This trading also created over 1 billion dollars worth of delta to sell, which to me is the most incredible part of this activity. The futures market was able to buy the amount of deltas needed to be sold to hedge this trade without a material decline in the overall market. This trading is likely coming from an institutional portfolio manager looking to hedge his downside exposure to a long stock portfolio.
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More relative low volatility today, but the major indices are beginning to show some weakness and slowly move lower. The VIX and VXN are both moving higher, even with the lack of a dramatic move. This may indicate a rise in the average implied volatility of the S&P and NASDAQ.
Options trading remains busy today overall and we have seen some put buying in Allstate (ALL), this could be a trader speculating on a downturn in the stock, or it could also be a trader buying puts against long stock, which can be a protective move while the put is owned in the event of a retracement.
Remember, puts give you the right to SELL a stock. If you already own the stock when you buy the put, you are basically locking in a sale price, for this you will have to pay some premium. In ALL, the trader paid about $1.50 for the October 29 puts. The risk to buying options is 100% of the premium paid.
There is a fair amount of options action in Research in Motion (RIMM), up another 2% from yesterday, as well as in several other symbols across a variety of industry sectors.
Remember there are a couple hours left in the trading day and the volume of these issues may continue to rise, but this is where we are seeing some heavy options activity today. Another important consideration is that options can be bought or sold, and volume does not indicate which:
TRA: $46.78 down $0.1696 or 0.36% volume: 1.43 million shares
Mar10 45.00 Puts: volume over 17056, versus Open Interest of 36225
Mar10 46.00 Puts: volume over 16230, versus Open Interest of 2665
AMLN: $20.24 down $0.6600 or 3.16% volume: 5.37 million shares
Mar10 15.00 Puts: volume over 16994, versus Open Interest of 20215
Mar10 25.00 Calls: volume over 15202, versus Open Interest of 11947
RIMM: $76.68 up $1.6350 or 2.18% volume: 7.73 million shares
Mar10 75.00 Calls: volume over 15899, versus Open Interest of 38654
UNG: $8.07 down $0.2601 or 3.12% volume: 14.67 million shares
Apr10 9.00 Calls: volume over 15435, versus Open Interest of 76668
Apr10 8.00 Puts: volume over 11143, versus Open Interest of 56037
GME: $19.39 up $1.1100 or 6.07% volume: 7.88 million shares
Mar10 20.00 Calls: volume over 14926, versus Open Interest of 7928
SLM: $12.36 up $0.1700 or 1.39% volume: 2.72 million shares
Apr10 9.00 Puts: volume over 12422, versus Open Interest of 11011
AES: $11.47 up $0.2100 or 1.87% volume: 3.85 million shares
Apr10 12.50 Calls: volume over 11746, versus Open Interest of 692
Q: $4.80 up $0.0300 or 0.63% volume: 5.55 million shares
Jan11 5.00 Calls: volume over 11734, versus Open Interest of 22167
AAPL: $224.61 down $0.2300 or 0.10% volume: 6.54 million shares
Mar10 230.00 Calls: volume over 11568, versus Open Interest of 26982
AIG: $37.03 up $0.7899 or 2.18% volume: 25.11 million shares
Mar10 40.00 Calls: volume over 10656, versus Open Interest of 17346
YHOO: $16.48 down $0.3150 or 1.88% volume: 11.08 million shares
Jan11 17.50 Calls: volume over 10568, versus Open Interest of 56860
XLK: $22.68 down $0.0000 or 0.00% volume: 1.68 million shares
Jan11 24.00 Calls: volume over 10005, versus Open Interest of 32551
GE: $16.38 down $0.1295 or 0.78% volume: 22.25 million shares
Mar10 17.50 Calls: volume over 10000, versus Open Interest of 150802
These are my team’s observations. If you’re seeing something we’re not, or if you have any questions about what I’ve outlined above, please feel free to add your voice in the comments.
Photo Credit: mag3737
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Today’s options action has been focused, but not limited to, the financials, namely Bank of America (BAC), Citigroup (C), American International Group (AIG) and Financial Select Sector SPDR (XLF).
