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VMware, Inc. (VMW) Option Trader Braces for Big Moves

VMware, Inc. was targeted for a protective options spread on Monday

by 7/22/2014 10:44 AM
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Option activity surged on VMware, Inc. (NYSE:VMW) yesterday, with nearly 9,600 calls and 5,700 puts changing hands -- roughly tripling average daily volume levels for the tech stock. A single spread trade drove a healthy portion of the volume on both the call and put sides of the aisle for VMW, as one investor implemented a protection play on the shares.

Right around midday, a block of 2,000 September 85 puts was bought to open at $2.40 per contract, while a block of 1,600 September 110 calls was simultaneously sold to open at $1.55 per contract. At the time, VMW was perched at $94.36, in between the two strikes. In other words, this looks like the initiation of a protective collar spread on the stock. The trade was initiated for a net debit of $232,000 -- which is also the maximum possible loss, should the purchased puts expire worthless.

Based on the number of puts involved, this VMW collar is sufficient to hedge a 200,000-share stake in the data virtualization specialist. However, since just 1,600 calls were sold, the trader would face the possibility of only 160,000 VMW shares being called away, should the stock rally north of $110 prior to expiration. This spread player may have been looking to cut the cost of entry on protective puts, while simultaneously guaranteeing exposure to additional upside if the shares should skyrocket during the next couple of months.

There are a couple of reasons VMW investors might be looking to hedge their bets. The company is due to report second-quarter earnings after tonight's closing bell, and the stock's one-week post-earnings returns have varied widely over the last eight quarters -- ranging from a 20.7% drop in early 2013 to a 15.8% rally last summer. Separately, reports yesterday suggested that Elliott Management Corp. will make a push for EMC Corporation (NYSE:EMC) to spin off its 80% interest in VMW.

In today's trading, VMW is up 3.4% at $96.07, moving higher from support at its rising 40-week moving average. On a year-over-year basis, shares of VMware, Inc. (NYSE:VMW) have gained roughly 35%.


Pre-Earnings Broadcom Corporation (BRCM) Traders Go Rogue

Broadcom Corporation's August 37.50 put was sold to open on Monday

by 7/22/2014 10:20 AM
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Put players were active in Broadcom Corporation's (NASDAQ:BRCM) options pits on Monday, with the contracts trading at nearly three times the average daily rate. Although the stock has a history of negative post-earnings price action, not all of the put activity was of the traditional "vanilla" variety.

The most active BRCM put yesterday was the August 37.50 strike, where 2,892 contracts changed hands -- mostly in a multi-exchange sweep totaling 2,866. All of these puts were traded at the bid price, and open interest rose overnight, making it safe to assume that new short positions were initiated.

By writing these puts to open, the speculators expect BRCM to maintain its perch atop $37.50 -- a level that has proven supportive during the month of July -- through the close on Friday, Aug. 15, when front-month options expire. In this best-case scenario, the puts will expire worthless, and the speculators can retain the initial credit collected as their full potential reward. Should the stock stumble roughly 3% from its current perch at $38.66, and breach this newfound foothold, the traders could be at risk of assignment.

As noted, Broadcom Corporation (NASDAQ:BRCM) will report earnings after tonight's close. Despite besting bottom-line estimates in each of the past eight quarters, the stock has gone on to post an average single-session post-earnings loss of 1.2%. For BRCM's second quarter, Wall Street is calling for a profit of 61 cents per share -- 9 cents less than what the company earned one year ago.


Option Bulls Wager On Fresh Cisco Systems, Inc. (CSCO) Highs

Option traders yesterday gambled on upside for Cisco Systems, Inc.

by 7/22/2014 9:56 AM
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Cisco Systems, Inc. (NASDAQ:CSCO) finished Monday's session slightly lower at $25.85, despite receiving an early morning price-target hike from RBC. Elsewhere, options trading heated up, as total volume ran at a 65% mark-up to the average daily amount. Also, short-term contracts were sought-after, per the stock's 30-day at-the-money implied volatility, which rose 2.3% to close at 24.8%.

