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Posts Tagged ‘GE’

Earnings Season Survival Guide

Monday, July 12th, 2010
Buy, sell, hold?

Buy, sell, hold?

The days of reckoning are upon us!  So earnings season officially kicks off today with Alcoa’s (NYSE:AA) report.  CSX Corporation (NYSE:CSX) and Novellus Systems (NASDAQ:NVLS) are on today’s schedule as well.  As I write this at 6:00 a.m. Monday morning, futures in the S&P, DJX and Nasdaq are lower after a week’s worth of gains.

I wanted to take a couple of quick minutes today to highlight some things to remember and consider during earnings season as you make your decisions to buy, sell or hold.  These things are also important to remember if you plan on employing an options strategy.  Some high-profile companies that are scheduled to report this week are:

  • INTC, YUM and FAST on Tuesday
  • MAR on Wednesday
  • AMD, JPM and GOOG on Thursday
  • BAC, GCI, C and GE on Friday

There are many others reporting; the above issues are simply some of the more heavily followed.  If you are wondering when a company of interest reports earnings, check out the OptionsHouse Research tab to locate the next earnings date under the “Events Calendar.”  If none is posted, go to the company’s website, as some corporations may announce changes close to its report date or wait to disclose their exact earnings date.

Now that you know the relevant earnings date for your stocks, here are some factors to examine when deciding how to proceed:

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GE’s (GE) Dividend Plans Prompt a Ratings Boost to its Stock

Thursday, March 18th, 2010

Early Wednesday, Sterne Agee upgraded its rating on General Electric (NYSE: GE) to “neutral” from “sell.” The stock hit a new 15-month high of $18.40 in midday trading, and is up about a nickel to $18.13 in late-afternoon trading. A bit of background for this upgrade: GE has seen a lot of attention this week as the company is hoping to boost its dividends in 2011. Last year, GE cut its dividend for the first time since the 1930s, but is aiming to have its dividend growth back on track by next year. Additionally, GE said it might repurchase shares for the first time since 2008.

While research and brokerage firms are largely limited to “buy,” “hold/neutral,” and “sell” designations, options traders have a wider selection of strategies and tools. They can execute a trade based on direction, volatility (or lack thereof), or any number of expected scenarios. If you are new to options and still trying to get your feet wet, it’s helpful to start by trying your trades in a virtual trading account.

Whether you are optimistic on GE or expect its latest rally to draw to fizzle there may be options strategies that can work for you. Below are just two examples of ways options investors could trade GE. These are not buy-sell-hold recommendations – just a pair of potential strategies in the bullish and bearish camps.

*Option prices given as of Wednesday afternoon

Bullish Option Strategy: Synthetic Long Stock (Split Strikes)
 Investors who are bulled up on GE could buy the January 20 calls for $1.00 and simultaneously sell the January 17.5 puts for $1.60, collecting 60 cents for this synthetic long stock (split strikes). This strategy is a way to simulate a long stock position without requiring the capital necessary to buy the shares outright. Remember, with long calls, you do not receive the dividends; so you have to believe GE shares will appreciate.

The chart below demonstrates the profit/loss of this spread at expiration. Between the 17.50 and 20 levels, the gains are capped at the 60 cents collected. Above the 20 strike, gains are equal to stock or theoretically unlimited. Below $16.90, losses again track that of long stock and could be as high as $16.90 in the unlikely event that GE moves to zero.  Prior to expiration, this spread simulates a long stock, with unlimited upside potential and significant downside (limited only by the zero level).


Bearish Option Strategy: Bear Call Spread

Investors who think GE could reverse course or think expectations are set too high on the dividend front might consider a long-dated bear call spread. The January 20/22.50 call spread can be sold by selling the 20-strike call, and buying the 22.50-strike call, which could enable the investor to collect an overall debit credit of 50 cents. Maximum profit is limited to this credit received and is achieved if the stock price is below the 20 level. Maximum loss, meanwhile, is limited to $2.00 (the difference in strike prices minus the net premium received). GE would need to be trading above $22.50 in order for maximum loss to occur. Finally, breakeven at expiration is $20.50. Below this level, the call spread seller makes money.

GE can possibly “bring good things” to your portfolio, but how might you go about trading it?

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Heavy Options Activity in Amylin Pharmaceuticals (AMLN) and Allergan (AGN)

Monday, March 15th, 2010

The broad market is still relatively sideways with volume remaining light, even with triple-witching expiration this Friday. The market is beginning to weaken a bit here, but that trend has been reversing itself over the past week. The VIX is creeping back up towards 18.75% after being pressured last Friday.

The heavy options action today was broad and present in many different stocks and sectors from General Electric (NYSE: GE) to Sallie Mae (NYSE: SLM), but we are seeing the most action in Amylin Pharmaceuticals (NASDAQ: AMLN) and Allergan (NASDAQ: AGN).