There is bullish call buying and put selling in BAC as well as call buyers in C, ahead of their 2 billion dollar trust preferred stock offering. AIG stock is extremely hard to borrow, and, on today’s rally, is generating heavy options activity. Traders who have a rough time shorting stock may consider using options to synthetically short the stock, if they desire to do so, although this comes at a price sometimes, as puts will likely be elevated in price.
Remember, there are a couple hours left in the trading day and the volume of these issues may continue to rise, but this is where we have already observed some heavy options activity today:
MSFT: $28.95 up $0.1500 or 0.52% volume: 23.66 million shares
Jan11 35.00 Calls: volume over 38989, versus Open Interest of 77689
Apr10 29.00 Calls: volume over 13802, versus Open Interest of 95028
BAC: $17.21 up $0.4100 or 2.44% volume: 140.84 million shares
Mar10 17.00 Calls: volume over 38690, versus Open Interest of 169867
Mar10 16.00 Puts: volume over 32104, versus Open Interest of 163423
AIG: $35.46 up $2.6900 or 8.21% volume: 50.12 million shares
Mar10 40.00 Calls: volume over 27321, versus Open Interest of 15988
Mar10 45.00 Calls: volume over 21344, versus Open Interest of 5680
ZION: $20.33 up $1.0700 or 5.56% volume: 8.87 million shares
Apr10 17.00 Puts: volume over 25418, versus Open Interest of 26352
Apr10 19.00 Puts: volume over 10974, versus Open Interest of 4794
AAPL: $224.70 up $1.6800 or 0.75% volume: 10.73 million shares,
Mar10 230.00 Calls: volume over 19595, versus Open Interest of 26386
Mar10 220.00 Puts: volume over 19346, versus Open Interest of 13756
XOM: $67.00 up $0.2150 or 0.32% volume: 13.80 million shares
Apr10 70.00 Calls: volume over 19572, versus Open Interest of 56065
MS: $29.76 up $0.7100 or 2.44% volume: 16.57 million shares
Mar10 30.00 Calls: volume over 17770, versus Open Interest of 28538
RIMM: $74.96 up $1.4100 or 1.92% volume: 9.04 million shares
Mar10 75.00 Calls: volume over 16323, versus Open Interest of 45709
GE: $16.50 up $0.0050 or 0.03% volume: 40.43 million shares
Mar10 17.50 Calls: volume over 15494, versus Open Interest of 148738
STI: $26.51 up $0.6800 or 2.63% volume: 8.30 million shares
Apr10 22.00 Puts: volume over 15360, versus Open Interest of 16713
These are my team’s observations. If you have observations to share, please add your voice in the comments.
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If March 10th sounds familiar, it’s because 10 years ago today, the NASDAQ Composite reached an all-time high of 5,132. Little more than 18 months later, it was trading at 1,329; a thundering drop of almost 75%. While the COMP has made a solid recovery since then (hitting a new 18-month high today, in fact), it is still a far cry away from its year-2000 peak.
MKM can only shift ratings between “buy,” “sell,” and “hold/neutral,” but options traders have a variety of different strategies that can be altered for different purposes. Whether an investor expects upside, downside, or even minimal movement at all, there is frequently a corresponding options strategy. Outlined below are two strategies: one bullish-to-neutral and one bearish, that can be used by fans (or critics) of the tech sector and Citrix shares.
Neutral-to-Bullish Option Strategy: Iron Condor
Investors who agree with MKM’s “neutral” outlook, at least for the next few months, could look at an iron condor strategy. A June-dated short iron condor essentially combines a bull put spread and a bear call spread (both credit spreads) would consist of:
A total credit of $2.45 (as of midday on Wednesday) can be collected for this four-legged spread trade. The maximum profit for this spread is $2.45, while the maximum loss is $2.55 (return on risk is roughly 96%). If CTXS is trading anywhere between $42.55 and $52.45 when these options expire, the iron condor seller will make money. Maximum profit is achieved if MKM closes between 45 and 50 at June expiration.
For those who think CTXS should have remained a “sell,” a bear put spread might be more to your liking. Consider buying the June 45 put and simultaneously shorting the June 40 put, paying a net debit of $1.50 for the spread. The maximum loss for this strategy is 100% of the debit paid, or $1.50, and the maximum potential gain is $3.50 per spread, for a return on risk of 233%. If CTXS is trading at or below $43.50 when the options expire, the spread buyer will make money.
