Schaeffer's Daily Option Blog

Short-Term Call Buyers Swarm ON Semiconductor

ONNN's options crowd is showing a rare affinity for long calls

by Andrea Kramer 2/3/2012 3:24 PM
Stocks quoted in this article:

The shares of ON Semiconductor Corp. (ONNN - 9.25) are on pace to end the week about 4% higher, and could finish north of their 50-week moving average for the first Friday since mid-July. Furthermore, it looks like short-term options traders are expecting even more upside for the equity.

In the final hour of the session, ONNN has seen roughly 2,800 calls cross the tape -- about five times the norm. For comparison, fewer than 200 ONNN puts have changed hands.

Upon closer inspection, we find the at-the-money February 9 call at the heart of the action, with more than 2,500 contracts exchanged -- mostly at the ask price, hinting at buyer-driven volume. Currently, this option carries open interest of just 2,497 contracts, pointing to at least a few newly opened positions. By purchasing the 9-strike calls to open, the buyers are expecting ONNN to extend its recent climb north of $9 over the short term.

From a broader sentiment standpoint, today's preference for calls runs counter to the growing trend seen on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). In fact, the equity's put/call volume ratio of 0.43 registers in the 81st percentile of its annual range, implying that options speculators have bought to open ONNN puts over calls at a faster-than-usual pace during the past couple of weeks.

In late afternoon trading, ONNN has added 2% to explore the $9.25 region.


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Juniper Networks Sees an Uptick in Call Activity

Option volume soars on JNPR, in the form of a bear call spread

by Terri Stridsberg 2/3/2012 2:51 PM
Stocks quoted in this article:

Call volume has ballooned on Juniper Networks (JNPR - 22.82) today, as roughly 31,000 of these options have been traded so far, which is almost triple the norm. The bulk of the action has centered around the April 22 and 25 strikes, where a total of 20,730 calls have changed hands.

Taking a closer look at the data, it appears that a block of 9,980 calls was sold at the 22 strike, while an equal number of calls were simultaneously purchased at the 25 strike. This activity is indicative of a bear call spread. By employing this strategy, the trader is expecting the stock to close at or below $22 by April expiration. In this scenario, both options would expire worthless, which would enable him to collect the maximum profit of $1.16 (net credit received). On the other hand, his potential risk is limited to $1.84 -- or, the difference between the strike prices, minus the net credit.

JNPR has been on call players' radar prior to today, though, as the equity sports a Schaeffer's put/call open interest ratio (SOIR) of 0.69 -- confirming that calls comfortably outnumber puts among options set to expire within three months. This ratio ranks in only the 37th percentile of its annual range, signaling that speculators have been more bullishly aligned toward the stock just 37% of the time over the past 12 months.

Elsewhere, short interest on the tech concern shot up by 24.19% during the last two reporting periods, suggesting that short sellers looking to hedge their bets could be contributing to some of the recent call volume. However, there is still plenty of room aboard JNPR's bearish ship, considering these shorted shares make up a modest 1.7% of the equity's available float.

From a technical perspective, JNPR has added around 11.5% so far this year, but has underperformed the broader S&P 500 Index (SPX) by over 13% during the past 60 sessions. On the charts, the stock is hovering just above its 32-week moving average, which has not been surpassed since mid-May.

In the afternoon hours of the session, JNPR is up 5.6% to wink at the $22.82 mark.


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PepsiCo Sees a Spike in February-Dated Call Volume

Also, one investor uses calls to employ a long calendar spread on PEP

by Terri Stridsberg 2/3/2012 1:50 PM
Stocks quoted in this article:

Soda sultan PepsiCo, Inc. (PEP - 66.82) has been deluged with call activity today, as roughly 26,000 of these options have changed hands so far, which is five times above the norm. At least 10,197 calls crossed the tape at the out-of-the-money February 70 strike -- the majority of them between the ask and bid prices, making it unclear as to whether they were bought or sold. However, this call is currently home to open interest of just 3,663 contracts, so it can be assumed that new positions are being initiated here today.

