Call Options Fly Off the Shelves at AIG
by Andrew Wilkinson - December 27th, 2010 4:23 pm
Today’s tickers: AIG, CAT, DTV, WPI, PBR, DNR, V & M
AIG - American International Group, Inc. – The insurer’s shares rallied as much as 12.2% today to touch an intraday- and new 2-year high of $60.96 on news the firm secured $4.3 billion in bank credit lines. Mounting confidence in the insurance company along with the rising value of AIG shares inspired bullish options traders to purchase in- and out-of-the-money calls today. Weeklies were popular with options traders expecting to see shares end the year on a high note. Investors picked up more than 2,900 now in-the-money calls at the December ’31 $57.5 strike for an average premium of $0.93 each, and coveted upwards of 2,900 in-the-money call options at the higher December ’31 $60 strike at an average premium of $0.51 a-pop. Optimistic individuals also purchased some 1,300 call options at the December ’31 $65 strike for an average premium of $0.27 apiece. Options strategists looked to the January 2011 contract to place bullish bets, as well. Notable in-the-money call buying was observed here, as well as fresh interest in calls at the January 2011 $62.5 strike where more than 1,700 contracts were purchased for an average premium of $1.46 each. The sharp increase in demand for American International Group calls pushed the overall reading of options implied volatility on the stock higher by 25.2% to 50.30% in the final 15 minutes of the trading day.
CAT - Caterpillar, Inc. – It looks like some options investors expect the machinery maker’s shares to trend higher at the start of 2011. CAT-bulls are buying call options in the January 2011 contract this afternoon despite the 0.45% decline in the price of the underlying stock to $94.04. Options traders exchanged more than 7,200 calls at the January 2011 $95 strike by 3:10pm in New York trade. It looks like the majority, or approximately 5,300 of the call options, were purchased for an average premium of $1.58 a-pop. Call buyers make money if CAT’s shares rally more…
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Regional Banking ETF Put Volume Pops During Afternoon Trading
by Andrew Wilkinson - December 17th, 2010 4:20 pm
Today’s tickers: KRE, CPN, PRGO, FITB, DPS, SMH & M
KRE - SPDR KBW Regional Banking ETF – A large-volume debit put spread initiated on the SPDR KBW Regional Banking ETF this afternoon suggests one options investor is wary that the significant run up in the price of the underlying fund since the start of December could reverse course next year. Shares of the KRE, an exchange-traded fund that tracks the performance of the KBW Regional Banking Index, are up slightly by 0.10% to trade at $25.18 as of 3:30pm. The strategist responsible for the put spread may be building up downside protection, or alternatively, could be taking an outright bearish stance on the regional banking sector through March 2011. Shares in the fund rallied 14.25% during December so far to reach a 6-month high of $25.59 this past Wednesday. The put-spreader picked up 19,000 put options at the March 2011 $24 strike for a premium of $0.81 each, and sold the same number of puts at the lower March 2011 $20 strike at a premium of $0.16 apiece. Net premium paid to initiate the spread amounts to $0.65 per contract. Thus, the investor is prepared to make money, or realize downside protection, if shares of the KRE fall 7.3% from the current price of $25.18 to breach the effective breakeven point on the spread at $23.35 by March 2011 expiration. Maximum potential profits of $3.35 per contract are available to the put-spreader should shares of the underlying fund plummet 20.6% lower to trade below $20.00 by expiration day next year. The fund’s shares have not traded below $20.00 in more than a year.
CPN - Calpine Corp. – A large chunk of call options were picked up on Calpine Corp. late in session by a bullish strategist positioning for shares to rally substantially ahead of January 2011 expiration. Shares of the independent power generation company are up 2.6% this afternoon to stand at $13.22 in the final hour of the trading week. Calpine was recently…
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Put Sellers Target Dollar General Corp.
