Trade Ideas

Mostly finding long set ups but after last weeks sell of you have to proceed with caution.  Here are a couple trading ideas: 

HON Honeywell International 

 CRIS Curis Inc

 PCS Metropcs Communications Inc

 VALE Companhia Vale Do Rio Doce

 DAN Dana Holding Corporation 

 CROX Crocs Inc

 MMR Mcmoran Exploration Co

 MR Mindray Medical Intl Ltd

 FEIC Fei Company

NBL Noble Energy 

RLD RealD Inc

No position at this time. Position declarations are believed to be accurate at time of writing but may change at any time and without notice.

Earnings Plays

BMO Capital came out with their weekly Earnings Volatility Screen today.  Here are some highlights:

• This week features earnings reports from large cap names including: HBC, BUD, RY, ABV, TD, CNQ, BMO, COST, GGB, ACH, VE, HNZ, SPLS, GGP, KR, SLW, SQM, MTL, MRVL, EIX, AZO, LINTA, JOYG, AES, RRC

• The options market is predicting an especially volatile quarter (>7% move) for: MED, NCT, CHTP, CLDX, WNR, CQB, JOE, CSR, SHE, SINA, HOV, BPI, SONS, PDLI, SOL, VIT, PAY, SIGM, ANW, CISG, CRI, EGLE, GMO, BIG, ISIS, TNDM, OSTK, PSS, FL, BID, FIG, LYV, TIVO, EPR, DPZ

• Stocks with the highest level of analyst estimate dispersion (as measured by standard deviation of EPS estimates) include: DEPO, LCAPA, IOC, CQB, MBI, ANV, GGP, GMXR, CLDX, EGLE, RRI, DGI, FSYS, SONS, EXM, GMO, VISN, BYD, LYV, EVEP

• Stocks reporting earnings that are farthest below their 20 day moving average (in % terms) include: SLZP, CHTP, NKTR, MED, ANW, AIB, MTL, MITI, SINA, HOV, BYD, VIT, OSTK, SPLS

• Stocks reporting earnings that are farthest above their 20 day moving average (in % terms) include: HERO, SLW, WTI, NCT, KOG, GMXR, BRY, RRC, CDE, BID, CNQ, CIE, BIG, SSRI, AFAM, DGI, WNR, JAZZ, CLDX, NGD, ANV, PSS, BPZ, DVR, UHS

No position at this time. Position declarations are believed to be accurate at time of writing but may change at any time and without notice.

Trade of the Day: Forest Laboratories, Inc. January '12 bull risk reversal

The Trade

A trader bought 4,245 Jan '12 $40 calls at $0.80 and sold 4,245 Jan '12 $25 puts at $0.70 for a net debit of $0.10 or $42,450.

Risk/Reward

As you can see from the graph above, the spread is bullish. In this spread, the long calls are partially financed by the short puts. The maximum risk is being put the stock if the underlying is below $25 at expiration. The maximum profit potential at expiration is unlimited since we are long the $40 calls. The break even underlying price at expiration is $40.10.

The line shown in the chart above is the underlying break even price at expiration. Thee 52-week range for FRX is a low of $24.17 and a high of $34.59. Therefore, the underlying must make new highs for this spread to be profitable.

Forest Laboratories, Inc. and its subsidiaries develop, manufacture and sell branded forms of ethical drug products. On February 22, 2011, FRX agreed to buy Clinical Data Inc. (CLDA) for at least $1.2 billion, betting that Clinical Data's newly approved antidepressant Viibryd can help offset the loss of major products in coming years. FRX announced that the deal may not be profitable until 2014 as it invests in marketing Viibryd. FRX anounced today that they may receive approval this week for its drug, Daxas.

FRX traded 15,078 contracts today vs. an average volume of 1,167.

According to Google Finance, FRX has a lower P/E ratio and Price-to-sales ratio then drug industry giants Pfizer and johnson & Johnson.

Song of the Day: Dennis Ferrer "Hey Hey"

Just finished some options and futures research to prepare for the up coming week on this beautiful Sunday morning in SF.  We went out last night in Palo Alto for a friends birthday and I got this tune stuck in my head that I heard at the club we went to after dinner.   Here is the song of the day: Dennis Ferrer "Hey Hey"from Defected Records.

Enjoy!

Fibonaughty Sexquence

Hat tip to @misstrade for tweeting this today!

Trade Idea: Long DVN (Devon Energy Corp)

DVN could be breaking out here and on its way to $100.  There are a lot of option trades you could put on.  Let me suggest a couple:

Conservative Idea: The buy write (long stock and short the 95 or 100 call. There is a .16 divided on 3/11/11 (according to LiveVolPro) Or you can do the the Synthetic buy write by shorting a put.

