Bank of America Bears Buy Puts
by Andrew Wilkinson - February 8th, 2010 4:14 pm
Today’s tickers: BAC, PBR, F, FXI, NXY, KFT, DELL & HPQ
BAC – Bank of America Corp. – Bearish option traders purchased put options on Bank of America today with shares of the firm trading 3% lower to $14.52. The number of put options purchased at the March $14 strike price surpassed existing open interest at that strike, suggesting many investors are bracing for continued near-term share price erosion. Approximately 33,000 puts were purchased for an average premium of $0.59 apiece at the March $14 strike. Investors picking up the put options perhaps anticipate B of A’s share price could slip beneath the effective breakeven point on the trade at $13.41 ahead of March expiration. The 12% increase in the reading of options implied volatility on Bank of America to 43.74% today points to increased fluctuation in the price of the underlying shares going forward.
PBR – Petroleo Brasileiro SA ADR – The Brazilian oil company’s shares recovered slightly today, rising 0.65% to $39.03, amid higher commodity prices and a rebound in the price of crude oil. Option traders are still initiating bearish trades on the stock though, which suggests today’s modest rebound could be short-lived. One investor purchased a put spread in the January 2011 contract, establishing long-term downside protection. It appears the trader bought 5,000 in-the-money puts at the January 2011 $40 strike for a premium of $6.50 each, marked against the sale of 5,000 puts at the lower January 2011 $30 strike for an average premium of $2.13 apiece. The net cost of the transaction amounts to $4.37 per contract. The parameters of the trade indicate an effective breakeven share price of $35.63, which marks the price at which shares must trade at (or below) before downside protection kicks in for the put-spreader.
F – Ford Motor Co. – Shares of the American automaker, whose sales increased 24% year-over-year in the month of January, rallied 3.40% to $11.28 today. Notable options activity on the stock involved long-dated put options in the January 2012 contract. It looks like at least one investor purchased 20,000 puts at the January 2012 $5.0 strike for a premium of $0.58 per contract in combination with the purchase of an equivalent number of shares of the underlying stock. The ‘married-puts’ picked up by options players provide long-term downside protection should Ford’s shares collapse in the next two years. But, the trader(s) are most…
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Hewlett-Packard Bull Dabbles in Call Options
by Andrew Wilkinson - January 28th, 2010 4:24 pm
Today’s tickers: HPQ, GS, XLE, QCOM, JPM, TM, SLV, EK, GMCR & TYC
HPQ – Hewlett-Packard Co. – Shares of technology giant, Hewlett-Packard Co., are down 3.5% to $47.70 this afternoon, but the actions of one option trader indicates the stock may rebound by expiration in March. Call activity in the March contract effectively mimics a ratio call spread strategy, which positions the investor to benefit from a move higher in share price in the next couple of months. The ratio call spread took place at the March $46 strike where 5,000 in-the-money calls were purchased for a premium of $3.20 apiece. At the higher March $50 strike, 10,000 call options were sold for an average premium of $1.15 each. Assuming both trades are the work of one investor, the net cost of the bullish move amounts to $0.90 per contract. Maximum potential profits of $3.10 per contract accrue to the upside if shares of the underlying rally to $50.00 by expiration. We note that shares of Hewlett-Packard last traded above $50.00 as recently as January 21, 2010.
GS – Goldman Sachs Group, Inc. – A couple of contrasting option trades caught our eye this afternoon on investment banking institution, Goldman Sachs Group. Goldman’s shares edged 1.15% higher in late-day trading to stand at $153.22. The first and nearer-term of the two transactions appeared in the March contract. The sale of more than 6,800 call options at the March $160 strike for an average premium of $4.58 apiece is a bearish signal. Investors selling the calls apparently expect to keep the premium received today because they do not see Goldman’s share price rebounding to- or above $160.00 by expiration in March. Contrary to the call selling described previously, the April contract attracted bullish sentiment. One investor purchased a call spread by picking up 2,000 calls at the April $160 strike for a premium of $5.78 each, marked against the sale of 2,000 calls at the higher April $175 strike for about $2.05 apiece. The trader paid a net $3.73 per contract to position for a rebound in GS shares by expiration in three months time. Shares must rally approximately 7% from the current price before the call-spreader breaks even at a price of $163.73. Maximum potential profits of $11.27 per contract amass if shares surge more than 14% (from $153.22) to $175.00 ahead of April expiration.
XLE – Energy Select…
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Thrilling Thursday – Obama plus Jobs (Steve, not employment) Boost the Market
by Phil - January 28th, 2010 6:15 am
You would think I would have a lot to say about the IPAD but I don’t.
After all, I named the IPad back in December 2008 when I told Members: "AAPL just announced a deal to do Ebooks on IPhones and ITouch and that is the intermediate step towards the IPad, which should be a 2-3x size version of the IPhone that takes the place of a Kindle or a laptop or a notepad or…" I also ran a very close to accurate picture of the IPad back on Sept 11th (and the live images are here), which documents our bullish take on AAPL all the way from $85 and reiterated in Sept at $170 (but we were out at $213 Tuesday, back in at $202 yesterday for the ride back up as we got our expected sell-off during the Apple event) – so this is all old news for us at PSW.
