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Schaeffer's Options Center

Schaeffer's Daily Option Blog
 
Pre-Earnings Calls Popular on Merck & Co., Inc.
Author
Sarah Wasserman (swasserman@sir-inc.com)

7/29/2010 1:09:28 PM

Prescription drug diva Merck & Co., Inc. (MRK) will enter the earnings spotlight ahead of the open on Friday. For the first quarter, analysts are predicting a profit of 83 cents per share, which is exactly the profit MRK reported in the year-ago quarter. For the record, in the past four reporting periods, MRK has thrice exceeded and once met consensus estimates.

Option activity has been rampant ahead of earnings, with some 20,000 contracts traded so far today -- already double MRK's expected single-session volume of around 10,000 contracts. Calls have comprised the bulk of this volume, with some 14,000 contracts traded.

The August 36 call has been a popular choice today, with 1,343 contracts traded -- 94% at the ask price, revealing they were likely purchased. With 14,551 contracts currently open at this strike – making it the site of peak call open interest for the front-month series -- it's difficult to determine whether these calls were newly added.

Technically speaking, MRK has been stuck in the $34-to-$36 neighborhood for the past several weeks. During this time, the stock's 32-week moving average has acted as an additional layer of overhead resistance. This trendline, located just above $36, combined with peak call open interest at the August 36 strike, could thwart MRK's progress in the near term.

 
Put Volume Spikes Ahead of Earnings from Arch Coal, Inc.
Author
Elizabeth Harrow (eharrow@sir-inc.com)

7/29/2010 12:23:49 PM

With its second-quarter earnings report on deck for tomorrow morning, option volume on Arch Coal, Inc. (ACI) has accelerated well beyond the norm today. Roughly 3,013 calls have changed hands, representing 1.87 times the stock's daily average -- but it's ACI's put options that have really drawn a crowd. So far, roughly 19,000 puts have traded on the coal concern, outpacing its predicted daily put volume by 23 times.

Most active is ACI's near-the-money August 22 put, where 9,127 contracts have changed hands. About 83% of these contracts have traded at the ask price, indicating they were purchased. With only 698 puts in residence at this strike, it seems safe to assume that traders are adding new bearish bets here ahead of earnings.

Today's put-heavy action is a deviation from the norm for ACI, which has racked up a 10-day International Securities Exchange (ISE) call/put volume ratio of 5.33. This ratio ranks higher than 89% of comparable readings taken during the past year, suggesting that speculators have shown a greater-than-usual appetite for bullish bets in recent weeks.

However, if history is any guide, bears might have the edge tomorrow -- ACI has fallen short of analysts' consensus earnings estimates in three of the past four reporting periods.

 
Option Players Initiate Bullish Back-Month Bets on Microsoft Corporation
Author
Sarah Wasserman (swasserman@sir-inc.com)

7/29/2010 11:11:20 AM

Call volume soared to three times the norm on Microsoft Corporation (MSFT) on Wednesday, with roughly 338,000 contracts traded on the session.

In general, calls have been wildly popular on MSFT lately, as data from the International Securities Exchange (ISE) reveals that 9.1 calls have been bought to open for every put during the past two weeks. This ratio ranks above 99% of all other readings taken during the last year, revealing that traders on the ISE have rarely initiated bullish bets on MSFT at a faster pace.

The September 28 call was by far the most popular strike on Wednesday, with 137,904 contracts traded. Most of this volume can be attributed to one bullish trader, as a block of 109,120 September 28 calls crossed the tape late yesterday afternoon. These calls traded at the ask price, revealing they were likely purchased, and open interest at this strike swelled by 132,683 contracts overnight, confirming that fresh bullish positions were added here. However, due to the high volume of this trade, it's possible an institution purchased these calls in order to hedge a short position.

With MSFT currently trading right around $26, these 28-strike calls are roughly two points out of the money. However, in the past few weeks, MSFT has staged a rally, guided higher by support from its ascending 10-day moving average.