by Andrew Wilkinson - November 22nd, 2010 4:14 pm
Today’s tickers: DG, CBRL, M, TSN, NFLX & FUQI
DG - Dollar General Corp. – Shares in Dollar General Corp. rallied as much as 4.1% this afternoon to touch an intraday- and new 52-week high of $32.23 after fellow discount retailer, Dollar Tree, reported better-than-expected third-quarter earnings this morning. Dollar General appeared on our scanners after bullish players sold out-of-the-money put options in the December contract. Put sellers are suggesting shares in DG are likely to trade above $30.00 through expiration day next month. Dollar General reports third-quarter earnings ahead of the opening bell on December 9, 2010. Options traders sold more than 14,200 puts at the December $30 strike to pocket an average premium of $0.18 per contract. Put sellers keep the full premium received on the transaction as long as DG’s shares exceed $30.00 through December expiration. More than 16,000 put options changed hands at the December $30 strike versus paltry previously existing open interest of just 7 contracts at that strike. Overall options volume of 16,535 contracts generated on Dollar General today is far greater than total existing open interest on the stock of 10,451 lots before today. Options implied volatility on Dollar General is down 8.5% to arrive at 23.88% in late afternoon trading.
CBRL - Cracker Barrel Old Country Store, Inc. – Near-term call options are in demand on the operator of retail and restaurant concept chain, Cracker Barrel, this afternoon. Shares in Cracker Barrel jumped 3.00% to $57.77, a new 52-week high for the stock, by 3:45 pm in New York. It looks like call buyers populating CBRL today expect shares to extend gains following the firm’s first-quarter earnings report before the opening bell tomorrow. Bulls scooped up roughly 1,100 calls at the December $60 strike for an average premium of $0.735 per contract. Investors…
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Cisco Put Sellers Shout loudest
by Andrew Wilkinson - August 12th, 2010 4:30 pm
Today’s tickers: CSCO, M, SPWRA & LEN
CSCO – Cisco Systems Inc. – A disappointing revenue forecast for the current quarter by computer giant Cisco late on Wednesday spawned more fears about the strength of global demand moving forward. Cisco’s shares fell pretty close to a 52-week low and stand 24% lower than an April peak. Options traffic was extremely hectic at 327,000 contracts. Atypical of a company in the aftermath of its earnings was a rise in implied volatility, which gained more than 10%. What stands out today is the put activity, where we’re noticing a preponderance to write premium. Investors are likely trying to take advantage of as much of a 13% share price decline to $21.00 on Thursday and used options expiring in the September contract to attempt a long entry to the stock. By selling puts at the $20.00 strike for 37 cents, investors are prepared to have stock in Cisco put to them at expiration in the event the stock trades south of the strike price. If not, they retain the premium in full as compensation for providing stock bears with the insurance. Of 12,000 contracts traded at that line, seven out of eight contracts were sold to the bid. The pattern was repeated in less daring fashion at the October $17.50 strike where an investor acted as a willing Cisco buyer through expiration in exchange for a 17 cent premium on 5,000 put options.
M – Macy’s Inc. – Despite its upbeat predictions for the remainder of the year when it topped earnings predictions on Wednesday, shares in Macy’s are caught in an otherwise weaker environment for retailers. Its shares are 1.2% lower at $20.26. Nevertheless one option investor took advantage of the current bout of weakness by targeting a call spread that will expire after next quarter’s earnings have been announced in November. The bullish play involved 20,000 call options spread evenly between the $21.00 and $24.00 strikes implying a maximum gain of $3.00 less the cost of today’s trade, which nets to 91 cents. The maximum gain of $2.09 would only occur in the event that shares in Macy’s rose 18.5% from present although on a simple breakeven basis the investor needs Macy’s shares to gain 5.5%.