Back in September I said: "So we are happy, happy AAPL owners and Piper Jaffray’s Gene Munster thinks AAPL can sell 2M units of the IPad at $600 each to generate an additional $1.2Bn in revenues in 2010 and I think he’s low. Also, it should be noted that we went with GLW back in December on the premise that millions of touch-screen IPads would use a lot of high-end glass." I am very pleased that the basic model came in $100 lower than my target but, as with IPods – who buys the basic model? Delivery in 60 days means I should hit my sales targets no problem and I it doesn’t look like GLW will be the supplier of IPad glass (LPL seems more likely) but the demand for glass will still be stunning and GLW is up 26% since September so we’re not going to whine about it (I still like them).
OK, enough about toys, on to the President, who gave his State of the Union Address last night, making the following notable points (my notes in brackets):
I’m proposing that we take $30 billion of the money Wall Street banks have repaid and use it to help community banks give small businesses the credit they need to stay afloat. I’m also proposing a new small-business tax credit, one that will go to over 1 million small businesses who hire new workers or raise wages. While we’re at it, let’s also
…
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Put Volume Explodes on iShares MSCI Hong Kong Index ETF
by Andrew Wilkinson - December 2nd, 2009 4:38 pm
Today’s tickers: EWH, HPQ, M, GLD, LCC, KRE, BBY, WAG & DYAX
EWH – iShares MSCI Hong Kong Index Fund – The EWH popped onto our ‘most active by options volume’ market scanner today after one investor traded 70,000 put options on the fund. Shares of the ETF are up 0.25% this afternoon to stand at $16.22. It appears the trader shed 35,000 puts at the January 14 strike for 10 cents apiece in order to partially offset the cost of purchasing 35,000 puts at the June 14 strike for 65 cents each. The net cost of the protective play amounts to 55 cents per contract. The nearer-term short put position in the January contract implies the investor does not expect shares to dip below $14.00 by expiration in less than two months. The investors stands ready to have a whopping 3,500,000 shares of the underlying put to him at $14.00 apiece in the event that the put options do land in-the-money. The long put position in the June 2010 contract suggests the trader is already long the stock. He is most likely extending downside protection on the underlying position for the next seven months before expiration. Shares of the EWH would need to fall 17% from the current price in order for downside protection to kick in beneath the breakeven point at $13.45. We note that shares of the fund have traded above $14.00 since July 15, 2009.
HPQ – Hewlett-Packard Co. – Medium-term bullish trading graced the global technology company’s February 2010 contract despite a 1% decline in HPQ shares this afternoon to $49.06. A risk reversal by one option player suggests shares could increase significantly by expiration in February. The trader sold 12,000 puts at the February 40 strike for an average premium of 27 cents apiece, and bought the same number of calls at the higher February 60 strike for 8 pennies each. The transaction yields a net credit of 19 cents per contract. The investor retains the full credit as long as HPQ’s shares remain above $40.00 through expiration day. Additional profits accumulate if the stock surges 22% higher than the current price to surpass the $60-level. The long call position probably serves more as a stop loss, or insurance policy, on the trade in the unlikely event that shares do jump more than 22% in the next three months. The reversal was more likely…
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Hewlett-Packard Options Deliver Winner to Call Seller
by Andrew Wilkinson - September 1st, 2009 5:14 pm
Today’s tickers: HPQ, ELX, FXI, IYR, MOS, WFC, ABX & VIX
HPQ - Shares of the global technology company have surrendered more than 2% to arrive at the current price of $43.85. Gloomy predictions by one bearish investor were rewarded during the session as he apparently made a closing purchase of a short call position in the September contract. It appears that the trader originally shed about 4,500 calls at the September 47 strike price for a premium of 65 cents each back on August 12, 2009. Today he closed out the short position by buying the calls back for just 12 cents per contract. The trader’s pessimistic foresight yielded net profits of approximately 52 cents for a total payoff of $238,500. – Hewlett-Packard Co. –
ELX - The telecommunications firm appeared on our ‘hot by options volume’ market scanner after bullish activity was detected in the January 2010 contract. Shares of ELX have resisted the overall bearish market momentum today by rising a modest 0.5% to $9.72. A bullish risk reversal was established through the sale of 5,000 puts at the January 7.5 strike for 30 cents each spread against the purchase of 5,000 calls at the higher January 12.5 strike for 35 cents apiece. The net cost of the transaction amounts to just one nickel per contract and positions the trader to benefit from further bullish movement in the price of the underlying. Shares of Emulex must rally approximately 29% higher by expiration in order for the investor to break even at a price of $12.55. – Emulex Corp. –
FXI - A bearish reversal play was enacted on the China ETF this afternoon amid a 2% decline in shares to $38.46. The investor responsible for the reversal may simply be looking to amass profits to the downside. Alternatively, the trader could hold a long position in the underlying stock, in which case he has taken a protective stance. The transaction involved the sale of 15,000 calls at the November 39 strike price for 3.00 apiece spread against the purchase of 15,000 in-the-money put options at the same strike for 3.20 each. The sale of the calls significantly reduced the cost of getting long the puts. The reversal cost the investor just 20 cents per contract and allows him to accrue profits beneath the breakeven price of $38.80. Given the current price of the FXI, the trader has already amassed profits…
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Thoughtful Thursday Morning
by Phil - August 20th, 2009 8:26 am
Maybe I am being too bearish on the economy.
