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EMC Corporation (EMC) Call Seller Eyes Round-Number Resistance

EMC Corporation has not closed north of $30 on a monthly basis in more than 13 years

by 7/31/2014 2:35 PM
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EMC Corporation (NYSE:EMC) rallied to a new two-year peak of $29.90 yesterday, but found a stern layer of resistance from the round-number $30 mark -- a level EMC has not closed north of on a monthly basis since May 2001. In today's session, one speculator is gambling on this area to continue to serve as a ceiling for the next two months, but is giving herself a little wiggle room in the case of an unexpected rally.

Specifically, the September 31 call has seen the most action in EMC's options pits today, due mostly to a massive block of 19,070 contracts that traded earlier at a bid price of $0.35 apiece, pointing to seller-driven activity. What's more, volume easily outstrips the 1,040 contracts that currently make up open interest here, making it safe to assume new positions are being initiated.

Ideally, EMC will stay south of $31 through the close on Friday, Sept. 19 -- when back-month options expire -- allowing the call seller to retain the initial credit collected of $667,450 (number of contracts * premium collected * 100 shares per contract) as her full potential reward. However, should EMC surge past the strike price, she could be at risk of assignment, and face theoretically unlimited losses.

In today's session, the stock is succumbing to broad-market headwinds, and was last seen 1.2% lower at $29.54. In the near term, EMC Corporation (NYSE:EMC) could continue to struggle against the round-number $30 mark, as heavy accumulations of call open interest currently reside at the 30 strike in both the August and September series of options. Going forward, this could translate into options-related resistance , as the hedges related to these bets unwind ahead of the respective expiration dates.


Most Active Options Update: J C Penney Company Inc (JCP)

J C Penney Company Inc option buyers are betting on double-digit territory

by 7/31/2014 2:23 PM
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The 20 stocks listed in the table below are the S&P 400 MidCap Index (MID) components that 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 today is J C Penney Company Inc (NYSE:JCP), which has been heavily targeted by call buyers.

Most Active Options Table

J C Penney Company is bucking the broad-market trend lower today, with the shares last seen 0.5% higher to wink at the $9.43 level. Ahead of the company's turn in the earnings confessional on Aug. 14, option buyers are rolling the dice on double-digit territory for JCP.

Already today, the retailer has seen roughly 27,000 calls cross the tape -- more than double the number of puts exchanged, and twice its average intraday call volume. Most of the action has transpired at the August 10 call, where more than 8,100 contracts have traded. About three-quarters of the calls crossed on the ask side, and implied volatility has popped 12.3 percentage points at the strike, collectively pointing to newly bought bullish bets.

The calls were purchased for a volume-weighted average price (VWAP) of $0.32, making at-expiration breakeven $10.32 (strike plus VWAP) on Friday, Aug. 15 -- just a session after the aforementioned earnings release. JCP hasn't traded north of $10 at all in 2014.

Profit potential is theoretically unlimited north of breakeven, while the most the traders can lose is the initial premium paid, should JCP remain south of $10 through the option's lifetime. Delta on the calls currently rests at 0.37, indicating a roughly 37% chance of an in-the-money finish.

If recent history is any indicator, J C Penney Company Inc (NYSE:JCP) could, in fact, stage a post-earnings rally. While the company has fallen short of the Street's bottom-line estimates in six of the past eight quarters, the stock averages a one-day post-earnings gain of 4.5%. Narrowing that to the firm's last four earnings reports, the stock has skyrocketed 14%, on average, in the subsequent session.


Options Radar: T-Mobile US, Sprint, and L-3 Communications Holdings

Reviewing notable options activity on T-Mobile US Inc, Sprint Corporation, and L-3 Communications Holdings, Inc.

by 7/31/2014 1:33 PM
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Three stocks seeing notable options activity today are telecommunication firms T-Mobile US Inc (NYSE:TMUS) and Sprint Corporation (NYSE:S), as well as aerospace issue L-3 Communications Holdings, Inc. (NYSE:LLL). Here's a look at how today's options traders have been placing their bets on TMUS, S, and LLL, all of which were halted earlier on the Big board.

  • TMUS has jumped 7.7% to $33.30 this afternoon, after its stronger-than-expected second-quarter earnings report was followed up by a buyout offer from French telecommunications concern Iliad SA. Against this backdrop, options players are scooping up calls at a rate six times the intraday average. The most active TMUS option is the September 32 call, which is being bought to open for a volume-weighted average price (VWAP) of $2.02. Gains for the call buyers are theoretically unlimited past the at-expiration breakeven mark of $34.02 (strike plus VWAP). Risk, meanwhile, is capped at the premium paid, should T-Mobile US Inc settle south of the strike at the close on Friday, Sept. 19 -- when back-month options expire.

  • S -- whose proposed merger with TMUS still awaits regulatory approval -- is down 6.6% in the wake of Iliad's counter-offer for T-Mobile. Today's negative price action only highlight's the equity's withstanding technical troubles, though, with the shares off 32.6% year-to-date to churn near $7.25. In the stock's options pits, overall volume is trading at three times what is typically seen at this point in the day, and per Sprint Corporation's 30-day at-the-money (ATM) implied volatility (IV), which has surged 37.2% to 49.8%, short-term contracts are in high demand. Specifically, the August 7 put and September 9 call have received notable attention from option traders, with both seeing buy-to-open activity.

