Investor Plants WFC Short Straddle - Set to Bloom in April 2010
by Andrew Wilkinson - November 20th, 2009 4:24 pm
Today’s tickers: WFC, IYT, RYL, YHOO, XLE, MU, ADCT, KBH, DELL, NE & GPS
WFC - Wells Fargo & Co. – Shares of the financial holding company surrendered 1.5% today to stand at $27.88. One investor initiated a sold straddle on WFC in the April 2010 contract. The trader sold 10,000 calls at the April 32 strike for 1.59 apiece in conjunction with the sale of 10,000 now in-the-money puts at the same strike for 5.81 each. The gross premium on the transaction amounts to 7.40 per contract. The investor will retain the full premium if shares settle at $32.00 by expiration. The premium received acts as a buffer against losses in the event that shares swing in either direction away from the $32.00-level. However, the trader will accumulate losses if shares breach the upper breakeven price of $39.40, or if shares decline beneath the lower breakeven point at $24.60, by expiration in April.
IYT - iShares Dow Jones Transportation Average Index ETF – The exchange-traded fund, which measures the performance of the transportation sector of the U.S. equity market, appeared on our ‘hot by options volume’ market scanner this afternoon after one investor initiated a bearish put play. Shares of the fund moved 0.5% lower to $70.53 during the session. The trader established a put spread by purchasing 5,000 puts at the December 70 strike for 1.80 each, and by selling the same number of puts at the lower December 65 strike for 40 cents apiece. The net cost of the trade amounts to 1.40 per contract and provides downside protection beneath the breakeven price of $68.60 down to $65.00 through December’s expiration.
RYL - The Ryland Group, Inc. – Shares of homebuilder and mortgage-finance company, Ryland Group, declined nearly 4% this afternoon to stand at $18.86. Investors exchanging options on the stock today spread pessimistic sentiment through to expiration December. Traders sold 10,000 calls at the December 19 strike for an average premium of 1.10 apiece. The full 1.10 premium pocketed by investors is retained in full as long as shares of RYL remain below $19.00 through expiration day. Call-sellers do not seem to expect that shares of Ryland will recover before the start of 2010.
YHOO - Yahoo!, Inc. – We observed two different option strategies in play on Yahoo this afternoon. A large-volume sold strangle in the January 2011 contract suggests shares are likely to remain stagnant through expiration. The transaction involved the sale…
Email This Post
del.icio.us
Digg
Reddit
Stumble
Yahoo
Facebook
Twitter
Wells Fargo Put Spreaders Back in Town
by Andrew Wilkinson - November 11th, 2009 4:27 pm
Today’s tickers: WFC, AMR, PG, DRYS, DTV, M, EMC, WYNN, TOL & SFD
WFC - Wells Fargo & Co. – A popular option strategy frequently employed on Wells Fargo, the ratio put spread, appeared once again in the January 2010 contract. The bearish play was initiated despite the more than 2% rally in shares during the trading session to $28.75. The ratio spread involved the purchase of 7,500 puts at the January 27.5 strike for an average premium of 1.60 apiece, marked against the sale of 15,000 puts at the lower January 24 strike for 67 cents each. The net cost of the protective play amounts to 26 cents per contract. Thus, downside protection will kick in if shares decline beneath the breakeven price of $27.24 by expiration in January.
AMR - AMR Corp. – American Airlines operator, AMR Corp., attracted a large bullish play by one investor targeting the January 2010 contract. Shares of AMR are up more than 4% to $5.83 with just under one hour remaining in the trading day. An AMR-optimist initiated a call spread by purchasing 15,000 calls at the January 7.5 strike for an average premium of 35 cents each, marked against the sale of 15,000 calls at the higher January 9.0 strike for 10 cents premium apiece. The net cost of the bullish transaction amounts to 25 cents per contract. Profits are available to the call-spreader if shares of AMR rally at least 33% to breach the breakeven point at $7.75 by expiration. Maximum potential profits of 1.25 per contract for a total of $1.875 million are attained by the trader if shares surge 54% to $9.00.