AMLN shares are sharply higher today following the issuance of a complete response letter from the FDA regarding its once-weekly version of Byetta, which will be marketed as Bydureon. For the most part we saw put selling and call buying, indicating a bullish bias from options traders. In AGN, we saw a buyer of 10,000 of the January 2011 65 calls, also indicating possible bullish sentiment. The risk to purchasing options is 100% of the premium paid but the reward is theoretically unlimited above the purchased strike.

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. Also remember options can be bought or sold and volume does not indicate which:

Options Action:

GE: $17.10 up $0.0600 or 0.35% volume: 66.61 million shares
Mar10 17.50 Calls: volume over 43148, versus open interest of 181373

BSX: $6.41 down $1.3728 or 17.65% volume: 123.77 million shares
Jan11 7.50 Calls: volume over 34596, versus open interest of 53215

WMT: $55.32 up $1.4200 or 2.63% volume: 13.44 million shares
Mar10 55.00 Calls: volume over 25119, versus open interest of 58043
Apr10 55.00 Calls: volume over 12257, versus open interest of 14268

EWT: $12.11 down $0.3000 or 2.42% volume: 4.47 million shares
Jun10 14.00 Calls: volume over 20020, versus open interest of 1321

AAPL: $221.78 down $4.8192 or 2.13% volume: 9.70 million shares
Mar10 230.00 Calls: volume over 18358, versus open interest of 27297
Mar10 220.00 Puts: volume over 17829, versus open interest of 19933

BAC: $16.75 down $0.1000 or 0.59% volume: 61.20 million shares
Aug10 18.00 Calls: volume over 13943, versus open interest of 43217
Mar10 17.00 Calls: volume over 11894, versus open interest of 174442

AMLN: $22.24 up $1.9800 or 9.77% volume: 13.52 million shares
Mar10 22.50 Calls: volume over 13390, versus open interest of 30079
Mar10 20.00 Puts: volume over 10969, versus open interest of 12686

F: $13.40 up $0.0600 or 0.45% volume: 47.64 million shares
Mar10 13.00 Calls: volume over 10508, versus open interest of 80111

PEP: $65.58 up $0.4799 or 0.74% volume: 4.96 million shares
Apr10 62.50 Calls: volume over 10408, versus open interest of 35067

SLM: $12.05 down $0.1700 or 1.39% volume: 1.67 million shares
Mar10 13.00 Calls: volume over 10322, versus open interest of 13740

AGN: $62.12 down $0.1900 or 0.30% volume: 0.30 million shares
Jan11 65.00 Calls: volume over 10176, versus open interest of 6221

XLB: $33.12 down $0.1700 or 0.51% volume: 4.00 million shares
Jan11 27.00 Puts: volume over 10000, versus open interest of 3352

These are my team’s observations, if you have others you would like to add to the list, please feel free to share in the comments.

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Market Movers: Heavy Options Activity in Allstate (ALL), Research in Motion (RIMM), and Several Others

Thursday, March 11th, 2010

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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Where the Action is: Financial Sector Focus in Today’s Options Market

Wednesday, March 10th, 2010

The NASDAQ , S&P 500 and Dow Jones are all struggling to maintain the anemic rally that has ensued for the past 1.5 weeks. Volume continues to dissipate in most major indices, SPY’s 14 day volume simple moving average has been on a downtrend since early-mid February.

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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When Earnings Announcements and Expiration Week Collide

Tuesday, October 6th, 2009

Are we having earnings déjà vu all over again?

Let’s review:

  • Last quarter the market hit a hiccup in the end of June, sold off from a June-closing high of 944 in the S&P 500 index, down to 880 as we entered Q2 earnings.
  • This quarter the market has retraced from a high of 1071 in September to 1025 last Friday.
  • The VIX in July spiked from a low of 25% in June to a nervous 31% just prior to Alcoa’s release.
  • This month the VIX spiked to a 29.5% on Friday after closing at a low of 23.08% in September.

Leading up to tomorrow’s earnings kick-off with Alcoa, the market rallied 1.5% yesterday after market close, and continues to replicate this again so far today.

This behavior is opposite of what we experienced 3 months ago. The market sold off immediately prior to the earnings and likely indicating an oversold condition. With the last couple of weeks trending lower, the shorts may have piled in again and created another oversold condition yet again. This time we are snapping back before we get any earnings confirmation of improving conditions. Volumes have been light and this may be a sign of a bumpier road through this earnings season.

Remember earnings begin tomorrow, however next week they begin in earnest, with heavyweight financials C, BAC, GS and GE all scheduled to announce along with tech titan INTC.

Lastly, when earnings come on expiration week, the short dated options can react dramatically to changes in the underlying price of the stocks. The flipside is the premium can decay immediately if those earnings numbers are not enough of a catalyst to move the stocks. The risk to long options is 100% of the premium paid. On short-dated options that risk can occur in a very short time. The reward is unlimited to the moves above strike plus the premium paid of the underlying stock prices.

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