More Aggressive: Bull vertical risk reversal: Long the April 95/100 for 1.42ish and sell the April 85 put for 1.60ish.  Gets you long about 5% lower and gives you a shot for $5 if DVN does rip to $100

If you have any questions please feel free to ask in the comments section.

No position at this time. Position declarations are believed to be accurate at time of writing but may change at any time and without notice.

Option Flow Recap Feb 25

Macro / Thematic

XLF - An investor sells 50,000 March 15 puts at a nickel and buys 25,000 June 15 puts at 36 cents. This 1x2 time spread, for a net debit of $0.26, might be rolling out of a hedge from March to a position half the size in June.

GLD - April 138/143 call 1x2 front spread for $.043 debit

Consumer

SLE – An investor sold 62,000 July 18 Calls at $0.49.

PHM – 3500 January 7.5 calls were bought for $1.13. Appears to be a bullish play and a bet that the stock will find a floor, then rally in the months ahead.

F – The June 17 / 20 1x2 calls spread was bought 5,500 by 11,000 times for $0.26.

MED – The April 23 / 26 call spread was bought 1000 times for $1.20. The company is due to release its results early-March.

ARO – 3000 April 25 puts were sold at $1.00

EXPE – 1400 April 20 calls were bought for $1.10.

Energy

HK – An investor sold 37,600 June 19 calls at  $3.71 to close and bought 47,000 June 21 calls for $2.53 to open. It appears to be a rolling up in strikes.

EP – An 1100 contract block of April 18 calls were bought for $1.01 to open.

RRC – Bullish activity today in Range Resources, including, 7200 June 70 calls being bought for $0.45 to open. Over 11k contracts traded in the June 70 strike.  IV was up 2.4%.  1k June/March 52.5 calenders were also bought. 

Industrials / Materials

TIN – 4000 March 25 calls were sold at $0.60

RTN – Bearish activity: 2100 of the March 50 puts were bought to open for $0.67

Tech

ATVI – The May 12 Calls were bought 20,000 times for $0.28 vs 11.10 stock

GLW – 9500 April 24 / May 25 call spread was bought for $0.05 to open. It appears to be a roll of a bullish position from May to April, down one strike.

YHOO – Bullish long term play in Yahoo where 3900 January’13 15 calls were bought for $4.30 to open

Financials

CIM – 23,500 June 4.5 calls were sold at $0.05.

Healthcare

JNJ – 4500 January’13 75 calls were sold at $0.72

AVNR – 4100 June 3.5 calls were sold at $0.45.

*Special thanks to Flotilla Partners, Option Radar, BMO Capital, MEB Options, LiveVolPro, CBOE, Option Monster, and all of the options desks and traders we work with to provide the option flow!

No position at this time. Position declarations are believed to be accurate at time of writing but may change at any time and without notice.

Song of the Day: Adele - Rolling In The Deep (Dan Clare Remix)

Adele "Rolling In The Deep" (Dan Clare Club Remix) is our song of the day.  Hat tip to Complacency Kills for playing me the Burberry Fashion Show that played the original song (which is also very good).  Have a great weekend!

Option Flow Recap Feb 24

Macro / Thematic

XLE  - Downside plays today March 74-71 1x2 put spreads bought for 0.50, 7000x by 14000x. The trade makes money with XLE closing on March expiry between 73.50 and 68.50, max profit of 2.50 with XLE closing on March expiry at 71.00 (7.75% lower from here), if assigned on short puts getting long XLE for 68.50 (~10.5% lower from here)

SPY - 8200 weekly call verticals bot @ $0.63 

GLD - Downside play with a 1x2 put spread 26440x13220 in the Sept 132/120 puts for a 1.97 debit (possible hedge)

Consumer

HBI – Bullish trading today with the March 25 calls seeing the most action. The largest single trade being 1730 March 25 calls bought for $1.15 to open.

TOL – Bullish flow in the homebuilder today with over 16,000 calls and 1400 puts trading on the day. Almost all the trading took place in the March 21 calls which was over 12,500 on the day

PHM – 18,850 April 7 puts were sold at $0.45. The investor saw the three day slide in homebuilders as an opportunity to sell the at the money puts.

Energy

PBR – 3000 April 45 calls were bought for ~$0.50.

KWK – 7000 of the March 15 / 16 call spreads were bought for $0.45

HK – 20,000 January 30 / 35 call spreads were bought for $0.53 to open.

Industrials / Materials        

WM – Bearish option flow today with over 11,000 puts and only 2100 calls trading on the day.