PG - The Proctor & Gamble Co. – Options activity in the January 2011 contract on the consumer products company today indicates one investor expects little fluctuation in shares over the next 14 months. Shares of PG are slightly up by less than 0.25% to stand at $61.90. The trader initiated a sold strangle by selling 2,000 puts at the January 60 strike for 5.73 each, and by selling 2,000 calls at the higher January 65 strike for a premium of 3.82 apiece. The gross premium pocketed on the sale amounts to 9.55 per contract. The strangle-seller retains the full premium if shares of PG remain ‘strangled’ within the parameters of the strike prices described. The investor will benefit from lower option implied volatility on the stock, as well as from the…
Email This Post
del.icio.us
Digg
Reddit
Stumble
Yahoo
Facebook
Twitter
Toppy Tuesday Morning
by Phil - November 10th, 2009 8:05 am
That was some day yesterday.
We even had to flip bullish in the afternoon (slightly and reluctantly) but, when push came to shove and they asked me for my opinion on TV, I had to tell them I still thought we were toppy. I said that despite the Fast Money crew sitting in the studio right below me actively advising their viewers to chase the performance and, right after them, our friendbuddypal Jim Cramer told his viewers that no news is good news and the market is in a "a positive and delicious void" where we don’t have to worry about any pesky facts interfering with our buying premise.
To that end, Cramer suggests chasing AAPL, GOOG, GS, BAC and WFC and anything else that is not nailed down. "There are only 35 days of trading left in the year," Cramer says, "so we can expect money managers to pile into these companies when they realize the 2010 numbers are too low. Retail investors should be sure they aren’t left behind." Yes, we should blindly follow the money managers because they’ve never steered us wrong before (end sarcasm font).
Does it bother me to have be on the other side of the trade from "the finest minds on Wall Street"? A little, to be honest. As I pointed out yesterday in reminding you about what happened in 1999 and as John Maynard Keynes reminded us all decades ago: "The market can remain irrational longer than you can remain solvent." We discussed this logic back on October 12th, when I warned the bears that you can’t keep supporting the wrong team when they are clearly losing the game.
We had stayed about 55% bearish into the weekend but quickly covered up in the morning after all that stimulus talk against the declining dollar. In my 9:43 Alert to Members I said: "If we break over 10,120, then the selling the DIA $103 puts, now $2.55 are a great momentum play if you have the longer covers to protect you." Those puts finished the day at $1.70, a nice, quick 32% gain on the day and that’s how fast you can rebalance using index covers and those profits came AFTER buying back the Dec $99 puts we sold for $2.50 at $1.80 - 28% from Friday to Monday.
In the morning post, I had set up a chart for the week and added our 25% targets of Dow 10,250, S&P 1,100, Nasdaq 2,187, NYSE 7,000 and Russell 600 and,…
Email This Post
del.icio.us
Digg
Reddit
Stumble
Yahoo
Facebook
Twitter
Risk Reversal Pops Up on Biotech-Company, Life Technologies
by Andrew Wilkinson - November 3rd, 2009 4:08 pm
Today’s tickers: LIFE, FL, VTR, WFC, RRI, WFR, CAR, FRX, SWK, BNI & WFR
LIFE - Life Technologies Corp. – Biotechnology company, Life Technologies, popped up on our ‘hot by options volume’ market scanner this morning after one investor initiated a risk reversal in the December contract. Shares are relatively flat on the day at $47.58. The reversal is most likely the work of a bullish individual positioning for a rally in shares of LIFE by expiration next month. It appears the trader sold 5,200 puts short at the December 45 strike for an average premium of 1.30 apiece to finance the purchase of the same number of call options at the higher December 50 strike for 1.20 each. The investor receives a credit of 10 cents per contract on the transaction. The 10 cent credit is money in the bank as long as shares remain above $45.00 through expiration. Additional profits on the trade require the stock to surge to a new 52-week high of $50.00. Shares must rally 5% from the current price before the investor begins to accumulate profits. The 10,400 contracts exchanged in the spread represent about 23% of the total existing open interest on LIFE of 45,963 lots.
