Option Bulls Spring into Action on Optimism at Intel
by Andrew Wilkinson - August 28th, 2009 4:57 pm
Today’s tickers: INTC, SMH, AIG & EEM
INTC -Shares of the tech-sector bellwether jumped more than 4.5% to $20.35 this morning after projecting higher sales estimates for the quarter. The world’s largest chip maker also increased the gross-margin forecast for the period, and expects margin will be between 53 and 55 percent. Option bulls reacted to the news by exchanging call options more than 3 times to every put traded on the stock. Optimism for continued upward movement in INTC was reflected at the near-term September 21 strike price where more than 3,500 calls were purchased for an average premium of 26 cents apiece. Bullish sentiment spread to the October contract where nearly 10,000 calls were coveted at the October 22 strike for about 36 cents each. Traders holding these contracts will begin to accumulate profits if shares of Intel rally through the breakeven point at $22.36 by expiration. Option implied volatility on the stock rose up from 28% to a high of 31% during the session, but has since come off slightly to stand at the current reading of 30%. – Intel Corp. –
SMH -Heavy put activity was observed on the Semiconductors exchange-traded fund today perhaps as investors strive to lock in gains from the more than 2% rise in the underlying to $25.73. Chip makers and computer-industry companies alike rose during the session on optimism that the demand for PCs and technology-related hardware may be stabilizing. It appears that one trader, who is likely long the stock, sold 16,000 puts at the now out-of-the-money September 25 strike price for 37 cents each in order to extend downside protection to a higher strike in October. He purchased 16,000 puts at the in-the-money October 26 strike for an average premium of 1.26 per contract. The net cost of rolling the position higher amounts to approximately 89 cents and protects the trader in case the SMH declines beneath the breakeven price of $25.11 by expiration. Plain-vanilla put buying was seen at the 24 strike price in both the October and November contracts. Purchases may have been motivated by players long the stock and looking for cheaper protection today, or by contrarian investors hoping to profit if the fund declines over the next several months. – Semiconductor HOLDRS Trust –
AIG - The wings of a butterfly spread unfurled across the October contract this morning as one option trader appears to be loading up…
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Will We Break Out Wednesday? No.
by Phil - August 5th, 2009 8:23 am
So close but yet so far!
As you can see from David Fry’s chart of the QQQQ’s, the Nasdaq is looking to boldly go where no index has gone since last October, back through the September highs! If you look at the chart pattern, we have a nice "W" bottom already in and a breakout here at 40 on the Qs could mean we’re heading back to where the drop began – way up at 47.5. That’s a neat 20% gain from here and that would give us Dow 11,160, S&P 1,200, Nas 2,400, NYSE 7,800 and Russell 700.
What? Do you think that sounds like a bit much? Well, if you question the resulting trend of a breakout then perhaps you should get ahead of the curve and question the breakout in the first place…
Does it strike you as strange that a breakout here and a move up to the top of that "W" would put stocks back to where they were valued last June, when the average company earned twice as much on 35% more revenues? Do you really consider MRO a value because they beat expectations of .53 by earning .58, "just" 39% below last Q2. MGM is down 21%, TAP down 54%, RRI down 61%, APC down 37%, CTX down 49%, FST – 64%, LF -27%, PHM – 57%, VMC -29%, ADM – 24%…. Well you can look them up yourself here and I’m not saying there aren’t winners in this market, but they are few and far between yet the rally is indiscriminate – as if the whole market is spectacularly undervalued.
While I have long been in the camp of those saying "The economy is not that bad," I do have to, at this juncture, point out that the economy is not THAT good either. Keep this in mind when you are buying stocks. How far away are we from your company earning what it earned last year? What is your expected growth rate. Keep in mind that last June, your company had positive guidance and was projecting revenues and earnings 10-20% higher than that by 2010 and all we are saying here is how long will it take your company to get back to what it was earning in 2008? If you say 2 years – then look at the price of your stock in 2006 – THAT is probably a fair value for your stock!
