Stock Market Crash - Year One Review III - March Madness!
by Phil - September 10th, 2009 5:51 pm
We left off in Part II with our Feb 23rd Big Chart Review.
Even though I said: "Once again we are in a market that environment that reminds me of the Simpsons episode where Homer jumps over a gorge, crashes, is taken up by a helicopter (Ben) smashing against the wall along the way only to fall all the way from the top again. Pain, pain and more pain every time we try to get long" - we still weren’t fully prepared for the devastation that was to follow as the Dow fell from 7,500 to 6,500 in the next 10 days. My commentary on the environment the next day was:
According to Cap, someone on the YHOO message board was counting the number of times CNBC talking heads said "nationalization" this morning and, as of 8:15, they were up to 300 times. Sadly, this is the fear-mongering that is driving the markets to new lows while Cramer continues to keep his sheeple out of protective ETFs like SKF. So you have the man’s network telling you financials are going to zero while dog and pony boy tells his minions to sell ALL the financials, causing them to go to zero - even though they could hold on and protect themselves with conta-funds, if Cramer didn’t spend 3 days a week convincing his viewers contra-funds are poison. I’ve never seen anything like this outside of a racketerring investigation. Speaking of racketeering - Dennis Kucinich nailed it when he pinned that charge on Paulson and company back in November.
Our wall of worry continues to be a steep one. After yesterday’s failure we do not expect too much out of today, we’ll be happy to just see a bottom at this point but it’s looking a little more likely that we’re heading into a capitulation event that can take us down to frightening levels. The 60% line is a line the markets dare not cross but, as I pointed out yesterday, we already lost the SOX and the Nikkei, with the Hang Seng and the BSE hanging on by a thread. Let’s take these levels very seriously, if the administration can’t turn it around this week - the downward momentum can easily pick up steam.
I’ll spare you the details other than to say we DIDN’T turn it around that week and the downward momentum DID pick up steam. I was at war with Cramer at the time as he was blatantly ripping off my ideas and trying…
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Satyam Computer Attracts Bullish Option Strategies
by Andrew Wilkinson - August 31st, 2009 5:22 pm
Today’s tickers: SAY, UNG, DVN, BJS, AXP, & IP
SAY - The global IT solutions provider popped up on our ‘hot by options volume’ market scanner this afternoon after bullish call activity was observed in the near-term September contract. Shares of the firm have rallied higher by more than 16% during the session to stand at the current price of $6.37. Investors appear to have purchased approximately 4,000 calls at the September 7.5 strike for an average premium of 35 cents apiece. Shares of SAY would need to surge 23% higher in order for traders long the calls to begin to amass profits above the breakeven price of $7.85. Bullish sentiment spread to the October 7.5 strike where another 1,600 calls were scooped up for a premium of 51 cents. Option implied volatility on Satyam has exploded upwards from an intraday low of 74% to the current reading of 120%. We note that the 15,000 contracts exchanged on the stock today represent more than 54% of the total existing open interest on SAY of 27,735 lots. – Satyam Computer Service Limited –
UNG - Shares of the natural gas exchange-traded fund have slipped 4.4% lower today to reach a 5-year low of $10.64. Despite the present weakness in UNG, one investor was seen making far-term bullish bets on the fund by targeting the April 2010 contract. It appears that the trader established a bullish reversal play by shedding 3,000 puts at the April 10 strike for 1.85 apiece in order to purchase 3,000 calls at the higher April 11 strike for 1.82 each. The trader receives a net credit of 3 pennies per contract and has positioned himself to add to his gains if shares rally higher than $11.00 by expiration. The short put position indicates that the investor is happy to have shares put to him at an effective price of $8.15 in the event that the put options land in-the-money by expiration. Shares need only remain higher than $10.00 for this individual to retain the 3 cent credit indefinitely. – United States Natural Gas ETF –