A closer look at the data shows that a block of 298 calls was also sold at the March 70 strike, while an equal number of calls were simultaneously purchased at the April 70 strike. This suggests the implementation of a long calendar spread. In the neutral-to-bullish strategy, the trader is hoping that the stock will close at or just below $70 by the time March-dated options expire. To be more specific, the investor can keep the premium collected from the nearer-term call, and either hold or sell the longer-term call, which will still have the benefit of time value. On the other hand, if he closes his position prior to March expiration, his maximum risk is limited to 21 cents per pair of calls, or the net debit paid.

From a broader sentiment perspective, this uptick in call activity is more of the same for the Super Bowl sponsor. The Schaeffer's put/call volume ratio (SOIR) checks in at 0.67, confirming that calls comfortably outnumber puts among options expiring within three months. This ratio ranks in only the 15th percentile of its annual range, meaning that near-term options players have been more call-heavy toward the stock just 15% of the time over the past year.

Furthermore, PEP's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio checks in at 4.39, conveying that calls bought to open have more than quadrupled puts during the past couple of weeks. In fact, this ratio sits just six percentage points shy of a yearly acme, signaling that traders have been snatching up bullish bets over bearish at an almost annual-high pace.

In terms of technical performance, PEP has slightly underperformed the broader S&P 500 Index (SPX) by around 3% during the past 20 sessions. At last look, the equity is up about 0.6% and is trading at $66.82.


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Put Writers Wager on OmniVision Technologies

OVTI is on pace to notch another win atop its 20-week trendline

by Andrea Kramer 2/3/2012 12:48 PM
Stocks quoted in this article:

The shares of OmniVision Technologies, Inc. (OVTI - 15.80) have followed the broader equities market into the black today, and are on pace to end a second straight week north of their 20-week moving average -- a feat not accomplished since July 2011. What's more, it looks like a handful of options traders are employing puts to bet on support for the stock.

Around midday, OVTI has seen close to 9,000 puts cross the tape -- about six times its average intraday volume, and nearly three times the number of OVTI calls traded. Most active has been the out-of-the-money March 13 put, which has seen close to 4,600 contracts traded on open interest of fewer than 4,400, pointing to newly opened positions. However, as alluded to earlier, the majority of the back-month puts have crossed at the bid price, suggesting they were sold.

By writing the puts to open, the sellers are expecting OVTI to remain north of the $13 level through March options expiration. In this best-case scenario, the puts will expire worthless, and the traders can pocket the initial premium received from the sale -- which represents the maximum potential reward on the play.

From a broader sentiment standpoint, however, it appears speculators have been scooping up puts for more traditional reasons of late. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock sports a 10-day put/call volume ratio of 0.89 -- in the 90th annual percentile. In other words, options traders have bought to open OVTI puts over calls at a much faster pace than usual during the past couple of weeks.

At last check, OVTI has tacked on 3.3% to linger in the $15.80 neighborhood.


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Investors Have a Sweet Tooth for Dunkin' Brands Calls

Bulls -- or skeptics -- whet their appetites with DNKN calls

by Terri Stridsberg 2/3/2012 12:00 PM
Stocks quoted in this article:

Dunkin' Brands (DNKN - 28.59) saw a rush of call activity on Thursday, as more than 3,300 of these options were exchanged, reflecting six times the equity's average daily volume. Most popular among investors was the out-of-the-money February 30 strike, where 2,655 calls were traded -- most of them at the ask price, suggesting they were bought. Open interest at this strike jumped by 2,600 contracts overnight, signaling the initiation of new positions. This option is now home to peak call open interest of 3,002 contracts. By buying these calls to open, speculators are expecting the stock to rally north of the $30 level by the time front-month options expire.

However, this surge in call volume marks a change of pace for DNKN, as the Schaeffer's put/call open interest ratio (SOIR) checks in at 2.51. This confirms that puts more than double calls among options set to expire within three months.