Is Citrix fairly priced, or was MKM’s upgrade a bit premature? Does one of the options plays above look intriguing to you, or do you have your own idea? Let us know in the comments section below.
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While brokerage houses are limited to ratings that effectively correspond to “buy,” “hold,” or “sell,” options players have a broad arsenal of strategies that can be customized for a variety of purposes. There are strategies that can work for traders whether they expect the underlying stock to rally, decline, or even if they think it is likely to do nothing at all. Below are two ways – one bearish, one bullish – that can be used by investors who follow First Solar shares. These are not buy-sell-hold recommendations, just potential strategies for self-directed traders.
Bearish Option Strategy: Broken-Wing Put Butterfly
Traders who agree with JP Morgan’s cautious outlook could consider a broken wing put butterfly, which consists of two spread trades executed simultaneously. First is a long put spread, as the June 100/115 can be bought for a debit of $8.70 by selling the 100 put and buying the 115 put. Second is a short put spread, selling the June 100 put and buying the June 95 put for a net credit of $2.00. The overall debit for the four-legged trade is $6.70, which is also the maximum potential loss for the strategy. The maximum gain is $8.30, which is achieved if JPM closes right at 100 at June expiration. The butterfly will be profitable at expiration if JPM is trading anywhere below $108.30. Anywhere below 95, a modest profit of $3.30 is earned.
Bullish Option Strategy: Bull Call Spread
If you remain a fan of FSLR despite today’s remarks from JPM, consider a bullish call spread. The June 115/120 spread can be traded by buying the 115 strike, selling the 120 strike for an overall net debit of approximately $1.60. Call spread buyers have risk to lose 100% of their initial investment, but can net a maximum profit equal to the difference between strike prices minus the premium paid (for this example, maximum profit is $3.40, making the return on risk 212%). This trade will be profitable at expiration if the stock is trading above $116.60.
Do you have a sunny outlook on First Solar or do JP Morgan’s concerns make sense?
You decide!
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Already, there has been quite a bit of spread activity all around with heavy action in Cisco Systems, Inc. (CSCO). This is likely in reaction to an earlier announcement for a new routing system that is 12 times faster than Cisco’s competitors. Ahead of the announcement, we actually saw the Jan 30 calls being sold, which could be interpreted as a move by many investors to take advantage of volatility.
Citigroup (C) is also much higher today and options traders are active there as well.
Remember, there are still a couple hours left in the trading day and the volume of these issues may continue to rise, but this is where we have already been seeing some heavy options activity early today.
GME: $18.50 up $0.0300 or 0.16% volume: 0.74 million shares
Jul10 21.00 Calls: volume over 22010, versus Open Interest of 8836
Apr10 17.00 Puts: volume over 11878, versus Open Interest of 1319
XLP: $27.53 up $0.0400 or 0.15% volume: 0.92 million shares
Jun10 26.00 Puts: volume over 19500, versus Open Interest of 9331
CMC: $17.38 up $1.1300 or 6.95% volume: 4.04 million shares
Mar10 17.50 Calls: volume over 17039, versus Open Interest of 19772
CSCO: $26.16 up $0.0250 or 0.10% volume: 48.81 million shares
Mar10 27.00 Calls: volume over 15863, versus Open Interest of 16764
Apr10 26.00 Calls: volume over 12968, versus Open Interest of 69724
AAPL: $223.69 up $4.6100 or 2.10% volume: 10.11 million shares
Mar10 230.00 Calls: volume over 15179, versus Open Interest of 24745
Mar10 220.00 Calls: volume over 14629, versus Open Interest of 36850
XLK: $22.55 up $0.1200 or 0.53% volume: 4.02 million shares
Jan11 20.00 Puts: volume over 15000, versus Open Interest of 44430
XRT: $39.74 up $0.1290 or 0.33% volume: 2.79 million shares
Jun10 38.00 Puts: volume over 13001, versus Open Interest of 2211
BAC: $16.82 up $0.0799 or 0.48% volume: 56.11 million shares
Mar10 17.00 Calls: volume over 12499, versus Open Interest of 166550
UNG: $8.21 down $0.0500 or 0.61% volume: 4.08 million shares
Mar10 9.00 Calls: volume over 12185, versus Open Interest of 71909
RIMM: $74.32 up $0.9300 or 1.27% volume: 7.75 million shares
Mar10 75.00 Calls: volume over 11960, versus Open Interest of 49525
FRPT: $6.12 up $0.6420 or 11.72% volume: 1.56 million shares
Jun10 7.50 Calls: volume over 10039, versus Open Interest of 954
These are my team’s early morning observations. If there are other big moves you would like to see added to today’s list, please feel free to add your observations in the comments.