SPWRA – SunPower Corp. – A chunk of 20,000 put options was traded on SunPower earlier at the far-dated January 2012 expiration. Time and sales…
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Buy-Write Strategist Positions for Halliburton Rebound
by Andrew Wilkinson - June 3rd, 2010 5:12 pm
Buy-write strategist positions for Halliburton rebound
Today’s tickers: HAL, RDC, CHK, AMAT, M, KR, HOLX, XLF, LVS & AVNR
HAL – Halliburton Co. – The provider of services, products, maintenance, engineering and construction to oil and natural gas companies around the globe was rated new ‘accumulate’ with a 12-month target share price of $28.00 at Madison Williams today. Perhaps the new rating inspired the bullish buy-write strategy initiated on the stock in the October contract this afternoon. Halliburton’s shares rallied 1.95% in morning trading to touch an intraday high of $24.14, but inched lower during the session to trade flat at $23.68 as of 2:55 pm (ET). The optimistic options investor enacted the buy-write strategy, or covered call play, by selling 2,500 calls at the October $28 strike price for a premium of $1.17 apiece. The investor likely purchased approximately 250,000 Halliburton shares around the same time for an average price of $23.35 apiece. The sale of the call options effectively reduces the price paid per share to $22.18 each. This strategy positions the investor to accrue maximum gains of 26.23% if HAL’s shares rally above $28.00 by October expiration. If the stock does surge through $28.00, the calls will likely be exercised and the investor will have the underlying shares called from him at $28.00 each, leaving the covered-call seller with significant profits in pocket.
RDC – Rowan Companies, Inc. – Shares of the manufacturer of equipment utilized in the drilling, mining and timber industries are lower by 3.90% to stand at $23.72 in late afternoon trading after the Obama administration extended a ban on offshore drilling. Rowan’s shares have recovered somewhat after plummeting 16.7% from an intraday high of $25.58 in morning trading down to an intraday low of $21.26 this afternoon. Bearish options traders scrambled to establish pessimistic positions in the June contract. Investors purchased 1,600 puts at the June $20 strike for an average premium of $0.41 apiece, suggesting some strategists are bracing for continued share price erosion ahead of June expiration. June $20 strike put buyers make money if Rowan’s shares slide 17.4% from the current price of $23.72 to breach the average breakeven point to the downside at $19.59. Investors also purchased 1,300 puts at the higher June $22.5 strike for a premium of $0.93 each, and picked up roughly 2,400 in-the-money puts at the June $25 strike for an average premium of $1.95…
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Strangle Strategist Tightens Grip on JPMorgan
by Andrew Wilkinson - March 4th, 2010 4:15 pm
Today’s tickers: JPM, TIVO, RHT, UTX, CSCO, CI, BA, XRX, DIS, AKS & M
JPM – JPMorgan Chase & Co. – A long strangle enacted on JPMorgan today indicates one investor is expecting the firm to experience a significant shift in the price of its shares by June expiration. The investment banking and financial services giant realized a 1% rally in share price during the current session to $41.94. The investor initiated the strangle strategy by purchasing 9,000 calls at the June $46 strike for a premium of $1.06 apiece and by picking up 9,000 puts at the June $36 strike for $0.96 each. The net cost of the transaction amounts to $2.02 per contract. Strangle-players benefit from drastic moves in share price, but lose out if the value of the stock stagnates. In this specific trade, the investor profits if JPM’s shares rally above the upper breakeven price of $48.02 by expiration, or if shares trade below the lower breakeven point at $33.98, by June expiration. The trader is looking for increased volatility in the price of the underlying shares, but also may benefit from higher options implied volatility. Moves higher in options implied volatility corresponds with greater option premium on both calls and puts. Thus, the investor could potentially sell the strangle at a profit ahead of expiration day if combined premium on the trade exceeds the $2.02 per contract paid today. We note that JPM’s shares have not exceeded $47.47 in the past year, but did trade as low as $14.96 back on March 6, 2009.
TIVO – TiVo, Inc. – Shares of the innovator of digital-video recording services surged as much as 61.30% to an intraday high of $16.42, the highest price recorded for TiVo’s shares in at least five years. TiVo was named the victor today after a U.S. appeals court ruled that Dish Network Corp. and EchoStar Corp. are “still infringing its patent and should stop providing digital-video recording services.” Options traders had a field day with the news and exchanged upwards of 275,300 contracts on the stock by 3:10 pm (ET). Today’s options trading volume on TiVo represents just under 80% of the total existing open interest on the stock of 348,203 contracts. Investors populated the stock with a plethora of trading strategies. Some traders banked profits on the rally, while others employed the use of strangles. Plain-vanilla call buying and put selling…
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Thrill-Ride Thursday – Retail Sales and Maybe Some Jobs?
by Phil - January 7th, 2010 7:50 am
Beware the data!