What's more, short interest on the donut and ice cream maven soared by 36.71% during the past two reporting periods, and now accounts for a lofty 10.44% of the equity's float. This could mean that short sellers looking to hedge their bets are responsible for some of yesterday's call activity. Either way, it would take six and a half days to cover these shorted shares, at the stock's average daily trading volume.

Technically speaking, DNKN is off to a good start in 2012, having gained around 14.5% year-to-date, and besting the broader S&P 500 Index (SPX) by 7% during the past 20 sessions. On the charts, the stock is trading well north of its 10-day moving average, which has provided support since late December.

As the morning hours of the session wrap up, DNKN is up about 2.6% and is trading at $28.59.


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CBOE Volatility Index (.VIX) $17.24 -4.12%

2/3/2012 3:20:05 PM
CBOE Volatility Index (.VIX) fell to multi-month lows of 16.1 Friday morning and was recently down .77 points to 17.10. Trading in the VIX pit is very busy today and included some sizable blocks. One noteworthy trade is a Feb 26 - Mar 35 call spread, apparently bought for 29 cents, 40000X, and might close a positoin opened a couple of weeks ago when the same diagonal spread was sold for 7.5 cents, 40000X (see 1/24 color). Separately, an investor bought 60,000 April 20 - May 26 strangles on VIX for $4.45 and seems to have opened a position in anticipaton of increased volatility in the volatility index before mid-May. A third noteworthy trade in the index today is an April 28 - 35 (1X2) call ratio spread for 20 cents, 15000X. April 28 calls were sold to buy twice as many April 35 puts -- possibly roling up in strike prices, as open interest in the April 28s is over 67K. Total volume in VIX is 390,000 calls and 177,000 puts.

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Pioneer Natural Resources Co (PXD) $105.49 +2.76%

2/3/2012 1:20:04 PM
Pioneer Natural Resources (PXD) is up $2.98 to $105.64 and has now rallied 8.4 percent this week. One player in the options market seems to be anticipating additional gains in the Irving, TX oil and gas company and sold 5,000 Feb 95 puts on the stock to buy 2,500 Feb 105 - 115 call spreads, paying $1.55 for the package. The position looks opening and tied to 168K shares at $104.68. Earnings due out Feb 6 and the company presents at a Credit Suisse conference on Feb 7.

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Microsoft Corp (MSFT) $29.97 +0.27%

2/2/2012 4:20:04 PM
Microsoft (MSFT) notched a new 52-week high today and is up 11 cents to $30. Shares have rallied 15.6 percent so far in 2012 and were helped by a better-than-expected Jan 19 earnings release. One player in the options market seems to be anticipating additional gains for Micorsoft in the months ahead and initiated an Apr 30 - 32 call spread on the stock for 64 cents, 10000X on ISE. Data from the exchange is reporting a firm initiated the trade to open. It looks tied to 260K shares of stock and seems to be targeting a move to $32 or beyond through the April expiration, which represents a 6.7 percent gain over the next 78 days.

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Zynga Inc (ZNGA) $12.22 +15.28%

2/2/2012 11:20:04 AM
Zynga (ZNGA) gains $1.90 to $12.50 on volume of 27 million shares, which is 10X the typical volume for the San Francisco Internet company, as Facebook's IPO disclosure has lifted shares of many companies in the social media space today. GRPN and RENN are both up more than 9 percent. LNKD, SINA and P are also outperforming. Trading in the options remains active as well, with 20,000 calls and 19,000 puts in ZNGA so far, which is 5X the daily average for the name. Levels of implied volatility are moving up 19 pecent to new 52-week highs of 96.5 and some investors are perhaps selling premium into the IV spike, as the top two trades are lots of Feb 10 put at 30 and 35 cents when the market was 30 to 40 cents. 7000 traded. Feb 12 puts are the next most actives. Mar 11, Feb 11 and Mar 12 calls on ZNGA are seeing active trading as well.