Maybe there is a shining city on the hill with 1,000 points of light and if I simply close my eyes and believe in it, I will be transported there and everything will be wonderful and China will expand and Europe will expand and the US markets will rise and rise as the 18M unemployed people line up in the streets to cheer us as we all drive past them in our new cars as we head over to the gas station to pay $4 for gas, honking joyfully as we pass by each empty storefront and each abandoned home.
It was good to take quick bearish profits, as I warned in yesterday’s post because quick profits are all the bears get these days as it was indeed a "Whipsaw Wednesday," and Buffett’s warning went in one ear and out the other of investors so quickly that clearly there was no gray matter slowing it down along the way! I was very proud of our short plays on COF, HPQ, RTP, SRS, RTH and our DUG long but all had a half-life on their success so short you could have run an atomic clock with it. Fortunately, we had our bounce levels to guide us and our 3 of 5 rule to get out of bearish positions so the damage was more to our pride than our portfolios.
Although I could see the turn in my 9:45 Alert to Members, I didn’t have the heart to make any bullish calls as it just seemed like such nonsense. By 10:12 we were even more concerned that something was up and I said: "Don’t get too excited bears. As I said in the post, profits need to come quickly off the table – this is not a market for riding 20% profits too far." Sadly, I then proceeded to make a short play on OIH at 10:26 that stopped out at 10:34 and an incredibly poorly timed idea to get the DIA $93 puts at 11:22, just minutes before the market went flying and stopped that one out too as we flew through our bounce zone of Dow 9,200, S&P 986, Nas 1,946, NYSE 6,400 and RUT 555. Now that they’ve held up so well, those levels now become our watch levels to the downside and it makes the previous support levels of Dow 9,100, S&P 980,…
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Whipsaw Wednesday – Buffet Bashes Bulls
by Phil - August 19th, 2009 8:27 am
Well, you can’t say I didn’t tell you so…
Yesterday’s post was all about what total nonsense the move up was and, per usual, the whole thing was taken away in the futures, where retail investors have no chance to profit from it. Of course, this market isn’t being run for your benefit and if you wait for Cramer to tell you what to do, then you are pretty screwed (and more so if you listen to him). Yesterday our boy Jim fell off the wagon and declared victory for the Bulls saying: "The bears must be stunned and confused, flummoxed even" and made fun of those of us who worry about "facts" and "fundamentals" as we trade. "Every argument the bears had for selling," Cramer said, "has been totally rebuffed by this great market." Cramer, you are not just an idiot, you are a dangerous idiot!
As the more rational David Fry points out in his "Spin City" post:
So we got a healthy bounce today but it didn’t undo Friday and Monday’s collective damage. We were a little short-term oversold and a bounce shouldn’t surprise even though economic and company news wasn’t great. But, the “better than expected” spin was in for retailers which frankly was laughable. And, golly, banks reported losses on credit cards were slowing (maybe because Chucky’s not shopping?) which was seen as a positive. Homebuilders
disappointed(oops, scratch that)… a “worse than expected” report was spun positively because more single family homes were built. I wonder about that since there are too many of them, aren’t there? But that’s the way things are these days.
What a stark contrast between a sane and insane take on yesterday’s action. In Monday’s post we targeted a drop to Dow 9,100, S&P 980, Nasdaq 1,950, NYSE 6,400 and Russell 550 and in my 9:48 Alert to Members yesterday I set the bounce targets at Dow 9,200, S&P 986, Nas 1,946, NYSE 6,400 and RUT 555 but noting they were rough numbers that I was eyeballing on the fly, following our 5% rule. Those levels were beat across the board but on such low volume that I called an audible and we stayed bearish, taking aggressive short positions like the DIA Aug $93 puts at $1.50 which, unfortunately, didn’t make our double down target of $1 but should do well this morning. We also took short shots at COF, HPQ (backspread), RTP (looking…
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Ratio Call Spread Suggests Bullish Sentiment on Cabot Oil & Gas
by Andrew Wilkinson - August 17th, 2009 5:53 pm
Today’s tickers: COG, HPQ, ALGN, VIX, WLP, UNH, CVX, & OIH
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Bullish Option Play at State Street Despite Weaker Shares
by Andrew Wilkinson - May 27th, 2009 4:51 pm
Today’s tickers: STT, HPQ, AMAT, PBR, BYD, AMD, VALE & ITUB
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The Deere Hunter
by Andrew Wilkinson - May 20th, 2009 5:33 pm
Today’s tickers: DE, XLF, V, PBR, HPQ, POT, XLB, RF & F
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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
(