Schaeffer's Trading Floor Blog

Buzz Stocks: Apple Inc. (AAPL), JetBlue Airways Corporation, and The Home Depot, Inc.

Today's stocks to watch include AAPL, JBLU, and HD

by 9/19/2014 9:29 AM
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Stocks are set to continue their run higher, with futures sitting comfortably higher ahead of the bell. In company news, tech titan Apple Inc. (NASDAQ:AAPL), airline issue JetBlue Airways Corporation (NASDAQ:JBLU), and home improvement bigwig The Home Depot, Inc. (NYSE:HD) are three stocks to watch in today's trading.

  • AAPL is pointed higher this morning, with fanboys across the globe lining up to get the company's newest iPhones, for sale in 10 countries today. In fact, thousands of people lined up outside stores in Australia. On the charts, Apple Inc. shares have added roughly 27% in 2014, settling at $101.79 on Thursday. In the options arena, traders have shown a healthier-than-usual appetite for AAPL calls over puts of late, as the stock's 10-day call/put volume ratio on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sits at 2.50 -- higher than 78% of all other readings from the past year. Analysts are also optimistic, as 27 out of 33 deem AAPL worthy of a "buy" or better rating, and Cowen and Company this morning hiked its price target to $110 from $106 and offered up an "outperform" recommendation.

  • JBLU is headed for a 4.5% gain out of the gate, after the company said former British Airways exec and current JBLU president Robin Hayes will replace CEO David Barger when he retires in February. The shares of JBLU finished at $11.33 on Thursday, and boast a year-to-date gain of nearly 33%. Nevertheless, short interest accounts for 21.6% of JetBlue Airways Corporation's total available float, representing nearly seven sessions' worth of pent-up buying demand, at JBLU's average pace of trading. Should the shorts hit the exits, a short-squeeze situation could help JBLU extend its longer-term ascent.

  • HD said its recent data breach put more than 55 million cards at risk -- trumping the cyber-attack that plagued Target Corporation (NYSE:TGT) late last year. Short-term options players are pessimistically aligned toward HD, relatively speaking. The stock's Schaeffer's put/call open interest ratio (SOIR) sits at an annual peak of 2.03, indicating that near-term traders haven't been more put-heavy during the past year. The Home Depot, Inc. closed at $92.09 on Thursday.

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Analyst Downgrades: Barrick Gold Corporation (USA), Seadrill Ltd, and Transocean LTD

Analysts downwardly revised their ratings on ABX, SDRL, and RIG

by 9/19/2014 9:23 AM
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Analysts are weighing in today on precious metal peddler Barrick Gold Corporation (USA) (NYSE:ABX), and drilling services providers Seadrill Ltd (NYSE:SDRL) and Transocean LTD (NYSE:RIG). Here's a quick roundup of today's bearish brokerage notes on ABX, SDRL, and RIG.

  • As the price of gold has swooned, so also has the price of ABX, which is off nearly 18% year-over-year to rest at $16. As such, Dundee Capital reduced its price target on the shares to C$22 from C$24, while affirming its "neutral" assessment. Elsewhere, options traders are firmly entrenched in Barrick Gold Corporation's (USA) bearish camp. The equity's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.76 is higher than 95% of all other readings from the past 12 months.

  • Exane BNP Paribas cut its rating on SDRL to "underperform" from "neutral," and its price target to NOK 172 from NOK 220. The downward revisions make sense in light of the stock's 26.1% year-to-date deficit to its current perch at $30.35, and the fact the shares have underperformed the broader S&P 500 Index (SPX) by more than 25 percentage points during the last three months. Meanwhile, short sellers have been honing in on Seadrill Ltd. Specifically, 7.6% of the security's float is sold short, which would take seven sessions to buy back, at SDRL's typical daily trading volumes.

  • Finally, RIG saw its price target slashed to $35 from $42 at RBC, as Wall Street continues to turn against the stock. In fact, 14 out of 16 brokerage firms following the shares have slapped them with a "hold" or "strong sell" rating, compared to just two "buy" recommendations. On the charts, RIG is down nearly 29% in 2014 to rest at $35.15, and yesterday touched a nearly 10-year low of $34.06.

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When Will a Buy-Write Strategy Outperform?

A closer look at the CBOE S&P 500 2% OTM BuyWrite Index (BXY) relative to the SPDR S&P 500 ETF Trust (SPY)

by 9/19/2014 9:12 AM
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As we noted yesterday, a general buy-write strategy has outperformed the market over the very long haul -- 25 years, to be exact. And, perhaps most impressively, it does it while reducing the volatility of the portfolio.

But alas, your mileage may vary. It very much depends on timing. Here's a comparison of CBOE S&P 500 2% OTM BuyWrite Index (BXY) to SPDR S&P 500 ETF Trust (SPY) in 2014.

BXY vs SPY In 2014

It makes intuitive sense. While the market meandered early this year, a premium-generating strategy added value. But, as the rally picked up some steam in the late spring and early summer, you were better off just riding it out straight long. Remember, with these buy-write indices, there's only rolling at expiration. So, if at some point the market lifts such that the short calls became de facto stock shorts, you essentially have a flat position and may miss chunks of a move.

How about a little longer haul? Here's BXY vs. SPY since the inception of BXY.

BXY vs SPY Since Inception

BXY massively outperformed in 2008, and actually peaked (relatively) at the end of 2009. The 2008 part certainly makes sense. With everything battered, something like BXY clearly did "less bad." Those premiums provided a de facto dividend on an otherwise sinking asset. As to 2009, it's less clear, though I suspect it's because implied volatility itself was so high that the premiums were still able to offset the absolute gains of the market itself.