The first thing you will hear this morning is that COST had a 9% rise in sales, with International sales up a whopping 25%. What you are less likely to hear is that COST sells a lot of gasoline, which has doubled in price since last December and, excluding inflation in gas prices, same-store sales are up just 2%, a tremendous miss of the 7.9% expected. Out of the 25% increase in International sales, 15% is attributable to currency exchange so up 10% is the real number.
This is nothing against Costco, I like that company, but it’s a caution sign to look carefully at the retail numbers we’re going to be seeing today as there are several outside factors that are skewing the results drastically – to the point where the numbers, whether good or bad, are almost meaningless. It’s also good to keep in mind that we are comping sales to the WORST CHRISTMAS EVER so anything less than double digit gains over last year is still pretty sad.
Mish did a good job yesterday of pointing out the statistical nonsense known as the Non-Farm Payroll Report, where "Birth/Death" model revisions that were as much as 356,000 a month last year (January) make the data beyond useless for any kind of serious analysis. Nonetheless, analyze it they will and if we manage to avoid posting our 24th CONSECUTIVE month of losses, surely they will be pouring champagne on CNBC and acting like Capitalism has once again triumphed over evil (evil being people without money who still want to live with dignity).
Speaking of dignity – if you know 100 people in Nevada then, statistically, 3 of them went bankrupt this year, up 61% from last year as our economy "recovers". In Tennessee, Georgia and Alabama, just 2 of your 100 friends filed while California, surprisingly "only" had one in 66 households file for bankruptcy so you can go almost a whole day and not run into someone who lost everything in California – too bad the same can’t be said for the State overall! California needs $21Bn over the next 18 months to keep the lights on. This doesn’t seem so bad, GMAC is losing $13Bn this quarter and we’re bailing them out but if we bail out CA then NY, NJ and 47 other states will come knocking to the tune…
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PSW Rewind of 2009 – The First Quarter
by Phil - January 1st, 2010 2:42 pm
Thursday’s close was very exciting, wasn’t it?
Well it sure was for us as my 10:01 Alert to Members was a play on the DIA Jan $103 puts at .56. Thanks to the late afternoon dip, they finished the day at .90 (up 60%) after peaking out at .95, a very nice win to close off the year. That was the only Alert trade all week as this market has been too tough to call and we don’t make trades just for the hell of it. I had been sniping at DIA puts all week expecting a pay-off but Thursday it finally came together.
Of course, I also strongly advocated hedging on Thursday morning and listed 4 trade ideas in the morning post to hedge ourselves against the possibility of just such a drop so don’t say you haven’t been warned. Whether there will be follow-through on Monday or a full reversal remains to be seen and, even if I knew, I wouldn’t tell you here because this is a review – predictions are another article entirely.
We treaded very cautiously into last year because our PSW Holiday Retail Survey was not looking very pretty so it was no surprise to us, on Dec 26th, when we got some horrific retail reports. These are, of course, the same reports that we "beat" this year – but not by much. Dec 29th was Monday and Israeli jets attacked Hamas targets in the Gaza sending oil flying up to $48 a barrel. That gave us a nice commodity rally into the close of the year but January 2nd was a Friday and we decided (fortunately) to take the money and run on our long plays, holding open our main cover of SKF Jan $120s at $4.35, which hit $80 later in the month (up 1,732%) and USO Feb $32 puts at $3.40, which hit $10.50 in the Feb dip (up 208%) so, on the whole, not too differently positioned than we are now, coming into the new year. Visually 2009 looked a little like this:
January – Waiting for Obama, or Something, to Change
We began January much the same way we ended December with my Wed Jan 7th comment being: "We call it "Testy Tuesday" for a reason and our 5% rule was tested twice during the day but the market failed to…
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PSW Holiday Shopping Survey
by Phil - December 22nd, 2009 3:40 pm
I finally went to the mall yesterday.