DVN - The independent energy company appeared on our ‘most active by options volume’ market scanner following contrarian options activity in the January 2011 contract. Shares of DVN may have slipped more than 2% lower to $61.15 today, but did not deter one option trader from initiating a bull call spread on the stock. Hoping for significant appreciation…
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Simon Properties upgrade leaves option traders with butterflies
by Andrew Wilkinson - April 15th, 2009 5:11 pm
Today’s tickers: SPG, AMR, EEM, MDR, EFA, EWZ, IP & M
SPG Simon Property Group, Inc. – The real estate investment trust (REIT) has experienced a significant rally of more than 9% to $42.16 today and was added to the ‘conviction buy’ list at Goldman Sachs. SPG appeared on our ‘most active by options volume’ market scanner after one investor established a long butterfly spread in the July contract. The purchase of 5,000 puts at the July 20 strike for 90 cents apiece (wing 1) and the purchase of 5,000 puts at the July 40 strike for 6.70 each (wing 2) were spread against the sale of 10,000 puts at the July 30 strike price for a premium of 2.80 per contract (body). The net cost of the transaction amounts to 2.00 (0.90 [wing 1] + 6.70 [wing 2] – (2.80*2 [body]) = 2.00). This investor will gain the maximum potential profit of 8.00 if shares settle at $30.00 by expiration. This strategy implies that he is hoping shares will fall from the current level through the breakeven point located at $38.00, at which point profits begin to amass to the downside. Should shares continue to rally rather than plummet, the most this trader can lose is the 2.00 he paid for the strategy. In order to reel in the full 8.00 of potential profits, shares would need to decline by 29% from the current price.
AMR AMR Corporation – American Airlines parent corporation, AMR, has experienced a huge share price rally as the stock jumped by more than 16% today to $4.90 after the company revealed narrower than expected first-quarter losses. AMR continues to struggle in this recessionary climate, but looks for travel demand to rise by the middle of the year. Option investors welcomed the better-than-expected results and were seen taking bullish stances on the company. At the May 5.0 strike price, 10,800 calls were purchased for an average premium of 70 cents per contract. One investor sold 6,850 puts at the May 4.0 strike price for 30 cents apiece in order to fund the purchase of 6,850 of the calls picked up at the May 5.0 strike. Finally, bullish investors looking to fly higher selected the May 6.0 strike where more than 3,400 calls were coveted for an average premium of 28 cents. Shares would need to continue on the up-and-up and gain another 22% in order for the May 6.0…
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Pfizer options active in late trading
by Andrew Wilkinson - March 24th, 2009 4:58 pm
Today’s tickers: PFE, HPQ, EFA, C, AGN, VIX, LTD, XHB, SYK, IP & TGT
PFE Pfizer Inc. – Shares of the pharmaceutical company have declined slightly by less than 1% to stand at $13.93. Pfizer edged onto our ‘most active by options volume’ market scanner late in the afternoon after some interesting trades went through in the January 2011 contract. At the 15 strike one investor initiated a sold straddle by shedding 10,000 calls for a premium of 2.05 as well as 10,000 puts for 3.60 apiece. The gross premium enjoyed on the trade amounts to 5.65 and is retained in full if shares settle at $15 by expiration. This trader is expecting shares to remain mid-way between the 52-week low for Pfizer of $11.62 and the 52-week high at $20.32. In contrast, a bullish investor purchased 11,500 calls at the January 20 strike price for 80 cents per contract. This investor is hoping to see shares rally by 49% over the next 2 years to arrive at or above a breakeven share price of $20.80.