FL - Foot Locker, Inc. – A long-term bullish play in the January 2011 contract pushed the global retailer of athletic footwear and apparel onto our ‘hot by options volume’ market scanner this afternoon. Shares are currently up nearly 1% to $10.25. It looks like the trader initiated a bullish risk reversal by selling 3,500 puts at the December 7.5 strike for 1.10 each, and by buying the same number of calls at the higher December 12.5 strike for 1.10 apiece. The investor put on the trade for free and hopes to see shares rise above $12.50 by expiration in 14 months. Profits begin to accumulate if the stock rallies 22% over the current price to surpass the breakeven point at $12.50. We note that shares of FL have traded beneath $12.50 since November 11, 2008.
VTR - Ventas, Inc. – Shares of the real estate investment trust edged slightly higher by less than 0.25% to $40.56 during the trading day. An investor expecting shares to appreciate by expiration in December put on a bullish risk reversal strategy. The trader sold 3,000 puts at the December 35 strike for 60 cents premium and simultaneously purchased the same number of calls at the December…
Email This Post
del.icio.us
Digg
Reddit
Stumble
Yahoo
Facebook
Twitter
A Vault for Valero Means Call Option Feeding-Frenzy as Expiration Nears
by Andrew Wilkinson - September 17th, 2009 5:32 pm
Today’s tickers: VLO, NTRI, EFA, BAX & WFC
VLO - We can explain in part the activity in the September 20 strike call options, which is due to expire at the weekend. That’s straight forward. It’s now in the money following a 9% share price gain to $20.97. Investors have possibly built up a substantial short position at the start of August in the expectation that share would remain below $20 as they have since they collapsed on June 2. Selling short the calls means they stand to retain the premium if the stock price remains south of the border. We see little news to set off today’s enthusiasm for Valero, but the rally that has put the calls into the money has the potential to spark a significant amount of short covering. Options open interest here is around 33,000 while today’s volume is at around 29,000. Expiration Friday tomorrow should be fun. – Valero Energy Corp. –
NTRI - The weight management products and services firm, which offers portion-controlled pre-packaged meals that can apparently satisfy ex-NFL quarterback Dan Marino’s appetite, edged onto our ‘hot by options volume’ market scanner this morning. Shares of NTRI have surged more than 6% today to $15.84, inspiring bullish options action in the October contract. It appears some 3,200 calls were purchased at the October 17.5 strike for an average premium of 25 cents per contract. Investors will begin to accumulate profits if shares of the weight management company rally 12% higher to breach the breakeven point at $17.75 by expiration next month. The rise in demand for options on NTRI helped fuel the 24% burst in option implied volatility on the stock from an intra-day low of 41% to a high of 51%. – NutriSystem Inc. –
EFA - Shares of the exchange traded fund representing stocks from Europe, Australasia, and the Far East have come off slightly today to stand less than 0.25% lower at $55.78. Perhaps fearing further bearish movement in the stock, investors coveted approximately 25,000 puts at the October 53 strike for an average premium of 73 cents apiece. Traders picking up the put options may currently hold long positions in the underlying stock meaning a 6% decline for shares of the EFA would be protected by put option exposure and that would kick in beneath the breakeven price of $52.27. – iShares MSCI EAFE Index ETF –
BAX - “Swine Flu” vaccine-maker, Baxter International saw…
Email This Post
del.icio.us
Digg
Reddit
Stumble
Yahoo
Facebook
Twitter
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…
Email This Post
del.icio.us
Digg
Reddit
Stumble
Yahoo
Facebook
Twitter
Verifone Options Indicate Bullish Positioning at Payment Provider
by Andrew Wilkinson - September 10th, 2009 4:19 pm
Today’s tickers: PAY, GLD, WFC, SMH, CMCSK, SUN, KO & MON