 
Short-Term Option Players Optimistic About Pfizer Inc.
Author
Sarah Wasserman (swasserman@sir-inc.com)

7/28/2010 3:04:35 PM

Call volume has popped on Pfizer Inc. (PFE) today, with the pharmaceutical concern seeing 59,000 of these bullish bets traded by midday, well above the equity's expected single-session call volume of around 39,000 contracts.

The September 16 call takes the title for the day's most active strike, with 16,377 contracts traded -- 60% at the ask price, suggesting they were likely purchased. With some 168,000 contracts currently open at this strike -- site of peak call open interest for the back-month series -- it's difficult to determine whether these calls were, in fact, bought to open. However, with PFE trading around $15.00, these 16-strike calls are just one point out of the money.

Option players are, by and large, bullish on PFE. The stock's Schaeffer's put/call open interest ratio (SOIR) of 0.45 reveals that call open interest more than doubles put open interest among options with less than three months until expiration. This ratio ranks in the 18th annual percentile, revealing that short-term traders have rarely been more optimistically aligned toward PFE.

On the charts, however, PFE has not done much lately to inspire such optimism. The stock has been in a steady downtrend since January, pressured lower by its 10-week and 20-week moving averages, located around the $15 and $16 levels, respectively.

 
LEAPS Player Optimistic About Long-Term Outlook for Activision Blizzard, Inc.
Author
Sarah Wasserman (swasserman@sir-inc.com)

7/28/2010 12:56:45 PM

Activision Blizzard, Inc. (ATVI) released "Starcraft II" -- the sequel to its chart-topping "Starcraft" -- on Tuesday. Expectations are great for this new video game, with 4.5 million copies expected to be sold by August. However, ATVI also believes the game will sustain the company in the long term, as "Starcraft" will be released in 2011 in several Asian countries.

Judging by Tuesday's option activity, it seems that one LEAPS trader is also counting on continued growth for ATVI. Late yesterday morning, 9,800 January 2012 15 calls traded at the ask price, suggesting they were purchased. Overnight, open interest ballooned by 10,174 contracts, to 11,114, revealing that these LEAPS contracts were newly added.

The $15 level marks territory ATVI has not explored since October 2008. In fact, aside from a few weeks in April, the tech stock has been confined in the $10-to-$12 area since last October.

Yet despite the stock's somewhat lackluster performance, option players remain bullish on ATVI. In the past two weeks, speculators on the International Securities Exchange (ISE) have bought to open 11.6 calls for every put, a ratio which ranks above 93% of all other readings taken during the past year. In other words, traders on the ISE have seldom initiated bullish bets at a faster pace.

Analysts are smitten with ATVI, too. According to Zacks, 24 out of 25 analysts call the stock a "buy" or better, with not one "sell" among the bunch.

 
Commentary by WhatsTrading.com
 
Riverbed Technology Inc (RVBD) $36.52 +0.66%
7/29/2010 1:19:58 PM

Riverbed shares are up 30c to $36.60, and touched a new 52-week high of $37.28 Thursday. Option volume is running 5x the daily average in what looks very similar to action seen Wednesday, when an investor was apparently selling Jan 41 calls at $2.80 to buy the Jan 31 - 36 put spread at $2.20, 3000X total. Today, the, Jan. $31/$36 put spread has traded 3,600x in what looks like a purchase at $2.05. Meanwhile, Jan 41 calls traded on the $3 bid, 3600X. Another block of 3400 Sep 40 calls also traded, at the $1.20 ask, and this might be an offsetting trade. In the end, it looks like this strategist is accumulating a bearish position -- selling Jan 41 calls and buying the Jan 31 - 36 put spread -- over the past two days. Co. reported earnings last week.