HPQ Hewlett-Packard Co. – Shares of the technology company have dipped slightly by less than 1% to $31.08. We observed a call-to-put ratio of about 3.0 which implies that call options traded three times for each put traded. However, the calls were nearly all sold. The November contract stood out with 8,400 calls sold at the 35 strike price for an average premium of 2.80. Another 11,000 calls were shed for 2.00 at the November 37.5 strike price. No open interest was previously recorded at either of these strikes, and therefore these calls were sold short by investors. Moving into the January 2010 contract, it appears that one individual sold 3,750 in-the-money calls at the 30 strike price for a premium of 5.50, while purchasing the same number of puts at the 32.5 strike for 5.80 apiece. This transaction leaves the trader with a net cost of 30 cents and a breakeven share price at which profits begin to amass on the downside at $32.20. Thus, the overall tapestry woven together by option trades depicted some species of large bear. One trade initiated in January ran counter to rest as one investor purchased 12,500 calls at the 32.5 strike price for a hefty premium of 4.35. Shares would need to rally by about 19% from the current price in order for the investor to breakeven at $36.85…
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Dividend cut sparks put buying at Alcoa
by Andrew Wilkinson - March 17th, 2009 4:28 pm
Today’s tickers: AA, RIO, TGT, HD, IP, VIX, ORCL, COGO & FRED
AA Alcoa Inc. – The producer of aluminum has dropped more than 9% to $5.55 after the company slashed its dividend by 3 cents in an effort to cut back on capital spending. AA hopes these measures will help strengthen its position in the case of a lengthy economic downturn. Most of the action in options-land occurred on the put side as investors seek to profit from declines in the share price. Fresh buying was observed at the March 5.0 strike price where around 25,000 puts were picked up for an average of 15 cents apiece out of the 47,000 puts traded at the strike. Shares of Alcoa would need to fall another 12% by Friday in order to reach the breakeven price of $4.85 – the price at which put-buyers begin to amass profits. Similar purchases were observed at the 5.0 strike in April where some 53,000 puts changed hands throughout the day at an average premium of 52 cents per contract. Interestingly, one investor was seen looking for recovery in the October contract by purchasing 4,000 calls at the 7.5 strike for 1.10 each. We believe this transaction was funded by the sale of 8,000 calls at the April 7.5 strike price for a premium of 23 cents each. This investor does not see Alcoa rebounding in the next 30 days, but he is optimistic that shares will increase by about 35% in order for the calls to land in-the-money by expiration in October. In stark contrast to the optimism seen in the previous trade, one investor picked up 12,000 puts at the 2.5 strike price in January 2010 at a cost of 50 cents per contract. This trade predicts nothing but doom-and-gloom for Alcoa all the way through to the start of next year.
RIO Companhia Vale do Rio Doce ADS – Shares of the metals and mining company have rallied 2% to $13.73 perhaps due to the selection of a new chairman-designate who stated that his immediate focus would be centered on finalizing the transaction with Chinalco (Aluminum Corp. of China). Global economic conditions continue to thrash commodity markets and Rio Tinto sees little chance of a rebound this year. Thus, the new chairman (Jan du Plessis) is hoping that finalized deal – which would increase Chinalco’s stake in RIO to 18% – will provide RIO with a…
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Which Way Wednesday
by Phil - February 25th, 2009 6:48 am
Well I’m uplifted!
We had a fantastic day in the markets yesterday as we went bottom fishing in earnest early in the morning, picking up entries on JPM, X, IP, VNO, HMY, M and IYR early in the day, ahead of my 12:48 observation to members: "BAC breaking up along with their preferred stock - that’s a good sign. SKF back at $192 test area, XLF at $7.45 so just a little push and maybe we can get somewhere!" Indeed watching our levels paid off and we went flying up after that. As I often say, you NEED to make these buy decisions at the bottom, it’s too late once the train starts moving. We did grab a momentum play on BAC as they crossed $4.40 but, other than adjusting our DIA cover play, we had no need to make adjustments during the run-up because it’s what we were playing for.
We went into the close fairly neutral (a very slight bearish bias on our DIA puts), having accomplished our mission and not being sure what kind of speech Obama would be giving. It turned out to be a great one and the Republican response by Gov. Bobby Jindal was so mind-blowingly awful that Rachel Maddow was stunned to the point where she was unable to speak and I will leave my own commentary at that! On this same clip, Cris Matthews had the comment of the week, saying that the Republicans were so mired in responsibility for this crisis that they had to outsource the response (Jindal is Indian). I found that very funny…
As we expected, there is no "quick fix" in Obama’s speech and we’ll see how well the markets hold yesterday’s gains. We would have been more bullish had we not had so much trouble with our two critical levels I said we should watch in yesterday’s morning post: Russell 411 and NYSE 4,790. As I said in the morning, these were just the levels we needed to break in order to consider the day’s action anything more than a weak bounce off the horrendous drop of the past two weeks. That’s why we do not jump on the bandwagon once the rally gets going - we do our bottom fishing at the bottom and we sell or cover into the rallies. If it’s a real rally, we have a long, long way to go and we will have very strong buy signals - a good start would be…
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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
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