XOM, for…
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More Reversal Activity for Massey Energy
by Andrew Wilkinson - June 19th, 2009 4:51 pm
Today’s tickers: MEE, INTC, IYR, TYC, XLF, YHOO, COF, SMH & MDT
TYC – The world’s largest provider of security systems (through…
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September SPDR puts active
by Andrew Wilkinson - May 8th, 2009 6:19 pm
Today’s tickers: SPY, F, DELL, SYMC, DE, FITB, ASML, SMH & UNH
SPY SPDR Trust Series – So implied volatility as measured by the fear gauge known as the VIX, the CBOE volatility index has come screaming off today after a nerve-soothing employment report. The VIX is down 2.17 points today to 31.25. The ongoing rally for equities is likely a snapback against an Armageddon-like scenario priced in to stocks throughout the first quarter. With a lessening in the economic contraction and today’s data icing the cake, investors have thrown in the towel on the bear market and have reduced demand for protection through puts. However, in the S&P index, one investor seems to feel that the rebound won’t extend beyond September and has bought a sizeable chunk of protective puts. The SPDR trades at one-tenth the value of the underlying index and today is 2.5% to the better at 93.15. Some 72,000 put options at the September contract have been purchased at the 75.0 strike for premiums anywhere between 1.84 and 2.05. Breakeven in the worst case example would be at 72.96. That would need a decline of 21.6% to come good. At some point, investors will sit around the camp fire and have a rethink after this huge counter-trend rally. What’s next?
F Ford Motor Company – The only big-three auto company in the US to remain standing without federal aid has climbed 2% to $6.20 per share today. The bullish move in shares could be due to the news that Ford may receive as much as $440 million in government loans. The money would be utilized to facilitate the conversion of a Michigan SUV (sport utility vehicle) factory to one that builds small, fuel-efficient automobiles. Ford edged onto our ‘most active by options volume’ market scanner later on in the afternoon after one individual was seen getting bullish on the stock. In the January 2011 contract the trader was seen shedding 55,000 put options at the January 2.5 strike price for a premium of 80 cents apiece. The investor pockets the premium today as he does not see shares declining through $2.50 over the next year and a half. Option implied volatility on Ford is currently at 85%.
DELL Dell, Inc. – The just-in-time provider of personal computers attracted bullish options investors despite the more than 3.5% decline in shares to $10.65. Perhaps individuals looking for…
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Semiconductor credit spread indicates bearish view
by Andrew Wilkinson - March 20th, 2009 6:14 pm
Today’s tickers: SMH, ELAN, FDX, DELL, AN, GE, POT, PCLN & ERIC
SMH Semiconductor HOLDRS Trust – The semiconductors ETF has seen shares decline by more than 3.5% to stand at $18.11 today. We noticed one investor who is looking to profit from a near-term pull back in shares, by establishing a credit spread in the April contract. While the open interest at the April 18 strike suggests that there has been bullish activity there recently, we believe the trader we observed today is taking the opposite stance. At the April 20 strike price 25,000 calls were purchased at 46 cents apiece, while at the April 18 strike 25,000 in-the-money calls were sold for 1.36 each. The net credit achieved with this strategy amounts to 90 cents and is safe in the bank if shares remain below $18 by expiration next month. SMH has not traded above $20 since November of 2008, and the stock has reached a line of resistance at around $18. This investor may turn out to have made a wise choice in taking advantage of the richer premium afforded by the in-the-money contracts at the lower strike, and he will look for both the April 18/20 calls to expire worthless in 30 days in order to pocket the 90 cent premium. This bear was not alone in the woods today, as the May contract saw 14,000 puts purchased at the 14 strike price for 24 cents apiece. Super-pessimists are looking for shares to decline below the 52-week low on the stock at $14.51 because profits begin to amass as shares fall beginning at the breakeven share price of $13.76.
ELN Elan Corporation PLC – The neuroscience-based biotechnology company has experienced a share price decline of 2% to $5.29. ELN appeared on our ‘hot by options volume’ market scanner after one investor traded a large number of calls in the January 2010 contract. The trader purchased 28,000 calls for 20 cents each at the January 17.5 strike price. Given that shares are light-years away from nearing $17.50, we investigated the open interest of 29,000 at the 17.5 strike. It looks as though this investor sold a good portion of these 28,000 calls short on January 8, 2009 for a premium which ranged between 70 cents and 1.25 per contract when shares were at $9.00. We noted at the time in our commentary that this was part of…
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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
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