Wednesday Chart Watch – The International Perspective
by Phil - December 29th, 2010 7:56 am
So, how are we doing?
I liked David Fry’s tweet (is that the right word – I feel so old when I don’t know this stuff!) yesterday which said: "SPY volume again pathetic at 55M shares. What’s there to write about today? Seems many investors still stuck on planes that aren’t moving." Dave was smart enough to take the day off – me, not so much. We did pick up another .20 with up the DIA Weekly $114 calls at 10:41 in Member Chat for $1.60and those were done at 1:05 for $1.80 as the market looked too risky to me. That was kind of silly as we do know that low volume is the bulls best friend but we’re trying to get back to cash each day on quick trades – especially on calls that expire on Friday!
As you can see from the Euro chart (click to enlarge), I’m not ready to give up on my bearish premise, which is essentially that Europe may be in worse shape than the US and the Dollar and – IF the EU runs into crisis – then the Dollar looks RELATIVELY better and, despite all of Timmy and The Bernank’s best efforts to destroy it – a strong dollar will pretty much undermine everybody’s bullish premise since the only real bullish premise people have is that our worthless currency will drive people into equities and commodities since Treasury and the Fed will artificially keep bond rates so low as to make them unpalatable alternatives.
Even Glenview’s Larry Robbins, who I thought would perhaps have an original thought in his Dow 20,000 premise, does not. The man entrusted with $4.8Bn of other people’s money predicts that p/e multiples will expand by, get this, 45% by the end of 2013 – rocketing the Dow to 20,000 despite just 5% annual earnings growth. Larry Robbins thinks those investing in 10-year treasuries aren’t doing so for the paltry return. They’re in it to front run the Fed and make a quick buck at the expense of the taxpayers. Once this trade is over, Robbins says, they have nowhere to go except the high quality equities in the stock market.
Read into any bull premise and you’ll find inflation at the heart of it. The Global Economy is not really improving but the numbers are looking up because it costs more money to do everything. Now,…
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Put Sellers See Bright Future for Ford Shares in 2011
by Andrew Wilkinson - December 9th, 2010 4:54 pm
Today’s tickers: F, MSFT, ZQK, LULU, EK, CNO & SFD
F - Ford Motor Co. – The automaker’s shares are up 0.55% at $16.78 heading into the close this afternoon after earlier rising as much as 0.95% to an intraday high of $16.85. Bullish options traders expecting Ford’s shares to continue to rally higher over the next six months sold in-the-money put options in the June 2011 contract today. Bank of America/Merrill Lynch reiterated their ‘buy’ rating on the stock, upped their target share price on Ford Motor Co. to $24.00 from $20.00, and revised higher earnings estimates for 2011 and 2012 for the automaker. Optimistic options investors looked to the June 2011 $17 strike to sell some 16,000 in-the-money puts to receive premium of $1.92 per contract. Put sellers keep the hefty chunk of change received on the transaction as long as Ford’s shares exceed $17.00 ahead of expiration day next year. The sale of the contracts suggests traders are more than happy to have shares of the underlying stock put to them at an effective price of $15.08 each should shares fail to rally sufficiently, and the put options trade in-the-money at expiration.
MSFT - Microsoft Corp. – Bullish risk reversals initiated using Microsoft call and put options expiring in July 2011 are signs of investor optimism on the software company. Microsoft’s shares started out the session in the black but have slipped lower in the final hour of trading, losing 0.70% to stand at $27.04 as of 3:10 pm. One options strategist is positioning for shares in MSFT to rebound sharply ahead of July expiration by selling a total of 15,000 puts at the July 2011 $23 strike for a premium of $0.83 each, in order to buy the same number of calls at the higher July 2011 $30 strike at a premium of $0.97 apiece. The net cost of the risk reversal amounts to $0.14 per contract, providing relatively cheap upside exposure should Microsoft’s shares take off in 2011. Shares of the…
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Strangle Strategist Sees Sharp Shifts in Johnson Controls Shares
by Andrew Wilkinson - March 25th, 2010 4:58 pm
Today’s tickers: JCI, LEA, X, LFT, TS, MU, LULU, DLB & RRC
JCI – Johnson Controls, Inc. – A long strangle enacted on the maker of batteries for automobiles and hybrid electric vehicles this afternoon implies the firm’s share price could swing dramatically ahead of May expiration. Johnson’s shares gained 0.72% in late afternoon trading to stand at $33.35. Earlier in the session shares of the underlying stock reached a new 52-week high of $33.60. The investor responsible for the long strangle play is expecting to profit if JCI’s shares trade outside of a specified range ahead of expiration day. The volatility player purchased roughly 10,000 puts at the May $32 strike for an average premium of $0.89 apiece and picked up 10,000 calls at the higher May $34 strike for $1.14 each. The net cost of the strangle amounts to $2.03 per contract. Shares must trade above the upper breakeven price of $36.03, or trade beneath the lower breakeven point at $29.97, in order for the strangler to amass profits ahead of May expiration.