PAY - The designer of systems that enable secure electronic payments edged onto our ‘most active by options volume’ market scanner this afternoon after a large bullish stance was taken in the January 2010 contract. Shares of the firm have increased nearly 1% today to stand at $14.13. The options action observed indicates that one investor expects significant appreciation in shares by next year. But, the trader apparently does not see the stock rising much higher than the current 52-week high of 19.91, attained nearly one year ago on September 12, 2008. The bullish trader was seen partially financing the purchase of a long call spread by selling 12,000 out-of-the-money puts at the January 10 strike for 55 cents each. He then bought 12,000 calls at the January 12.5 strike for 3.10 per contract, spread against the sale of the same number of calls at the higher January 20 strike for 42 cents premium apiece. The net cost of the spread was reduced to 2.13. Thus, the trader stands to accumulate maximum potential profits of 5.37 should the stock surges to $20.00 by expiration in January. Shares would need to rally a whopping 42% from the current price for the trader to pocket the maximum available profits of approximately $6,444,000. We note that the 36,000 lot trade put on today exceeds the previous existing open interest on the stock of 29,251. – Verifone Holdings, Inc. –
GLD - Option traders established ratio put spreads on the gold exchange-traded fund today amid a 1% rally in shares to $97.86. Gold is actually a couple of dollars lower today as the dollar regains its feet and investors critically assess the rationale for gold’s recent ascent. Today’s put spreads represent downside protection for investors hoping to lock in gains assumed to have been made during the recent rally in the price of gold. Using the November contract 2,500 puts were picked up at the November 97 strike for 4.20 apiece, and spread against the sale of 5,000 puts at the lower November 93 strike for 2.25 each. The investor pockets a net credit of 30 cents on the trade, which he will retain in full if shares of the GLD remain higher than $97.00 by expiration. Beneath a price of $97.00 for GLD, the investor faces rising profits should shares fall to $93.00 at which…
Email This Post
del.icio.us
Digg
Reddit
Stumble
Yahoo
Facebook
Twitter
Hewlett-Packard Options Deliver Winner to Call Seller
by Andrew Wilkinson - September 1st, 2009 5:14 pm
Today’s tickers: HPQ, ELX, FXI, IYR, MOS, WFC, ABX & VIX
HPQ - Shares of the global technology company have surrendered more than 2% to arrive at the current price of $43.85. Gloomy predictions by one bearish investor were rewarded during the session as he apparently made a closing purchase of a short call position in the September contract. It appears that the trader originally shed about 4,500 calls at the September 47 strike price for a premium of 65 cents each back on August 12, 2009. Today he closed out the short position by buying the calls back for just 12 cents per contract. The trader’s pessimistic foresight yielded net profits of approximately 52 cents for a total payoff of $238,500. – Hewlett-Packard Co. –
ELX - The telecommunications firm appeared on our ‘hot by options volume’ market scanner after bullish activity was detected in the January 2010 contract. Shares of ELX have resisted the overall bearish market momentum today by rising a modest 0.5% to $9.72. A bullish risk reversal was established through the sale of 5,000 puts at the January 7.5 strike for 30 cents each spread against the purchase of 5,000 calls at the higher January 12.5 strike for 35 cents apiece. The net cost of the transaction amounts to just one nickel per contract and positions the trader to benefit from further bullish movement in the price of the underlying. Shares of Emulex must rally approximately 29% higher by expiration in order for the investor to break even at a price of $12.55. – Emulex Corp. –
FXI - A bearish reversal play was enacted on the China ETF this afternoon amid a 2% decline in shares to $38.46. The investor responsible for the reversal may simply be looking to amass profits to the downside. Alternatively, the trader could hold a long position in the underlying stock, in which case he has taken a protective stance. The transaction involved the sale of 15,000 calls at the November 39 strike price for 3.00 apiece spread against the purchase of 15,000 in-the-money put options at the same strike for 3.20 each. The sale of the calls significantly reduced the cost of getting long the puts. The reversal cost the investor just 20 cents per contract and allows him to accrue profits beneath the breakeven price of $38.80. Given the current price of the FXI, the trader has already amassed profits of about 34…
Email This Post
del.icio.us
Digg
Reddit
Stumble
Yahoo
Facebook
Twitter
Will They Hold It Wednesday?
by Phil - August 26th, 2009 8:25 am
This is getting very interesting!