I guess that makes me part of 2 trends. I am one of those last-minute shoppers that finally went out and got done yesterday while Tina bought EVERYTHING on-line this year and I don’t even think she’s waiting for any more shipments at this point. If you get used to cyber-shopping, it’s easy to see why the trend is growing but on-line retail is still nothing more than a speck (5%) on overall retail sales and that’s AFTER being up more than 20% this year.
So I went to the trenches on Saturday, where the real people shop (well, the real, upper-middle class people, anyway) at the Garden State Plaza in Paramus, New Jersey – one of America’s larger and busier malls made even more so on a Saturday because Bergen County has blue laws and retail is closed on Sundays so yesterday was do or die in Paramus with just 3 more shopping days until Christmas.
I took the kids at about 10 am and the first sign of trouble was that we got a pretty good parking spot. On a normal Saturday at the Garden State Plaza, you can’t get a good spot anyway and on a normal Christmas you can expect a half-mile hike from your car to the mall. When I got inside, it was even stranger, there were so few children in the mall that the carousel was empty so my kids jumped right on that as we spend our first dollar of the day. Riding around the carousel I saw something that didn’t cost anything – there was a MSFT XBox demo station set up with very cool driving set-ups with seats and wheels and big screens and full band set-ups for playing Guitar Hero on a little stage and about 6 other game demo areas – right in the middle of that part of the mall AND IT WAS EMPTY.
If nothing else had worried me about Christmas before, that would have been it because who doesn’t want to play free video games on big-screen high-def TVs with all the coolest attachments (they had sports-car seats and a wheel/pedals combo that they said cost $100 (not the seat) and was sold out at Game Stop)? Something was very wrong. Leggo land was also empty so maybe people just didn’t want to bring kids to the mall this weekend but…
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CAT-Bears Brace for Rocky Start to 2010
by Andrew Wilkinson - December 15th, 2009 4:34 pm
Today’s tickers: CAT, MS, UUP, STI, WFC, MCO, M, ROK, BBY, JAVA & HMY
CAT – Caterpillar, Inc. – Bearish option traders are bracing for potential CAT-share price erosion through expiration in February 2010. Shares edged nearly 0.75% lower in late afternoon trading to stand at $57.94. One pessimist purchased a put spread to prepare for potential declines. The transaction involved the purchase of roughly 7,000 puts at the February 55 strike for a premium of 2.35 apiece, marked against the sale of 7,000 puts at the lower February 35 strike for 49 cents premium each. The net cost of the trade amounts to 1.86 per contract. The investor responsible for the spread probably holds a long position in the underlying. Under this assumption, the trader has established downside protection, which kicks in if Caterpillar’s shares fall beneath the breakeven price of $53.14 by expiration day in February.
MS – Morgan Stanley – Analysts at Barclays Capital slashed fourth-quarter earnings estimates for Morgan Stanley to 40 cents from 90 cents today. Perhaps the bearish options activity observed on MS during the trading session was partly inspired by the significant profit-forecast revision at Barclays. Either way, investors populating Morgan Stanley’s January 2010 contract appear pretty pessimistic on the second-largest U.S. securities firm. Traders threw in the towel on MS by shedding nearly 20,000 calls at the January 31 strike for an average premium of 75 cents apiece. Some investors may be closing out previously established long call positions. Analysis of the existing open interest at that strike suggests traders are likely cutting their losses by selling the calls today. Investors abandoning bullish bets do not paint a rosy picture of where MS’s share price may settle during the first weeks of 2010.
UUP – PowerShares DB US Dollar index Bull Fund – The U.S. dollar is brimming with confidence on the first of a two-day FOMC meet in Washington and while investors are not expecting any signs of a policy change, there is certainly a firmer tone underlying the dollar in the past 72 hours or so. Option traders placed extremely bullish bets using call options on the bullish dollar index fund, whose shares currently stand 0.9% higher on the day at $22.82. Investors bought a huge chunk of 100,000 long-dated options reserving buying rights over the dollar at a fixed $24.00 before the contract expires in January 2011. That leaves…
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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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