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Alcatel Lucent SA (ADR) (ALU) Traders Eye Another Post-Earnings Boon

Alcatel Lucent SA (ADR) calls are flying off the shelves today

by 4/22/2014 2:52 PM
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Unlike the withstanding trend, calls are the options of choice on Alcatel Lucent SA (ADR) (NYSE:ALU) this afternoon, trading at almost five times the average intraday pace. By the numbers, around 12,000 calls have changed hands, compared to fewer than 120 puts. Nearly all of the day's call volume has centered on ALU's June 4.33 strike, and it appears traders are betting on a big move higher over the next eight-plus weeks -- a time frame that includes the company's quarterly earnings report.

More than 10,300 contracts have changed hands at this out-of-the-money strike, including a large sweep of 9,990. Nearly all of these calls have gone off at the ask price, hinting at buyer-driven activity. Plus, implied volatility is up 3.9 percentage points, pointing to the initiation of new positions. The volume-weighted average price (VWAP) for the calls is $0.19, making breakeven at the close on Friday, June 20 -- when the options expire -- $4.52 (strike plus VWAP). Should ALU fail to rally the 12% needed from its current perch at $3.87 to topple the strike price, the most the speculators stand to lose is the initial premium paid.

However, as noted, the lifetime of these calls encompasses ALU's quarterly earnings report, slated for release the morning of Friday, May 9. Despite falling short of analysts' bottom-line projections in two of the previous three quarters, ALU has gone on to average a one-day post-earnings gain of 8.7%, which swells to 12.9% when going out one week past the results. For the first quarter, analysts are calling for a per-share loss of 7 cents -- a 12-cent improvement over Alcatel Lucent SA's (ADR) (NYSE:ALU) year-ago results.


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Most Active Options Update: Gilead Sciences, Inc. (GILD)

Gilead Sciences, Inc. calls have been popular leading up to tonight's earnings report

by 4/22/2014 2:14 PM
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The 20 stocks listed in the table below have attracted the highest total options volume during the past 10 trading days. Names highlighted are new to the list since the last time the study was run, and data is courtesy of Schaeffer's Senior Quantitative Analyst Rocky White. One name of notable interest this afternoon is Gilead Sciences, Inc. (NASDAQ:GILD).

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Gilead Sciences, Inc. will take its turn in the earnings confessional after tonight's close, and in the two weeks leading up to the big reveal, option traders have shown a preference for long calls over puts. During the past 10 sessions, the stock has tallied a call/put volume ratio of 2.32 on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). What's more, this ratio ranks in the bullishly skewed 60th percentile of its annual range, meaning calls have been bought to open over puts at a faster-than-usual clip.

It's more of the same in today's session, where calls have the slight lead over puts. A number of traders have targeted the May 75 call, where the majority of the 2,993 contracts traded have done so at the ask price -- pointing to buyer-driven volume. Meanwhile, implied volatility (IV) is up 2.4 percentage points, hinting at the initiation of new positions. The volume-weighted average price (VWAP) for the calls is $1.94, making breakeven at expiration -- on Friday, May 16 -- $76.94, or the strike plus the VWAP. Risk is limited to the initial cash outlay.

Meanwhile, one contract of interest to us falls on the put side -- at the May 60 strike, to be exact. More than 6,400 contracts are on the tape here -- 70% at the ask price. However, data from the ISE confirms that a number of these positions have been bought to close. These traders appear to be disregarding the rising cost of premium ahead of tonight's earnings announcement. Specifically, IV at the May 60 put exceeds the equity's one-month historical volatility (53.0% vs. 44.6%), meaning premium is inflated at the moment. The general assumption is that IV will drop once the company unveils its quarterly results.

Looking at the numbers shows that the equity's price action in the wake of its earnings report tends to favor bulls. After matching or exceeding consensus profit estimates in six of the past eight quarters, GILD has gone on to average a gain of 2.8% and 2.2% in the subsequent day and week, respectively. For the company's first quarter, analysts project a profit of 91 cents per share -- nearly double GILD's year-ago earnings.

Elsewhere on the fundamental front, Gilead Sciences, Inc. (NASDAQ:GILD) announced yesterday that the Food and Drug Administration (FDA) had approved two of the company's New Drug Applications. The review dates have been penciled in for Oct. 3 and 4. This news has overshadowed an overnight price-target cut at Jefferies, with the equity up 2.1% at last check to linger near $73.09.


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Option Clips: McDonald's, GW Pharmaceuticals, and Intuitive Surgical

Reviewing notable options activity on McDonald's Corporation, GW Pharmaceuticals PLC- ADR, and Intuitive Surgical, Inc.

by 4/22/2014 1:50 PM
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Three equities generating buzz on StockTwits today are big-cap restaurateur McDonald's Corporation (NYSE:MCD), drug maker GW Pharmaceuticals PLC- ADR (NASDAQ:GWPH), and medical robot manufacturer Intuitive Surgical, Inc. (NASDAQ:ISRG). Here's a look at how traders have been aligning their speculative bets today.

