Retail Reversal Combination Grabs Attention on XRT
by Andrew Wilkinson - November 4th, 2009 4:11 pm
Today’s tickers: XRT, MGM, DE, GLD, UUP, NWL, HNZ, EWZ, UNH, OSTK & STEC
XRT - SPDR S&P Retail ETF – A three-legged transaction in the December contract on the retail exchange-traded fund reveals bearish sentiment by one investor. Shares of the XRT are trading nearly 1% higher today to $34.60. It looks like the trader sold call options in order to offset the cost of buying a put spread. The put spread involved the purchase of 5,000 puts at the December 33 strike for a premium of 1.07 apiece, marked against the sale off 5,000 puts at the lower December 30 strike for approximately 37 cents each. The sale of 5,000 calls at the higher December 36 strike knocked another 87 cents per contract off the total price of the bearish play. The investor more than offset the cost of buying the spread and thus receives a net credit of 17 cents per contract. The full credit is retained by the trader as long as shares of the XRT remain below $36.00 through expiration. Additional profits may accumulate if shares dip below $33.00, while maximum potential gains of 3.00 per contract require that shares trade down to $30.00.
MGM - MGM Mirage, Inc. – Shares of the casino resort operator slipped 2.5% lower to $9.40 today but one options optimist initiated a bullish play on the stock in the March 2010 contract. It appears the trader put on a ratio call spread by buying one in-the-money call option for every three out-of-the-money calls sold. The investor purchased 10,000 calls at the deep in-the-money March 7.0 strike for 3.20 apiece and simultaneously sold 30,000 calls at the higher March 12 strike for 1.05 each. The net cost of the transaction is reduced to just one nickel per contract. The investor probably does not expect shares to rally through $12.00 by expiration because he is short 20,000 calls at that strike price in the March contract. Shares of MGM last traded above $12.00 on October 14, 2009.
DE - Deere & Co. – A large bearish butterfly spread appeared in the March 2010 contract on the agricultural equipment maker. The transaction indicates one investor is positioning for significant declines in the price of DE shares by expiration. Shares are down 1% to $46.76 with just under 90 minutes remaining in the trading day. The investor purchased the upper wing of the spread at the March 40 strike…
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…
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
HPQThe global technology company has experienced a more than 1.5% decline in shares today to $43.26 ahead of its third-quarter earnings release, which is scheduled to follow the closing bell on Tuesday afternoon. At least one investor was seen bracing for bad news or at least for continued declines in the price of the underlying. The trader established a ratio put position by purchasing 5,000 puts at the August 42.5 strike for approximately 89 cents apiece, spread against the sale of 10,000 puts at the lower August 40 strike for 25 cents per contract. The net cost of the bearish transaction amounts to 39 cents and yields maximum potential profits of 2.11 if the stock slips to $40.00 by expiration this Friday. Shares must fall about 3% from the current price in order for the trader to begin to amass profits beneath the breakeven point at $42.11. Maximum profits of $1,055,000 will be retained by the investor if the stock falls to $40.00 and the lower strike puts remain out-of-the-money. If shares were to slip lower than $40.00, the trader may have shares of the underlying put to him at expiration given the ratio of 2 short put options to each long contract in his possession. Investor uncertainty has marched steadily…
Lexmark Call Buyers Out In Force
by Andrew Wilkinson - July 14th, 2009 4:16 pm
Today’s tickers: LXK, EEM, MT, VIX, HUM, IPI, MIR & UNH
MT– The steel producer attracted the attention of bearish traders today amid a very slight dip in shares by less than 0.5% to $30.84. The near-term July 30 strike price saw the short sale of approximately 3,100 in-the-money calls for a premium of 1.30 per contract. Given the high degree of risk inherent in uncovered call selling, it would seem that the investors responsible for writing the calls expect shares of MT to fall below $30.00 by expiration. The full 1.30 premium received for the sale will be retained as long as the call options land out-of-the-money by this coming Friday. Additional bearishness was observed…
Costco Puts Busy
by Andrew Wilkinson - June 18th, 2009 6:38 pm
Today’s tickers: COST, HRB, UNH, EEM, EWZ, XLE, DELL & RIMM
EEM– We observed one investor who expects little price movement in shares of the emerging markets ETF through expiration in July. Shares of the fund are currently higher by less than 0.5% to $31.75. This individual established a sold straddle at the July 31 strike price by selling 20,000 calls…
Where Did All the Volatility Go?