LEA – Lear Corp. – Bullish options activity on the manufacturer of automotive seat systems suggests at least one investor is preparing for shares to trade at a significantly higher price by expiration in September. Lear’s shares increased 0.85% to $80.37during the current session to trade just $0.53 below the current 52-week high on the stock of $80.90. The optimistic options strategist initiated a debit call spread by purchasing 2,500 calls at the September $85 strike for a premium of $5.40 apiece, and by selling the same number of calls at the higher September $95 strike for $2.10 each. Net premium paid for the transaction amounts to $3.30 per contract. Thus, the trader stands ready to accrue maximum potential profits of $6.70 per contract if Lear’s shares surge 18.20% from the current price to $95.00 by expiration day in September.
X – United States Steel Corp. – Bullish options trading on U.S. Steel Corp. today follows news reports that steelmakers are set to hike prices globally as the economic recovery drains inventory levels and boosts demand and prices for raw materials. The price of steel, according to a Bloomberg News article, increased 9.1% in the U.S. during the month of February. U.S. Steel’s shares rallied 2% during the first half of the trading session to stand at $64.77, and earlier this morning traded up to…
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Looming Lululemon Earnings Lifts Implied Volatility – Puts in Demand
by Andrew Wilkinson - December 9th, 2009 4:06 pm
Today’s tickers: LULU, XLE, OIH, JPM, IOC, CYB, AMSC, MW, SVU & JTX
LULU – Lululemon Athletica, Inc. – Investors are hoarding put options on athletic apparel maker, Lululemon Athletica, ahead of the firm’s third-quarter earnings report scheduled for release after market close. LULU’s shares rallied as much as 3.8% to an intraday high of $27.84. The stock is currently up 2.75% to $27.56 with 45 minutes remaining in the trading session. Some analysts expect the Canada-based company will record earnings of 19 cents per share on revenue of $111 million. Option traders hedged against an earnings disappointment by purchasing puts. Approximately 6,800 put options were coveted by investors at the January 25 strike for an average premium of 1.23 apiece. Put-buyers are positioned to profit if shares fall through the breakeven price of $23.77 by January’s expiration day. Mounting investor anticipation for third-quarter earnings and the increase in demand for option contracts on the stock boosted option implied volatility throughout the session. Volatility rose 10.85% from an opening reading of 59.93% to an intraday high of 67.52%.
XLE – Energy Select Sector SPDR ETF – Shares of the exchange-traded fund comprised of companies in the oil, gas, and energy equipment industries, fell 1% during the trading day to $54.30. A massive put spread by one investor indicates shares of the XLE may decline further by the time the quarterly December contract options expire on December 31st, 2009. It appears the bearish trader purchased 74,800 puts at the December 53 strike for 95 cents apiece, spread against the sale of 74,800 puts at the lower December 48 strike for 13 pennies each. The net cost of the pessimistic play amounts to 82 cents per contract. The investor likely holds a long position in the underlying stock. The puts serve to protect the value of the stock position in case shares continue to decline. Downside protection kicks in if shares of the XLE decline beneath the breakeven point at $52.18 by expiration on the final day of 2009.
OIH – Oil Service HOLDRs Trust – Shares of the OIH exchange-traded fund rallied 1.25% to $112.69 today. We observed bearish options activity on the fund despite the bullish movement in the price of the underlying. A put spread enacted in the January 2010 contract suggests some investors feel the need for downside protection through expiration next year. It looks like 1,500 puts…
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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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