  • McDonald's Corporation (NYSE:MCD) has wavered around breakeven today, but was last seen 0.2% lower at $99.51 in the wake of the company's weaker-than-expected first-quarter earnings. Overall option volume is trading at twice the intraday norm, and the equity's 30-day at-the-money (ATM) implied volatility (IV) has seen a post-earnings plunge of 19.1% to 11.6%. The shares of MCD have peeked into the black at various points so far today, touching an intraday acme of $100.27 -- which may have prompted some speculators to cash in their chips at the century mark. The most active option is the weekly 4/25 100-strike call, where more than 12,000 contracts have traded, primarily at the bid price. What's more, the International Securities Exchange (ISE) confirms that a healthy portion of the calls were sold to close.

  • GW Pharmaceuticals PLC- ADR (NASDAQ:GWPH) has rallied 37.3% to $63.20, thanks to a brokerage nod at Morgan Stanley. Specifically, the analysts initiated coverage of GWPH with an "overweight" rating and a $103 price target -- more than double the stock's closing price of $46.04 on Monday -- amid optimism about the biopharmaceutical firm's experimental epilepsy drug, Epidiolex. After touching a 52-week high earlier in the session, the stock's 30-day ATM IV has retreated 5.1% to 120.3%. Meanwhile, calls are trading at 28 times the normal intraday pace, with possible buy-to-open activity detected at the May 60, 65, and 80 strikes.

  • Finally, Intuitive Surgical, Inc. (NASDAQ:ISRG) has advanced 2.7% to $422.30, after its da Vinci Sp Surgical System received marketing clearance from the Food and Drug Administration. Ahead of tonight's turn in the earnings confessional, ISRG calls are outpacing puts, with the weekly 4/25 450-strike and 5/2 445-strike calls garnering the most attention. From a broader sentiment standpoint, today's affinity for short-term calls is just more of the same for ISRG. The stock's Schaeffer's put/call open interest ratio (SOIR) of 0.73 sits just 2 percentage points from an annual low, implying that short-term options players have rarely been more call-heavy during the past year.

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Option Bulls Ignore Charts, Bet On iShares Silver Trust (ETF) (SLV)

Call buyers think iShares Silver Trust (ETF) can hurdle potential technical resistance

by 4/22/2014 12:18 PM
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iShares Silver Trust (ETF) (NYSEARCA:SLV) calls and puts are both trading at a faster-than-usual clip today. Specifically, 36,000 calls and 15,000 puts are on the tape, compared to an expected intraday volume of 23,000 and 10,000 contracts, respectively. Against this backdrop, the stock's 30-day at-the-money implied volatility (IV) has surged 5.4% to 24.3%, signaling strong demand for short-term options.

Far and away the most active SLV strike is the June 19 call, which has seen more than 23,100 contracts cross the tape, mostly in a series of small and mid-sized blocks. Over 80% have traded off the ask, IV is moving higher, and volume outstrips open interest, pointing to buy-to-open activity. A portion of these new bullish initiations is confirmed by data from the International Securities Exchange (ISE).

In short, today's call buyers are looking for SLV to move north of the 19 strike by the close on Friday, June 20, when the back-month options expire. Earlier in April, this level acted as support and could now be switching roles to serve as resistance. No matter what happens, however, the most the bullish bettors risk losing is the initial premium paid.

Today's emphasis on call buying is just more of the same for SLV. On the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity boasts a 50-day call/put volume ratio of 4.58 -- just 1 percentage point from an annual bullish acme. However, given the technical struggles of the iShares Silver Trust (ETF) (NYSEARCA:SLV) -- down 17.5% year-over-year at $18.63 -- an unwinding of these upbeat bets could result in contrarian headwinds.


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Canadian Solar Inc. (CSIQ) Option Bulls Encouraged By Today's Rally

Canadian Solar Inc. scored a fundamental win in Japan

by 4/22/2014 11:52 AM
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Option Brief: Canadian Solar Inc. (NASDAQ:CSIQ) is in rally mode today, after announcing it has inked a deal to provide Japan with 43 megawatts (MW) of photovoltaic (PV) modules for the country's second largest solar power plant project. At last check, the equity was up 8.5% at $29.40, and not surprisingly, call volume has soared to more than four times the average intraday pace. Diving deeper, it seems a number of speculators are either betting on a continued rise for CSIQ, or perhaps hedging against one.

The most active strike in CSIQ's options pits thus far is the July 35 call, where 2,233 contracts are on the tape. Nearly three-quarters of this activity has occurred on the ask side, implied volatility has ticked higher, and volume outstrips open interest, collectively pointing to the purchase of new bullish positions. However, with short interest up 41.7% in the last two reporting periods -- now accounting for 10.5% of the stock's available float -- a portion of this activity could be at the hands of short sellers hedging against any additional upside.

Regardless of the motive, as a result of the recent sell-off in momentum stocks (CSIQ has grown nearly seven-fold year-over-year), the stock has not seen the north side of $35 since March 24. As such, delta for the call is docked at 0.36, or 36%, suggesting a less than 2-in-5 chance of an in-the-money finish at the close on Friday, July 18, which is when the options expire.

As noted, CSIQ has been losing ground since hitting a five-year high of $44.50 on Feb. 28, with the shares off about 34%. Leading the stock lower has been its 20-day moving average, which quickly contained an early April rally attempt by CSIQ. This trendline is once again in focus, with Canadian Solar Inc. (NASDAQ:CSIQ) struggling against this recent layer of resistance amid today's upswing.


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