Schaeffer's Trading Floor Blog

Options Check-Up: Facebook Inc (FB), Tesla Motors Inc (TSLA), and SINA Corp

Analyzing recent option activity for FB, TSLA, and SINA

by 4/21/2014 8:24 AM
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Among the equities attracting attention from options traders lately are social media giant Facebook Inc (NASDAQ:FB), electric car maker Tesla Motors Inc (NASDAQ:TSLA), and Chinese Internet concern SINA Corp (NASDAQ:SINA). Below, we'll look at how options buyers are betting on FB, TSLA, and SINA, and how much they are willing to pay to do so.

  • Short-term options are growing more expensive as Facebook Inc (NASDAQ:FB) prepares for its post-close turn in the earnings confessional on Wednesday. The stock's Schaeffer's Volatility Index (SVI) now sits at 62%, above 65% of all other readings from the past year, suggesting short-term contracts are fetching a pretty penny, from a volatility standpoint. Digging deeper, traders have purchased FB puts over calls at a near-annual-high clip during the past two weeks, as the equity's 10-day put/call volume ratio of 0.60 on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) stands just 2 percentage points from a 52-week peak. Echoing that, FB on Thursday saw roughly 149,000 puts change hands -- a 13% mark-up to its average daily volume. By the close, Facebook Inc shares gave up 1.3% to settle at $58.94.

  • Tesla Motors Inc (NASDAQ:TSLA) has also been more popular than usual among option bears of late. The stock sports a 10-day put/call volume ratio of 1.05 on the ISE, CBOE, and PHLX, which registers in the 94th percentile of its annual range. Meanwhile, the equity's Schaeffer's Volatility Scorecard (SVS) stands at a lofty 98, implying that TSLA has tended to make outsized moves relative to what the options market has priced in -- a boon for option buyers. Analysts are also skeptical when it comes to the automaker, as seven out of 12 brokerage firms maintain "hold" or "sell" opinions. While the equity has given back about a quarter of its value since tagging a record high of $265 in late February, the stock remains almost 32% higher year-to-date, closing a choppy session at $198.12 on Thursday.

  • SINA Corp (NASDAQ:SINA) notched a gain of 6.7% on Thursday to finish at $56.55, thanks to a solid IPO from Weibo Corp (ADR) (NASDAQ:WB), of which SINA owns a majority stake. One speculator is counting on more upside for the shares over the intermediate term, initiating a three-legged, bullishly biased spread in the September series. Specifically, the trader sold to open September 40 puts and September 70 calls, and bought to open September 60 calls, resulting in a net debit of $1.03 per trio of contracts. The spread will be profitable if SINA ends atop $61.03 (bought call strike plus net debit) when September-dated options expire. While the stock hasn't been much to write home about on the charts -- it's shed almost a third of its value in 2014, and Thursday marked its first daily close atop its 10-day trendline since March 17 -- short-term options speculators were already in the bulls' corner. In fact, the security's Schaeffer's put/call open interest ratio (SOIR) of 0.39 stands higher than just 22% of all comparable readings from the past year. What's more, those options are slightly more expensive than usual, as evidenced by SINA's SVI of 63%, in the 57th percentile of its annual range.

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Reading the VIX Tea Leaves for Signs of a Shift

Tracking the 'large amount of noise' in today's choppy trading environment

by 4/21/2014 7:30 AM
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There's a theory out there that volatility picks up right before a market turn. Well, we're certainly getting that volatility pickup, especially in the Nasdaq as we noted last week.

The big question though is, which move are we about to reverse? Is it the longer-term bull move that's ending? We can say it goes back to 2012, 2011, or 2009 -- it depends on your definition. Or is it the shorter-term choppiness that's about to end? That, I would say, goes back to the turn of the year into 2014.

Something significant is clearly going on -- we haven't had intraday volatility like we saw last week in quite some time. We'll just have to wait a bit more to see which way we break, but it sure feels like it's about to happen.

SPDR S&P 500 ETF (SPY) looked scary early on, before recovering to put in a pretty strong shortened week. We lifted 2.7% in four days, just about reversing all the ugliness from the week before. I noted last week that the CBOE Volatility Index never got extreme … at least in my subjective view of how it "should" act in a market as ugly as the end of the week before. Well, apparently it got extreme enough. It dropped a cool 21.5%, back to right where it closed two weeks ago.

In a calmer market, VIX would have likely looked way worse last week as it is generally a slow trade into extended holiday weekends. That's especially true when it's also an expiration. At least that used to be true … the popularity of weekly options has diminished expiration effects on options. Or rather, it's diffused the effects.

In big-cap world, 2014 has barely even happened net-net. It's an incredibly large amount of noise for a gain of around 1%.

Meanwhile, our good friend iPath S&P 500 VIX Short-Term Futures ETN (VXX) continues to shine … or at least not get clocked. It's now up to 61 trading days without hitting all-time lows. Its the fourth-longest streak EVER! OK, "EVER" only goes back five years, but still…

And we're within striking distance of hitting third place all time. That would be a 67-day streak from March to June in 2012. It's meaningless, of course, as VXX is a path-driven derivative that proxies a hypothetical rolling future that seeks to divine the forward value of a statistic. But hey, it's fun. The key number is $39.85 … and we're one good market week away from getting there.

Disclaimer: Mr. Warner's opinions expressed above do not necessarily represent the views of Schaeffer's Investment Research.

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Technical Woes Can't Shake Optimism Toward Gogo Inc (GOGO)

GOGO could run into contrarian headwinds if its longer-term downtrend resumes

by 4/17/2014 2:22 PM
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Call buyers have been coming out in full force in Gogo Inc's (NASDAQ:GOGO) options pits lately. In the last week on the International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE), the in-flight Internet provider has racked up a call/put volume ratio of 59.89. In other words, almost 60 calls have been bought to open for every put in the previous five trading days.

