Schaeffer's Trading Floor Blog

Options Check-Up: Advanced Micro Devices, Inc., Chesapeake Energy Corporation, and Alcoa Inc

Analyzing recent option activity for AMD, CHK, and AA

by 4/3/2014 4:55 PM
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Among the equities attracting attention from options traders lately are semiconductor concern Advanced Micro Devices, Inc. (NYSE:AMD), oil-and-gas issue Chesapeake Energy Corporation (NYSE:CHK), and aluminum producer Alcoa Inc (NYSE:AA). Below, we'll look at how options buyers are betting on AMD, CHK, and AA, and how much they are willing to pay to do so.

  • Advanced Micro Devices, Inc. (NYSE:AMD) ticked higher out of the gate today, but eventually succumbed to broad-market selling pressure, surrendering 1.5% to end at $4.00. Calls have been the options of choice among AMD speculators of late, with traders purchasing to open more than seven calls for every put during the past two weeks. The resulting 10-day call/put volume ratio of 7.16 on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) stands higher than 73% of comparable readings from the past year, pointing to a healthier-than-usual appetite for bullish bets over bearish. However, AMD's short-term contracts are still attractively priced, from a historical standpoint, as the equity's Schaeffer's Volatility Index (SVI) of 53% registers in the 28th percentile of its annual range.

  • Chesapeake Energy Corporation (NYSE:CHK) bucked the broad-market trend lower, tacking on 0.6% to settle at $26.62, after UBS lifted its price target on the stock to $28 from $26. In the options arena, short-term traders haven't been more call-heavy during the past year, as the equity's Schaeffer's put/call open interest ratio (SOIR) of 0.70 rests at a 52-week nadir. However, short interest accounts for 10% of CHK's total available float -- representing nearly seven sessions' worth of pent-up buying demand, at the stock's average pace of trading -- suggesting some of the out-of-the-money calls may have been purchased by short sellers looking to hedge against a rally. Whatever the motive, CHK's short-term contracts are relatively cheap; the equity's SVI sits at a 12-month low of 22%.

  • Alcoa Inc (NYSE:AA) will unofficially kick off first-quarter earnings season next week, with the company slated to report after the close on Tuesday, April 8. Historically, the firm has matched or exceeded the Street's per-share profit projections in seven of the last eight quarters, averaging a one-week post-earnings gain of 0.8%. Ahead of the event, AA's short-term options are growing more expensive, as the security's SVI jumped to 41% (in the 80th annual percentile) from 38% (in the 68th annual percentile) yesterday. Puts are more popular than usual on the long side, as the security's 10-day ISE/CBOE/PHLX put/call volume ratio of 0.63 stands just 9 percentage points from an annual acme. However, considering AA has advanced nearly 20% in 2014, and touched a two-plus-year peak of $13.18 on Tuesday, it's possible that AA shareholders are buying puts to lock in gains in the event of a post-earnings pullback. On Thursday, AA gave up 0.9% to end at $12.74.

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