Read more at WhatsTrading.com

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Genzyme Corporation (GENZ) $70.24 +3.30%
7/29/2010 11:19:58 AM

Genzyme (GENZ) is up $2.25 to $70.25 after the Wall Street Journal reported late yesterday that Sanofi (SNY) is "increasingly likely" to take a formal buyout offer to Genzyme's board. Then, CNBC reported this morning that SNY is likely to send a "bear hug" letter to Genzyme in the next 72 hours. Active trading continues in GENZ options. One player bought 5000 January 75 calls at $2.35 and sold 2,500 Aug 75 calls at 45 cents, possibly rolling a position and looking for an offer substantially greater than $75 per share. However, today's top trades also include an August 67.5 - Jan 65 put spread, apparently bought at $2.10, 4000X, which might be a hedge should any deal talk fall apart after the August expiration. Lazard downgraded GENZ shares to Hold from Buy this morning. Implied volatility is down 25 percent to 30.

Read more at WhatsTrading.com

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Kellogg Company (K) $49.94 -3.07%
7/29/2010 9:59:59 AM

With Kellogg earnings not so Grrrreat! shares opened at $49.54, a $2 gap down from Wednesday's close. Early option flow is concentrated in the Aug 50 puts, with 8000 contracts trading in the first 10 mins of the day, and the largest block trading at 1.10 on the ISE with shares near $50.10. Yesterday afternoon we noted buyers paying 50-55cents for this contract, and today's volume appears to be closing that short term bet for a gain.

Read more at WhatsTrading.com

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Rubicon Technology Inc (RBCN) $30.11 -5.37%
7/28/2010 4:20:01 PM

Shares of Rubicon, a maker of LED parts and products, are off $1.70 to 430.10 and option volume is 6x the daily average as the March $30 calls trade 1,538 and the March $40 calls trade 3,130 contracts in an opening ratio spread. The 30s were bought at $6.30 and 40s sold at $2.50. Looks like a bullish 1x2 spread ahead of earnings. The company is set to report on August 5.

Read more at WhatsTrading.com

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Microsoft Corp (MSFT) $26.04 -0.46%
7/28/2010 2:20:00 PM

A massive trade in Microsoft calls printed on the ISE this afternoon, totalling nearly 180,000 contracts, versus a hedge 700,000 shares at $26.11. Data indicates a customer bought 128960 September 28 calls to open, for an avg price near 24cents, and sold nearly 50,000 Jan-12 30 calls to open at an avg price near $1.975. Net options premium is about $6.7million collected on the trade, and while initially delta neutral, the trade is very long gamma and profitable if shares sell off sharply, or rally beyond the $29 level. Theta on the trade is nearly $54k/day and it may be related to the 190,000 contract spread that traded yesterday in MSFT (in that case, paper bought Sep 17th 27.5 calls against a sale of Oct 27s.)

Read more at WhatsTrading.com

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Symantec Corp (SYMC) $14.89 -0.67%
7/28/2010 1:20:01 PM

Symantec shares are off 10c to $14.90 and notable volume in the Sep. $16 calls as a block of 18,500 (now a total of 25,000) have traded at the 35 ask price most likely tied to stock. The computer software company is set to report earnings after the close.

Read more at WhatsTrading.com

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Patriot Coal Corporation (PCX) $12.20 -1.61%
7/28/2010 10:00:04 AM

Patriot Coal (PCX) shares lost 9.3 percent, to $12.40, post-earnings yesterday and a noteworthy trade surfaced late when a strategist apparently bought the Jan 11 - 20 call spread at $2.61, 6950X. Open interest indicate new positions in both legs and therefore a spread that makes its best profits if shares rally 61.3 percent through the January 2011 expiration. Shares are down another 24 cents to $12.16 this morning after BMO Capital cut PCX to Market Perform from OutPerform.