FDX – 1500 April 90 / 95 call spreads were bought for $2.41.

Tech

BRCD – 19,000 of the April 6 straddles were sold at $0.77.

LLTC – 4900 March 34 calls were bought for $0.85

Financials

RDN – 1000 March 8 / April 7 put spreads were sold at $0.35. The March puts were sold and the April puts bought.

*Special thanks to Flotilla Partners, Option Radar, BMO Capital, MEB Options, LiveVolPro, CBOE, Option Monster, and all of the options desks and traders we work with to provide the option flow!

No position at this time. Position declarations are believed to be accurate at time of writing but may change at any time and without notice.

Trade of the Day: XLE 74/71 1x2 put spread for $0.05

Looking for ways to spend a nickel? With oil a hot topic in the headlines, a trader today appears to have bought a 1X2 put spread in the XLE March 74/71 series for just a 5 cent debit.

The usually quiet put market in XLE saw 7k of the 74 puts trade against 14k of the 71 puts on our old friend PSEX. Kind of interesting, given that the average daily volume in the puts is usually about 29k contracts. Not an amateur trade at all, given the margin requirements of a 1X2 in a spendy underlying. The trade captures about 3 pts of vol edge according the LivevolPro skew chart below, but clearly what the trader is most interested in is a move to $71 even.

Courtesy LIVEVOLPRO.com

At this point, the trade yields the max $2.95 gain per spread, or a little over $2mm for this trader. Here's a look at P&L at expiration from TOS.

Courtesy Think or Swim

It certainly seems possible, for XLE to retrace some of its recent solid gains based on the chart below. I drew in the green lines to show the strike prices of the puts in the trade.

Courtesy LIVEVOLPRO.com

No position at this time. Position declarations are believed to be accurate at time of writing but may change at any time and without notice.

Song of the Day: Steed Lord - Don't Hurt Love

Song of the day is Steed Lord - Don't Hurt Love.  Nice house smash for your listening enjoyment while researching options.  Enjoy!

Trade of the Day: JCP March 36/37 short strangle

The Trade

Per a reader's request, the trade of the day is a short strangle in JCP. A trader sold 173 March $37 calls at $1.07 and sold 173 March $37 puts at $1.53 for a credit of $2.60 or $44,980.

Risk/Reward

As you can see from the graph above, the strangle has limited profit potential, and unlimited risk in either direction. The maximum profit potential is the credit of $44,980. The lower and upper break even underlying prices at expiration are $33.40 and $39.60. Knowing the characteristics of short strangles, the passage of time helps, a large move in the underlying hurts, and an increase in volatility hurts.

The 52-week range for JCP is a low of $19.42 and a high of $37.48. J.C. Penney Company, Inc. reports earnings tomorrow before the opening. JCP traded 16,790 contracts today compared to average volume of 12,790. According to Google Finance, JCP has a higher Price-to-sales ratio of 0.49 compared to competitors SHLD and M. SHLD reported earnings before the open today and shares have dropped 5.54%.

Song of the Day: Dirty Vegas - Days Go By (Mimosa Remix)

Song of the day is a Mimosa Remix of the classic track "Days Go By" by Dirty Vegas. 

Enjoy!

Option Flow Recap Feb 23

Macro /  Thematic

SPY – 100,000 March 126 / 116 put spreads appeared bought for $0.83

Consumer

LYV – Over 4100 of the July 10 puts traded today (77% on the offer) for ~1.15. It appears some investors are bracing for further downside in the entertainment company.

F – 25,000 March / April 15 call spreads were bought today for $0.26. It is either a roll out a month or a bet that the shares will hold below 15 between now and March expiration (3/19) and then rally from that point.

GM – Options were active ahead of the company’s earnings report tomorrow morning. Over 98,000 calls and almost 62,000 puts traded on the day. One notable trade was 4000 June 40 / 34 collar for $1.00.

Energy

KWK – Call options were active today with over 11,000 calls and only 1900 puts trading. March 16 calls were the most active with almost 6600 trading on the day (52% on the offer). The activity comes ahead of the company’s earning report due February 28^th, before the market open.

PBR – 4500 April 42 / 45 1x2 call spreads were purchased for $0.34. It appears to be a bullish play targeting $45 per share by April expiration.

SD – 3000 of the June 6 calls were bought for $3.00.

Materials / Industrials

SLW – 3000 of the March 41 / 38 put spreads appeared bought for $1.37 to open.

IPI – 2200 June 40 calls were bought for $1.70, to open.

CF – Options were active today as the stock reversed a nearly 8% decline in the morning to end the day up almost 2%. 28,000 calls and 13,000 puts traded on the day. The April 125 calls were the most active with almost 5500 trading on the day.

