiration.
XLV – Health Care Select Sector SPDR – One options strategist expecting shares of the XLV, an exchange-traded fund designed to provide…
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Testy Tuesday – Already?
by Phil - July 13th, 2010 8:19 am
Wheeeee, this is fun!
It’s only been a week since I called for "Turnaround Tuesday" and asked the question "Will CNBC Apologize to America" for their ridiculous, sickening parade of negativity that chased their poor viewers out of the market (now 600 points ago) by completely misrepresenting the economic outlook in order to protect the TERRIBLE advice given by Jim Cramer, the Fast Money Crew, their sponsors etc. etc. – it was all one national frenzy of media negativity designed to shove retail investors entirely out of the market while the cognoscenti went shopping.
It’s not just CNBC, of course, it’s a problem with the whole MSM but I ranted about corporate (top 0.01%) control of the media last week so let’s move on as we wave bye-bye to all the beautiful sheeple who were kind enough to sell us their stocks at the bottom, despite my warnings. Our 500% upside plays are now well on their way to making 500% for us and our "9 Fabulous Dow Plays Plus a Chip Shot" are also looking good already. Even the trade ideas I mentioned right in last Tuesday’s post are well on track as I said last week:
On Friday, I had said to Members right at 9:38, in the Morning Alert: "If we run up, then it will be prudent to get more neutral into the weekend but if we stay down and hold our levels, then saying a little bullish will be fine. Out of short-term short trades if you haven’t already. Keep in mind we have some great 500% upside plays you can still grab here if you think you are too short."
The latter was a reference to our 500% upside plays. We also went with EEM July $38 calls at .99, and a QLD $50/53 bull call spread for $1.30 (selling puts as well for more profits) as well as long plays on RIMM, AA, HOV, VLO and TASR. My optimism was based on the considered TA analysis I shared with Members at 2:39:
After completing last month’s "Omega III" market pattern on the Trade Bots, it’s now time to spring the bear trap and run the "Apha II" into options expiration on July 16th. Maybe there will be as little logic to the rise as there was to the fall – who really cares – it’s just our jobs to try to
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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...
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coordinator for PSW. She manages the Favorites backup site
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