by Andrew Wilkinson - June 11th, 2009 4:36 pm
Today’s tickers: VIX, EEM, XLU, EWT, AA, ESLR, UNH, HOT & DE
XLU – The utilities ETF has experienced a more than 2.5% increase in shares to $28.02. The XLU ticker symbol jumped onto our ‘most active by options volume’ market scanner after one investor sunk his teeth into a chunk of put options in the September contract. The trader appears to have purchased…
Bull foresees healthy rally for UnitedHealth Group
by Phil - June 8th, 2009 6:04 pm
Today’s tickers: UNH, USO, MNKD, POT, X, MCD, PALM, S & JPM
MNKD – The biopharmaceutical company’s shares have rallied…
Penn Gaming joins casino-movers – put options in action
by Andrew Wilkinson - May 26th, 2009 5:59 pm
Today’s tickers: PENN, CIT, EXPE, RF, XRT, FITB, UNH, UNG & MU
PENN – Shares of the gaming and racing company have lifted 8% to $30.79 amid gains experienced by a number of casino operators today. PENN edged onto our ‘hot by options volume’ market scanner after one investor initiated a put spread in the October contract. The spread was established through the purchase of 6,550 puts at the October 25 strike price for 2.02 each against the sale of 6,550 puts at the lower October 20 strike for a premium of 79 cents. The net cost of the transaction amounts to 1.23 and yields a maximum potential profit of 3.77 if shares declined to $20.00 by expiration. Such a trade could represent downside protection by an individual who is long the stock. Or, it could potentially represent a medium-term bearish position by a trader hoping to profit in the event of a 22% decline in shares through the breakeven point at $23.77 by expiration. – Penn National Gaming, Inc.
CIT – The bank holding company’s shares have rallied nearly 7% to $3.38 today, attracting some bullish option players seeking to benefit from further gains in the stock. Call-volume at the near-term June 5.0 strike price ballooned upward by more than 48,000 as investors purchased at least 37,200 contracts for an average premium of 23 cents each. The calls will begin to yield profits to investors if the underlying shares can increase 55% from the current price and surpass the breakeven point at $5.23 by expiration. Optimism spread to the July 5.0 strike where 5,500 calls were coveted for 40 cents apiece. Finally, the October 5.0 strike attracted some bullish action as well as some 2,000 calls appear to have been bought for 65 cents per contract. Option implied volatility climbed as high as 192% during the trading day up from Friday’s closing value of 151%. – CIT Group, Inc.
EXPE– Shares of the online travel company have climbed more than 6% to $15.88 amid renewed takeover chatter reported by one source. Option traders on EXPE have braced themselves for bullish movement in the stock as some 2,300 calls were purchased at the near-term June 17.5 strike price for an average premium of 35 cents per contract. In order to profit from a long-call position by expiration shares of Expedia must double today’s rally in order to breach the breakeven point at $17.85. Approximately…
Host Hotels & Resorts Put Options Sold
by Andrew Wilkinson - May 13th, 2009 6:19 pm
Today’s tickers: HST, GSI, CST, MGM, UNH, AMD, XLI & XLY
HST Host Hotels & Resorts, Inc. – The stock has shed more than 9% to stand at $7.66 on the day. One investor has positioned himself to have shares put to him by expiration in June should shares continue to decline. The sale of 13,000 puts at the June 7.5 strike price for an average premium of 73 cents apiece allows this individual to accept the premium today while bearing the risk that shares continue to decline through $7.50 by expiration. If the puts land in-the-money, he will likely have the shares put to him at an effective price of $6.77. The stock last traded at $6.76 back on January 16, 2009 after declining from its 52-week high of $18.36 nearly one year ago to the day. The investor probably figures that if the puts remain out-of-the-money he retains the premium and is happy. If the puts land in-the-money he is also happy to have shares put to him at approximately one-third the value of the 52-week high for the stock.
GSI General Steel Holdings, Inc. – Shares of the operator of a number of Chinese steel companies have taken a nosedive today, losing more than 14.5% to stand at $4.72. The stock has eroded despite the fact that the firm’s adjusted earnings per share of 9 cents for the period ended March 31, 2009, beat analyst expectations which estimated loss of about a nickel per share. In line with the bearish move in the stock, one investor loaded up on downside protection in the near-term May contract. The sale of 5,000 calls at the May 5.0 strike price for a premium of 10 cents apiece was spread against the purchase of 5,000 puts at the same strike for 40 cents each. The net cost of the transaction amounts to 30 cents and yields a breakeven point to the downside at $4.70. The stock must fall by at least 2 pennies before the trader begins to experience gains on the long put position.
COST Costco Wholesale Corp. – The operator of membership warehouses that offer branded and private label goods ranging from gruyere cheese wedges to diamond rings has experienced a more than 2.5% decline to $45.49. We observed option traders bracing themselves for potential continued bearish movement in the stock. Investors loaded up on 4,400 puts at the June 42.5 strike price for 1.00…
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 upside movement in shares purposefully got…

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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,












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...
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