Tech

EMC – The stock saw a lot bearish flow this morning with over 23,000 April 26 puts trading in the first hour of the day. Most of the flow appeared to be opening customer buyers

STX – Bullish activity today with 18,000 September 12 calls being purchased for $1.95. The calls were bought to open.

Financials

C – 70,000 January’12 7.5 calls were bought for $0.06.

AIG – 5000 January’12 35 puts were sold at $3.95, tied to $40.03 stock. The puts were sold to open.

Healthcare

CLDA – 6500 June 40 straddles appeared to be bought for $10.25 to open.

*Special thanks to Flotilla Partners, Option Radar, BMO Capital, MEB Options, LiveVolPro, CBOE, Option Monster, and all of the options desks and traders we work with to provide the option flow!

No position at this time. Position declarations are believed to be accurate at time of writing but may change at any time and without notice.

Trade of the Day: C Sep Bull Vertical Risk Reversal

The Trade

A trader bought 9,141 September $4.5 calls at $0.57, sold 9,141 September $5 calls at $0.32 at $0.32, and sold 9,141 September $4.5 puts at $0.37 for a credit of $0.12 or $109,692.

Risk/Reward

The trade is a call bull vertical that is executed for a $0.12 credit by selling the $4.5 September put. As you can see from the graph above, the risk reversal is bullish. The maximum risk is being put the stock if the underlying is below $4.5 at expiration. The maximum profit potential is capped at an underlying price of $5 and above at expiration. At this price level and above, both short options expire worthless, and the long calls get exercised. Above $5, the max profit for the spread would be $566,742. The break even underlying price level at expiration is $4.38.

The line shown is the lower break even price.

Citigroup traded 1,378,563 contracts today compared to an average of 828,435.

Song of the Day: Aloe Blacc & Wu-Tang Clan - I Need A Dollar (Bakija Remix)

The bulls got hit today with the SPY down over 2% and the QQQ's and IWM down over 2.5%.  That brings us to our song of the day as the bulls scream "I need a dollar!"  Bears be careful going all in here, as you can see from the chart below a bounce before more downside isn't out of the question.  Plus all of the "buy the dip" traders could be in full force with the trend still up. 

Fresh remix by Bakija as he used the classic C.R.E.A.M. acapella over the Aloe Blacc track "I need a dollar"  

Enjoy! 

Option Flow Recap Feb 22

Macro / Thematic

SPY - 5,000 April 130 / 122 put spreads bought for $1.33

EEM - March 43 / 38 puts spread traded was bought 30,000x for $0.93

XLI – 9200 April 37 puts were bought for $1.15.

IWM – 10,000 March 81 puts were sold at $1.96.

Consumer

SVU – 17,000 of the March 8 puts were sold at $0.15.

TGT – 10,000 of the March 52.5 puts were sold at $2.06

COST – 18,000 March / July 70 put spreads were bought for $1.66. It appears to be an investor rolling out a hedge to July.

ORLY – 5000 of the March 55 puts were sold at $1.15 to open.

Energy

HERO – 10,000 January 2.5 puts were bought for $0.25

LNG - 4000 June 13.0 Calls were bought for $0.70 to open.

MRO – 10,000 April 43 / 50 call spread appeared to be sold 10,000x

Industrials / Materials

GR – 4000 March 90 calls appear to have been bought for $0.75. This comes a week after the company announced plans to increase its stock repurchase plan to $1.1 billion from $500 million.

IP – 6300 March 27 puts were bobught for $0.75 to open.

IVN – 2000 September 21 puts were sold at $ 1.05 to open

Tech

HPQ – 2500 March 48 / 45 1x2 put ratio spread was bought for $0.43. It appears to be a short term hedge going into earnings.

CVC - 20,000 June 38 / 42 call spreads appeared to be bought for 1.80. It appears to be an investor rolling an overwrite to a higher strike.

T – 1000 January’13 25 / 35 call spreads were bought for $3.32.

Financials

BAC – 5,000 March 13 synthectic shorts went off for10,000 April 13 puts were bought via a multi exchange sweep for $0.29.  

BX – 4800 January’12 15 calls were sold at $3.40

Healthcare

CLDA – Following the news that FRX is buying the company for $30. An investor bought the June 31 /30 puts spread for $0.725, 10,500x.

*Special thanks to Flotilla Partners, Option Radar, BMO Capital, MEB Options, LiveVolPro, CBOE, Option Monster, and all of the options desks and traders we work with to provide the option flow!


No position at this time. Position declarations are believed to be accurate at time of writing but may change at any time and without notice.