As we expected in yesterday’s morning post, the morning pump was a great selling opportunity and we had a very good time riding the gentle dip we got in intra-day trading. The Dow hit it’s high for the day at 10:03 and by 10:09 I had an alert out to members to ignore the consumer confidence number and go more bearish on the Dow, buying back the Sept $95 puts we sold Monday for a quick 20% profit. We also grabbed the OIH $105 puts for $2.30 that made a nice buck during the day (43%) and we entered a couple of spreads on ERY at 10:57, well ahead of oil falling off a cliff in the afternoon.
Great call by David at the Oxen Group on making DUG his long of the day yesterday with a perfect buy in at $15.10 and hitting the 4% goal for that day trade. It was David’s call that inspired us to pick up the very profitable (and much riskier) ERY trades, which were also an idea of his from an earlier trade so mega Kudos to the Oxen Group!
We got a second rally on low volume around noon and my 12:09 comment to Members was: "Still a very good time to look at some of those long put plays we discussed in yesterday’s morning post" so I guess you can say we were still pretty bearish at that 9,600 line on the Dow. Keep in mind that the top of our prior trading range was 9,100 on the Dow so the 5% rule off that mark takes us to 9,555, which was where I predicted we’d close. We had a good chance to press our long DIA covers higher but we feared the overnight stick and we went with a 1/2 cover on our long puts, selling the DIA $95 puts for $1.75 just in case we have another crazy pre-market pump.
As you can see from David Fry’s S&P charts, we are "outside the box," very much as we were in June but note that we held that level (S&P 950) for quite a while before getting a 10% correction into early July. I’m not getting the feeling that we have enough energy to sustain us up here that long but, the way things have been going, we kept all of Monday’s bear covers in longer time-frames because as Chantale very aptly put it: "It s hard to predict when somebody on coke will…
Email This Post
del.icio.us
Digg
Reddit
Stumble
Yahoo
Facebook
Twitter
$5,000 Portfolio Update - Week 6 - $5,614
by Phil - August 15th, 2009 4:04 am
Well we’re back to cash…
After getting off to a great start, up 12% in the first 3 weeks, we were lucky this week to get back to 12% after having a run of bad luck (or bad skill actually, as we went bearish too early and got punished for it). The goal of the $5,000 portfolio is to play around the volatility of earnings and make no mistake, it’s a high-risk way to trade $5,000 and is meant to be a small portion of a large portfolio - not something you would want to do with your only $5,000. Of course the usual disclaimer is, this is a virtual portfolio, don’t try this at home, trading is dangerous, always consult a professional financial adviser, etc, etc. The idea is to practice different option strategies and we’re learning from our successes and failures - I hope!
Our first play 5 plays that we closed were on AA, DIA, SGR, MCD, and DELL, which had a total gain of $629 in our first 6 days. For details on those trades, go to the Day 6 post. We have been posting all of the moves for the $5KP in member chat, of course, but also on Seeking Alpha’s Stock Talk, where we have discovered the added bonus that, like Twitter, you do not have to refresh the page to see new comments! If you want to follow these trades, just click on "Follow" under my picture and you will automatically see any comments made there. A full review of Stock Talk commentary regarding the $5KP is available here and please make sure you click "Follow" on my picture so that you will be able to track further updates.
We closed positions on WFC and AXP, up $258 in our last review on July 25th and we have since closed our YUM position with a $256 loss on the 28th, which was a shame as we gave up on 8 Aug $35 calls at .45 ($360) and they flew up to $2 ($1,600) just a week later. Unfortunately, in a small portfolio, you don’t have the luxury of riding out your losses and, at the time, we felt lucky to escape this underperfomer with a relatively small loss.
A VNO put spread we couldn’t fill the week of the 21st, was an easy fill the next week and 3 Sept $50 puts were in at $3.70 ($1,110) and 3 Aug $50 puts were sold for $2.90 ($870). The premise of this play is a tough one to hold on through as we expected VNO (and all commercial realty) to…
Email This Post
del.icio.us
Digg
Reddit
Stumble
Yahoo
Facebook
Twitter
German
Spanish
French
Italian
Portuguese
Japanese
Korean
Russian
Chinese
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
(