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Potash Corp. of Saskatchewan (POT) moved higher yesterday after Morgan Joseph upped its rating of the shares to “buy” from “hold.” Rising potash prices were cited by the upgrading analyst as a primary driver behind the ratings change. POT ended Friday’s session at $116.81.
Unlike brokerage houses, options traders have the flexibility to do more than “buy,” “sell,” or “hold.” The variety of option strategies available in the marketplace allow people to place trades based on predictions for price action, volatility moves, or other market influences. Below are two ways – one bullish, one bearish – you might use to trade Potash options. These are not buy-sell-hold recommendations, just potential strategies for bulls and bears.
Bullish Options Trades in Potash (POT)
If you are bullish on the stock and expect continued upside (or at least limited downside) you might consider selling a bull put spread in the June series. To do this you could go long in the June 110 put and simultaneously short the June 115 put, collecting a net credit of $2 or better (which is the maximum potential profit). Maximum potential loss is $3, giving the strategy a return on risk of 66%. If POT is trading above $113 when June options expire, the trader will make some or all of the maximum potential profit. This allows the stock more than 4% of downside before losses set in.
Bearish Options Trades in Potash (POT)
Those who aren’t fans of Potash could consider buying puts. The April 115 put (which is currently out-of-the-money) can be bought for $4.40 or less. A put buyer can lose 100% of the premium paid, but can profit as much as $110.60 if the stock were to fall all the way to zero. If POT drops below $110.60 by the time the April options expire, these puts will be in profitable territory.
POT shares have gained almost 30% in the past six months … do you see this trend continuing or do you expect a bump in the road for the shares? Which way would you play the Potash trade?
Photo Credit: Wallyg
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Friday afternoon, Argus Research upgraded U.S. Steel (X) shares to “buy” from “hold,” setting a 12-month target price of $71. The firm said they believe the recent sell-off in steel stocks is overdone, and they expect to see improved fundamentals in the sector over the next few months. At the time of this upgrade, X shares were trading around $58.30.
Unlike brokerage and research houses, options traders can do much more than just “buy,” “sell,” or “hold.” The wide variety of option strategies available allow investors to place trades based on predictions for price action, volatility shifts, or other market influences. Below are two ways – one bullish, one bearish – that options investors might trade U.S. Steel. These are not buy-sell-hold recommendations, just potential strategies for bulls and bears.
Potential Trades in U.S. Steel (X) for the Bullish
For those who might agree with Argus analysts, you might consider selling a bull put spread. This morning with the stock trading at 60.50, the April 60/40 put spread can be sold for about $3.50 each (by shorting the April 60 put and buying the April 40 put simultaneously). The maximum profit is this credit collected; the maximum loss is $16.50, putting the return on risk at about 21%. If X shares are trading above $56.50 when these options expire in six weeks, the trade will be profitable. X needs to be trading at or above 60 in order to yield the maximum profit.
Potential Trades in U.S. Steel (X) for the Bearish
Investors who disagree with Friday’s upgrade might consider selling a bear call spread, by selling the October 65 call and simultaneously buying the October 75 call, collecting a credit $3 for each short spread. This net credit is the maximum potential profit, and the maximum potential loss is $7 (the difference in strike prices minus the credit collected). Return on risk, therefore, is 42% between now and October options expiration. In order to earn the maximum profit, X shares need to be trading at or below $65 when these options expire. Breakeven for this strategy is $68.
So, options traders, are you with Argus Research or against them? What are your thoughts on U.S. Steel’s next move? The comments are yours.
Photo Credit: monkeyc.net
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