Read more at WhatsTrading.com

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Genzyme Corporation (GENZ) $67.66 +0.42%
7/27/2010 3:00:02 PM

Genzyme (GENZ) has given up early gains and is down a dime to $67.28 late Tuesday, but is up more than 25 percent since last week's news that Sanofi Aventis (SNY) might make a bid for the company. Options are actively traded again today. This morning, for example, a bearish three-way spread surfaced when a strategist sold 7000 October 75 calls at $1.60 to buy 7000 Jan 50 - 65 put spreads at $3.70. The spread, which looks like a new position, has been repeated more than once and volume in the Jan 50 - 65 put spread is approaching 10000. The action might be hedging activity by shareholders to protect recent gains in GENZ shares. Reuters reports today that Genzyme is considering SNY's informal takeover request, but isn't actively attempting to sell the company.

Read more at WhatsTrading.com

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Weeklys Update
7/27/2010 2:20:03 PM

A number of new 'weekly' options will be listed this Thursday, with expiration at the close Friday Aug 6: new names include GE, CSCO, PFE (earnings 8/3), RIG (earnings 8/4) and DNDN will be listed. Today's volume in weeklys just passed 300K contracts, with 1/3 of that in SPY, and single stock leaders AAPL, BP, and AMZN.

Read more at WhatsTrading.com

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Pfizer Inc (PFE) $15.26 +1.56%
7/27/2010 1:00:00 PM

Large blocks of out-of-the-money Pfizer (PFE) calls have traded in recent action. Shares are up 21 cents to $15.23 and it includes: 50K Dec 18 calls at 15 cents, 50K Dec 17 calls at 30 cents, 50K Sep 17 calls at 10 cents, 50K Aug 16 calls at 11 cents, and 30K Dec 16 calls at 58 cents. Sources tell us this is a brokerage firm crossing blocks for account swaps, Not a spread or directional play on the pharmaceutical maker.

Read more at WhatsTrading.com

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More Options Commentaries and Observations by Schaeffer’s

 
A Closer Look at... Seagate Technology, Western Digital, and NetApp Inc.

The computer hardware sector started 2010 off with a bang, but the group has since fallen on hard times. In fact, the NYSE Arca Computer Hardware Index (HWI) has shed more than 5% on a year-to-date basis, compared to the tech-laden Nasdaq Composite's (COMP) loss of about 1.5% for the same time frame. What's more, HWI's downtrend could be gaining momentum, as the index has pulled back below its 160-day moving average, with this trendline rejecting the shares soundly earlier this week.

read more...

Close Article

 
Bears Flock to Kellogg Company Following a Not-Grrrreat Earnings Report

The computer hardware sector started 2010 off with a bang, but the group has since fallen on hard times. In fact, the NYSE Arca Computer Hardware Index (HWI) has shed more than 5% on a year-to-date basis, compared to the tech-laden Nasdaq Composite's (COMP) loss of about 1.5% for the same time frame. What's more, HWI's downtrend could be gaining momentum, as the index has pulled back below its 160-day moving average, with this trendline rejecting the shares soundly earlier this week.

read more...

Close Article

 
Option Activity Alert: Research In Motion Limited and General Electric Company

The computer hardware sector started 2010 off with a bang, but the group has since fallen on hard times. In fact, the NYSE Arca Computer Hardware Index (HWI) has shed more than 5% on a year-to-date basis, compared to the tech-laden Nasdaq Composite's (COMP) loss of about 1.5% for the same time frame. What's more, HWI's downtrend could be gaining momentum, as the index has pulled back below its 160-day moving average, with this trendline rejecting the shares soundly earlier this week.

read more...

Close Article

 
Ahead of Earnings, Stakes are High for Insurance Giants Genworth Financial, Inc. and MetLife, Inc.

The computer hardware sector started 2010 off with a bang, but the group has since fallen on hard times. In fact, the NYSE Arca Computer Hardware Index (HWI) has shed more than 5% on a year-to-date basis, compared to the tech-laden Nasdaq Composite's (COMP) loss of about 1.5% for the same time frame. What's more, HWI's downtrend could be gaining momentum, as the index has pulled back below its 160-day moving average, with this trendline rejecting the shares soundly earlier this week.

read more...

Close Article

 
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