The most active strike by a mile, however, was the slightly longer-term September 27 call, where 27,611 contracts traded. The majority were exchanged at the ask price, and open interest soared overnight, suggesting fresh bullish positions were created for a volume-weighted average price (VWAP) of $0.45.

In a nutshell, yesterday's call buyers expect CSCO to muscle past breakeven at $27.45 (strike plus VWAP) -- territory not explored since May 2010 -- by the close on Friday, Sept. 19, when back-month options expire. Profit potential is theoretically unlimited beyond this mark. By contrast, the maximum potential loss is limited to the initial premium paid, should shares of Cisco Systems, Inc. (NASDAQ:CSCO) fail to topple the strike at expiration.


Most Active Options Update: Tesla Motors Inc (TSLA)

Tesla Motors Inc was targeted by weekly call buyers on Monday

by 7/22/2014 9:47 AM
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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 morning is Tesla Motors Inc (NASDAQ:TSLA), which was targeted by weekly call buyers on Monday.

Most Active Options Table

Tesla Motors Inc edged fractionally higher yesterday, with the stock shrugging off news that China will exclude overseas automakers from government subsidies. The shares settled at $220.54, bringing their year-to-date advance to 46.6% -- and a batch of short-term call buyers bet on TSLA's technical resilience to continue through the end of this week.

The most active TSLA option on Monday was the weekly 7/25 230-strike call, where 5,284 contracts were exchanged. A healthy number of blocks traded at the ask price, implied volatility on the option jumped 5.9 percentage points, and open interest at the strike rose by 2,046 contracts overnight -- indicating options traders were buying to open new calls here. In fact, the International Securities Exchange (ISE) confirms a portion of the volume here was initiated by traders buying bullish bets.

Those weekly 230 calls, which are due to expire at the end of this week, traded at a volume-weighted average price (VWAP) of $1.31. If TSLA is trading above breakeven at $231.31 (strike plus VWAP) by Friday's close, these call buyers will be able to turn a profit on their positions. If not, they'll sacrifice the initial upfront premium as their maximum potential loss.

That breakeven mark is roughly 5% north of the stock's Monday close, but TSLA could be due for a short-term pop. The equity recently met up with support at its 10-week moving average, and the modest pullback pushed TSLA's 14-day Relative Strength Index (RSI) down to a two-month low of 44 on July 17.

However, the options market isn't pricing in a big rally for Tesla Motors Inc (NASDAQ:TSLA) this week. Delta on the weekly 7/25 230-strike call was 0.18 at Monday's close, implying only an 18% chance the option will expire in the money.


SINA Corp (SINA) Traders Bet Bullishly Amid Monday's Gains

SINA Corp was targeted by short-term call buyers yesterday

by 7/22/2014 8:55 AM
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SINA Corp (NASDAQ:SINA) rose 2.6% yesterday to close at $47.98. As such, calls traded at a faster-than-usual clip, and the stock's 30-day at-the-money implied volatility (IV) rose 6.4% to end the session at 50.8%, signaling elevated demand for short-term options.

Along those lines, SINA's most active option was the weekly 7/25 50-strike call, where roughly 2,200 contracts changed hands. The majority crossed at the ask price, IV spiked 7.8 percentage points, and open interest increased overnight, collectively suggesting buy-to-open activity.

By purchasing the out-of-the-money calls for a volume-weighted average price (VWAP) of $0.37, the traders expect SINA shares to be resting above $50.37 at this Friday's close, when the contracts expire. Additional gains will mount north of this breakeven mark, while potential risk is limited to the initial premium paid, should the equity end the week south of the strike.

On the charts, SINA Corp (NASDAQ:SINA) has struggled in 2014, down about 43%. What's more, the shares are now testing resistance at their descending 80-day moving average -- currently located at $49.25 -- which stifled a rally earlier this month. Consequently, delta on Monday's most popular call is just 0.21, representing a slim 21% chance the contract will finish in the money at week's end.


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