  • LLL has plunged 14.7% today to trade at $101.96 -- sending it straight to the short-sale restricted list, and into the red on a year-to-date basis -- and, earlier, breached the century mark for the first time on an intraday basis since last October. Today's bearish gap comes amid reports the company has passed out pink slips in relation to an ongoing internal audit review. Additionally, LLL today downwardly revised its full-year earnings forecast, and tentatively declared second-quarter sales of $3.02 billion, which could be adjusted pending the results of the audit. CRT Capital was quick to chime in with a downgrade to "sell" from "fair value," and a $12 price-target cut to $90. Additionally, speculators have been rushing the stock's options pits, sending overall volume to 31 times the average intraday pace. Against this accelerated demand, the stock's 30-day ATM IV has surged 53.4% to 30.3% -- in annual-high territory. Drilling down, the two most active LLL options are the August 100 and 105 calls, where new positions are being initiated.


Most Active Options Update: Apple Inc. (AAPL)

Apple Inc. option bears are placing short-term bets

by 7/31/2014 12:24 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 today is Apple Inc. (NASDAQ:AAPL), which is trending lower amid a slew of rumors.

Most Active Options Table

Specifically, Apple Inc. will reportedly debut its iPhone6 on Sept. 16, but won't actually launch the device until mid-October -- which, if true, would go against the usual AAPL schedule. Meanwhile, Bloomberg is reporting that Apple is planning to lay off about 200 employees from recent acquisition Beats Electronics.

On the charts, AAPL has shed 2.2% to linger near $96.05. Options traders are scrambling to place eleventh-hour bets on the tech concern, sending the security's 30-day at-the-money implied volatility 17.1% higher to 23.5%. What's more, nine of the 10 most active options expire at tomorrow's closing bell.

While intraday call volume is running around normal levels, AAPL put volume is running at a 67% mark-up to the norm. Attracting notable attention have been the weekly 8/1 96- and 97-strike puts, which have seen volume surpass open interest, hinting at fresh initiations. Plus, a healthy portion of the puts crossed on the ask side, suggesting they were bought.

The volume-weighted average price (VWAP) of the 96-strike puts is $0.44, meaning the buyers will profit if AAPL is docked beneath $95.56 (strike minus VWAP) at tomorrow's close, when the weekly options expire. The buyers' reward will increase the closer AAPL moves to zero, while risk is capped at the initial premium paid for the puts, should AAPL hold on to $96. In light of today's descent, delta on the puts has jumped from negative 0.085 yesterday to negative 0.52 today, pointing to a roughly 50% chance of an in-the-money finish.

Meanwhile, the VWAP of the 97-strike puts is $0.81, due to their added intrinsic value. As such, the buyers stand to profit if AAPL is sitting south of $96.19 at expiration tomorrow night. Again, the speculators' reward will increase the further AAPL falls, while risk is limited to the initial net debit. Delta on the now in-the-money puts has more than tripled today, from negative 0.21 yesterday to negative 0.76, suggesting a greater than 3-in-4 shot of expiring in the money.

Digging even deeper, it looks like one option bear took a more cautious approach, hedging his weekly 8/1 97-strike puts with 95-strike puts in the same series. Specifically, the trader bought the higher-strike puts for $0.90, and simultaneously sold the lower-strike puts for $0.14, resulting in a net debit of $0.76 per pair of options.

While the sold puts limit the trader's cost of entry -- which represents the maximum risk on the trade -- and, thus, his breakeven ($96.24, or bought strike minus net debit), they also cap his profit potential. In the case of this bear put spread, reward will top out at $1.24 (difference between strikes minus net debit), should Apple Inc. (NASDAQ:AAPL) breach the $95 level by the end of the week.


Rite Aid Corporation (RAD) Options Players Swing Bullish

Rite Aid Corporation was targeted by short-term call and put option players

by 7/31/2014 10:46 AM
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Rite Aid Corporation (NYSE:RAD) options were unusually active yesterday, as volume ramped up to more than three times the stock's daily average. About 31,000 calls and 11,000 puts changed hands, and traders showed a particular interest in weekly options on RAD.

The day's top three RAD option strikes were all in the weekly 8/1 series -- specifically, the 7.50 call, the 6.50 put, and the 7 call. Traders were apparently buying to close short calls at the out-of-the-money 7.50 strike, where open interest tanked overnight by more than 10,000 contracts. Meanwhile, data from the International Securities Exchange (ISE) confirms some sell-to-open activity at the 6.50 put, and buy-to-open volume at the 7-strike call. (Open interest at both strikes rose by upwards of 3,000 contracts overnight.)

In other words, Wednesday's speculators were taking a generally optimistic stance on RAD by closing out their short calls, while adding new short puts and long calls. Checking out the charts, the stock is fractionally higher this morning to trade at $6.70, paring earlier gains in the wake of the drugstore chain's monthly same-store sales results.

Shares of Rite Aid Corporation (NYSE:RAD) have gained 32.4% so far in 2014, but they're down more than 22% from their June peak at $8.61. The stock was targeted by a September 9 call writer last week, with at least one trader betting against RAD to rally above this multi-year high during the short term.


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