Even from a wider perspective, traders lean heavily toward long calls over puts. GOGO's 10-day ISE, CBOE, and NASDAQ OMX PHLX (PHLX) call/put volume ratio registers at 22.86. For comparison, this ratio -- which is the highest reading since early November -- was just 9.76 on April 1. (Of course, a portion of these long calls may be at the hands of short sellers trying to hedge their bearish positions, as short interest makes up over 35% of the stock's float.)

Also tilting in a call-skewed direction is GOGO's Schaeffer's put/call open interest ratio (SOIR) of 0.32. In a nutshell, this ratio indicates call open interest more than triples put open interest among options expiring in the next three months. For comparison, GOGO's SOIR to start the year was a relatively even 1.10, with short-term puts actually outnumbering calls by a slim margin.

Optimism extends beyond the equity's options pits, as well. Most notably, the shares' consensus 12-month price target rests at $26.67, which represents a considerable premium to the current price of $17.62.

Technically speaking, the stock has plummeted 29% on a year-to-date basis, and has underperformed the broader S&P 500 Index (SPX) by close to 33 percentage points in the last three months. What's more, although the shares are up nearly 4% in today's session on an upgrade to "overweight" from "neutral" at J.P. Morgan Securities, they are battling with overhead resistance at their descending 10-day moving average. If the stock's technical struggles resume, a shift in sentiment among option traders and/or analysts could push Gogo Inc (NASDAQ:GOGO) even lower.

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Midday Market Stats: Dow Jones Industrial Average Waffles On Mixed Earnings, Economic Data

Fundamental news produces big moves in RadioShack Corporation and SanDisk Corporation

by 4/17/2014 12:03 PM
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The Dow Jones Industrial Average (INDEXDJX:.DJI) has been waffling above and below breakeven today, with investors feeling uncertain after the latest set of earnings reports. At last check, the Dow was 23.4 points lower at 16,401.47. In economic news, weekly jobless claims rose by 2,000 to a seasonally adjusted 304,000 last week, but finished well below economists' average estimate. Elsewhere, the Philadelphia Fed's manufacturing survey revealed better-than-expected business conditions in April.

Here are a few noteworthy stats at midday:

  1. The equity put/call volume ratio across all 12 options exchanges checks in at 0.80, with calls outweighing puts. Currently, 4.71 million calls are on the tape, compared to 3.78 million puts.

  2. Among the equities with notable call volume is RadioShack Corporation (NYSE:RSH), which has plummeted nearly 14% to $1.46, and earlier hit a record low of $1.45. This downside move follows news of difficulties in the electronics guru's store-closing plan. With the stock's value approaching zero, over 77% of RSH's options volume has crossed on the call side.

  3. The Nasdaq Exchange shows an advance/decline ratio of 1.22, with advancing stocks besting decliners.

  4. One of the Nasdaq's big advancers at midday is SanDisk Corporation (NASDAQ:SNDK), which has jumped 10.4% to trade at $83.70 following a first-quarter earnings beat reported last night. The data storage expert also upped its gross margin target range for 2014.

  5. The CBOE Volatility Index (VIX) has slipped 0.6 point, or 4%, to 13.62, and earlier dipped below 13.50 -- a level not breached on a daily closing basis in two weeks.

  6. The put/call volume ratio on the iPath S&P 500 VIX Short-Term Futures ETN (NYSEARCA:VXX) -- 0.7% lower at $42.05 -- is 0.70, with call volume outweighing put volume.

View a real-time chart of the Dow Jones Industrial Average 2 Minute (INDEXDJX:.DJI).

Unusual Option Volume at Midday

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Analyst Downgrades: Google Inc, Bank of America Corp, and Barrick Gold Corporation (USA)

Analysts downwardly revised their ratings on GOOGL, BAC, and ABX

by 4/17/2014 9:35 AM
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Analysts are weighing in today on global technology giant Google Inc (NASDAQ:GOOGL), financial heavyweight Bank of America Corp (NYSE:BAC), and gold miner Barrick Gold Corporation (USA) (NYSE:ABX). Here's a quick roundup of today's bearish brokerage notes.

  • After reporting weaker-than-expected earnings results for the first quarter last night, GOOGL received a handful of bearish brokerage notes. Among the critics on Wall Street were RBC and Deutsche Bank, which both slashed their price targets by $40 to $670 and $625, respectively. Since Google Inc's 2-for-1 split at the beginning of the month, the stock has shed 7% to trade at $547.74; however, 25 of the 29 covering analysts are holding on to "buy" or better endorsements. Furthermore, the average 12-month price target of $670.40 towers over GOOGL's current price.

  • BAC may have hit a technical speed bump following its less-than-stellar first-quarter earnings report yesterday morning -- which led Jefferies to cut its price target to $18.50 from $20 in overnight trading -- but the stock still boasts a year-over-year gain of nearly 37% to trade at $16.03. Elsewhere, sentiment toward Bank of America Corp is more bearish than bullish, with 14 analysts dishing out "hold" or worse suggestions, and just seven awarding the stock "buy" or better endorsements. Should Bank of America Corp resume its long-term uptrend, the other critics on Wall Street may have a change of heart, which could create additional technical tailwinds for the shares.

  • ABX -- which has lost 12.4% over the past month to trade at $18.32 -- received a price-target cut to C$20 from C$20.50 at Canaccord Genuity this morning. Meanwhile, option traders have placed bullish bets over bearish at a near-annual-high rate during the past two weeks, as evidenced by Barrick Gold Corporation's (USA) 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 8.46, which ranks just 4 percentage points from a 12-month peak.

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