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Option Trends: Amgen, JPMorgan Chase, and Western Digital

Puts are popular on AMGN, while calls dominate the action on JPM and WDC

by 10/11/2012 12:20:03 PM
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Options traders have been taking sides on biotech stock Amgen, Inc. (NASDAQ:AMGN - 85.00), blue-chip bank JPMorgan Chase & Co. (NYSE:JPM - 42.25), and tech issue Western Digital Corp. (NASDAQ:WDC - 37.06), according to volume data from the major options exchanges. Specifically, speculators have shown a strong preference for puts on AMGN, while calls have emerged as the clear favorites on JPM and WDC. Here's a closer look at the latest trends in the options pits for these three hot stocks.

Starting with AMGN, traders on the International Securities Exchange (ISE) have bought to open 1,666 puts and 138 calls over the past five days. In other words, more than a dozen puts have been purchased for every call.

AMGN daily price chartBroadening our scope to include buy-to-open volume from the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), AMGN's 10-day put/call ratio arrives at 1.20. This ratio ranks higher than 77% of comparable readings taken over the past year, pointing to an increased appetite for bearish bets on the biotech.

AMGN has notched an impressive gain of about 32% so far in 2012, and the shares are currently right above their converging 20-day and 40-day moving averages. Looking ahead, the company is due to report its third-quarter earnings after the close on Oct. 23, with Wall Street looking for a profit of $1.47 per share. AMGN has topped analysts' earnings estimates in three of the last four quarters.

With JPM due to confess its own quarterly results ahead of the opening bell this Friday, calls have been in heavy rotation on the Dow component. In the last five days, the CBOE reports 41,120 calls bought to open on JPM, compared to just 13,265 puts. Looking longer-term, JPM's 10-day ISE/CBOE/PHLX call/put volume ratio stands at 1.98, in the 90th annual percentile -- just 10 percentage points from a bullish peak.

Shares of the bank stock are pointed higher today, despite a New York Times report suggesting that federal regulators are preparing a criminal case over JPM's "London Whale" trading loss. Additionally, a source told Reuters that Chief Financial Officer Doug Braunstein may leave his post to assume another role at JPMorgan.

Finally, calls are also the options of choice on WDC, with no fewer than 4,905 bought to open on the ISE alone over the past five sessions -- easily outstripping the 170 puts purchased. In fact, WDC's 10-day ISE/CBOE/PHLX call/put volume ratio of 3.70 reveals that bullishly oriented options have nearly quadrupled their bearish counterparts during the past couple of weeks. This ratio ranks in the 79th percentile of its annual range, as speculators have bought to open calls over puts at a faster pace only 21% of the time in the last year.

Since peaking around $46 in mid-August, WDC has blazed a steady path lower. Meanwhile, short interest on the tech stock rose by 29.3% during the past two reporting periods, so it's possible that short sellers are buying calls to hedge their bets ahead of WDC's Oct. 22 earnings announcement.

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