But, since the end of 2009, BXY has underperformed, save for some blips here and there. And that does makes sense.

The last four and a half years are marked by both rising stocks and declining volatility. CBOE S&P 500 Buy Write Index (BXM), BXY, and CBOE S&P 500 PutWrite Index (PUT) all sell and roll near-term options, so it's safe to presume they have taken in lower and lower premiums over time. Those premiums are actually high enough vs. realized volatility in the market itself, but that's more relevant to a day-to-day look. Over the course of time, the directional move has been up. There's just no way a dedicated buy-write index can keep pace in that sort of backdrop.

The Chicago Board Options Exchange (CBOE) always back-calculates performance of any new listed index. It used 25 years in the tables from yesterday, and frankly if it went back even further, the outperformance would have looked even better. That's because the 1987 data probably would look like the 2008 does above.

Clearly, buy-writing is not always preferable. If you're out-and-out bullish, you're better off just owning stocks or an index fund or whatever. But, if you expect the market to tread water a bit, tracking these premium-selling funds can work out well.

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

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Analyst Upgrades:, Inc., Alibaba Group Holding Ltd, and Yahoo! Inc.

Analysts upwardly revised their ratings on AMZN, BABA, and YHOO

by 9/19/2014 8:53 AM
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Analysts are weighing in today on Internet marketplaces, Inc. (NASDAQ:AMZN) and Alibaba Group Holding Ltd (NYSE:BABA), and online media giant Yahoo! Inc. (NASDAQ:YHOO). Here's a quick roundup of today's bullish brokerage notes on AMZN, BABA, and YHOO.

  • After unveiling six new devices yesterday -- including the $199 Kindle Voyage e-reader -- AMZN saw its price target raised to $435 from $380 at RBC Capital Markets. The bullish brokerage note is curious, given the stock's year-to-date loss of 18.5% to trade at $325; plus, the shares were recently rejected at the $350 level. Nevertheless, optimism on the Street is easy to find. Nearly two-thirds of covering analysts have given, Inc. a "buy" or "strong buy" rating, and the equity's consensus 12-month price target of $393.26 stands at a 21% premium to current trading levels.

  • Meanwhile, AMZN rival BABA will make its highly anticipated public debut today. Cantor is adding to the buzz this morning, starting coverage on the stock with a "buy" rating and a $90 price target -- a more than 32% premium to Alibaba Group Holdings Ltd's expected initial public offering price of $68.

  • Finally, YHOO -- which owns a significant stake in BABA -- saw its price target lifted to $43 from $39 at Cantor, to $46.50 from $45 at Jefferies, and to $48 from $44 at Piper Jaffray. On the charts, Yahoo! Inc. has been a mixed bag, sporting an impressive year-over-year advance of 35.6% -- and reaching a new eight-year high of $44.01 earlier this week -- but up just 4.1% on a year-to-date basis. Taking a step back, sentiment on Wall Street is mixed toward Yahoo! Inc. While the shares have received 14 "buy" or better opinions from covering analysts, versus just six "holds" and not a single "sell" rating, their consensus 12-month price target of $39.55 sit at a discount to the current price of $42.08.

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Analyst Update: Dunkin Brands Group Inc, E I Du Pont De Nemours And Co, and Monsanto Company

Analysts adjusted their ratings on DNKN, DD, and MON

by 9/18/2014 2:42 PM
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Analysts are weighing in today on doughnut titan Dunkin Brands Group Inc (NASDAQ:DNKN), big-cap chemical company E I Du Pont De Nemours And Co (NYSE:DD), and agricultural concern Monsanto Company (NYSE:MON). Here's a quick look at today's brokerage notes on DNKN, DD, and MON.

  • Shares of DNKN are off 1.9% today, despite J. P. Morgan Securities and Barclays raising their price targets to $50 and $53, respectively. Year-to-date, Dunkin Brands Group Inc is down 4.6%, and was last seen trading at $45.84. However, bullish option traders have taken an interest in the stock lately, as DNKN's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 28.14 is only two percentage points from an annual high, meaning calls have been purchased at a faster-than-normal rate relative to puts in the past two weeks.

  • DD has gained 2.6% today, continuing yesterday's rally to hit a 14-year high of $71.42 after scoring bullish brokerage notes from three firms, including an upgrade to "overweight" from "neutral" at J.P. Morgan Securities. On the year, E I Du Pont De Nemours And Co has added nearly 10%. Elsewhere, option traders are betting on the equity to continue its strong showing, as DD's 10-day ISE/CBOE/PHLX call/put volume ratio of 6.74 sits in the 99th percentile of its annual range, meaning calls are being purchased over puts at a near annual-high rate. Moreover, the stock's Schaeffer's Volatility Index (SVI) of 8% is at an annual low, meaning short-term options are at a bargain price, from a volatility standpoint.

  • After Stifel Nicolaus raised its recommendation to "buy" from "hold," shares of MON have gained over 1% to trade at $115.03 today. Monsanto Company is off over 1% on the year, and in the last three months the stock has underperformed the broader S&P 500 Index by more than 8 percentage points. On the options front, MON's 10-day ISE/CBOE/PHLX call/put volume ratio sits in its 91st annual percentile, coming in at 3.94, meaning traders have had a healthier-than-normal appetite for calls over puts in the last two weeks.

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