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Bank of America Corporation New (BAC) $7.37 +3.37%

2/1/2012 3:20:04 PM
Big call buyer is back in BofA (BAC) Wednesday. Shares have added 25 cents to $7.38 and a 62500-contract block of Apr 8 calls is bought on the bank for 37 cents. The trade is tied to 2.3 million shares at $7.40 and likely adds to positions opened yesterday, when 62,500 were bought for 28 cents per contract (see 1/31 color).

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ATP Oil and Gas Corp (ATPG) $6.32 -10.23%

2/1/2012 12:00:07 PM
Relative weakness and high volume in ATP Oil and Gas (ATPG) today. Shares of the Houston, TX driller are down 10 percent to $6.33 on volume of 3 million shares, which is more than 6X the expected. Options on the stock are actively traded as well. 7,670 puts and 4,880 calls so far. Feb 6 puts, which are 6.1 percent OTM with two-and-a-half weeks of life remaining, are the most actives. 1,890 traded. Feb, Mar and Jun $5 puts are also seeing interest and implied volatility is rallying 47 percent -- once again elevated at 139.5. Players appear to be bracing for further losses in shares, which are down almost 70 percent since February of last year. No company news to explain the high volume in ATPG today.

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Manitowoc Company (MTW) $14.96 +11.31%

2/1/2012 11:20:04 AM
Manitowac (MTW) adds $1.60 to $15.04 on volume of 4 millon shares after the farm and construction company reported better-than-expected earnings and revenues after the close of trading yesterday. Typical share volume through the first hour is about 750K. Options on the stock are seeing high volume as well. 11,000 calls and 1,570 puts traded in MTW so far. Feb 14 calls are the most actives. 3,540 traded. Another 3,255 Feb 15 calls changed hands. Implied volatility is down 22 percent to 50.5 and its lowest levels so far this year (but still well above the 52-week lows of 38 seen on 7/1), as some investors are likely liquidating positions opened before earnings were reported Tuesday afternoon (see 1/31 color).

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Bank of America Corporation New (BAC) $7.14 +0.99%

1/31/2012 4:20:03 PM
The top options trade so far today is in BofA (BAC), which is up 7 cents to $7.14, after one investor bought 62,500 April 8 calls on the stock for 28 cents per contract. The hefty trade is tied to 2 million shares at $7.07 and looks opening. BAC is up 28.4 percent year-to-date and April 8 calls on the stock are now 12 percent OTM with 80 days of life remaniing and a delta of .33.

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Pfizer Inc (PFE) $21.30 -1.29%

1/31/2012 1:20:03 PM
The top equity options trade so far today is in Pfizer (PFE). Shares are down 34 cents to $21.24 and one of 22 Dow stocks trading lower after the pharmaceutical giant posted better-than-expected fourth quarter earnings and revs, but then guided estimates lower for the 2012 fiscal year. Morning options trades on the stock include 16,000 January 22.5 calls, sold at $1.04 per contract, and possibly a liquidating trade on the heels of the disappointing earnings news. Overall, trading in PFE is brisk. 61,000 calls and 21,000 puts traded. Meanwhile, implied volatility in the options on the stock is down 13.5 percent and probing the 52-week lows of 17.3 seen in late-May 2011.

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BP Plc (BP) $44.75 +1.38%

1/31/2012 12:20:04 PM
BP is seeing relative strength and high volume today. The stock is up 59 cents to $44.73 on volume of 6.3 million shares, which is almost 3X the typical volume. Meanwhile, 48,000 calls and 9,360 puts traded on the oil giant. The top trades are part of a spread, in which the strategist apparently sold 4,500 February 46 calls for 46 cents and bought 4500 March 46 calls at 99 cents. The timespread,, for a 53-cent debit, might be bet that shares will hold below $46 (~2.8%) through the Feb expiration (17 days) and then rally though mid-March. However, open interest is sufficient to cover, so it might be rolling or closing activity. Weekly 45, Feb 45, and Mar 50 calls on BP are actively traded as well and implied volatility is up 5.5 percent to 29. Bullish trading in BP comes ahead of a Feb 7 earnings release.

Read more at WhatsTrading.com

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