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Last-Minute Bets Pressure SOIR Lower on Limited Brands, Inc. (LTD)
Andrea Kramer (akramer@sir-inc.com)

11/20/2009 11:43:34 AM

Limited Brands, Inc. (LTD: sentiment, chart, options) lured call traders on Thursday, after the shares retreated despite the retailer's stronger-than-predicted third-quarter earnings. During the course of the session, the stock saw about 6,100 calls exchanged – more than doubling the number of LTD puts traded, and nearly five times its average daily volume of fewer than 1,250 calls.

Many of the call traders seemed to be placing last-minute bets ahead of November options expiration, which goes into effect after the closing bell today. The security's at-the-money November 17.50 call saw almost 3,250 contracts change hands, and call open interest at the 17.50 strike jumped higher overnight. The 17.50 strike is now home to nearly 4,600 open call positions in the front-month series, taking runner-up to the 20 strike, which houses close to 8,600 LTD calls outstanding.

As a result, the equity's Schaeffer's put/call open interest ratio (SOIR) – which measures options slated to expire within three months – inched lower overnight, from 0.82, in the 40th annual percentile, to 0.78, in the 35th annual percentile. In other words, short-term option speculators have been more bullishly biased toward LTD only 35% of the time during the past 52 weeks.

Technically speaking, in parity with the broad market, the shares of LTD have extended yesterday's slide, shedding 2.3% to flirt with the $17.30 level. The stock is now poised to close the week beneath support at its 10-week moving average for the first time since mid-July.

 
Earnings, Expiration Lure Call Players to Patterson Companies, Inc. (PDCO)
Andrea Kramer (akramer@sir-inc.com)

11/20/2009 11:19:19 AM

Call speculators singled out Patterson Companies, Inc. (PDCO: sentiment, chart, options) on Thursday, after the medical-supplies maker reported improved fiscal second-quarter earnings and reiterated its 2010 outlook. During the course of the session, the equity saw roughly 7,300 calls cross the tape – almost tripling its average daily call volume, and more than nine times the number of PDCO puts traded.

Most active was the stock's November 25 call, which saw close to 3,500 contracts change hands. However, 67% of the calls traded at the bid price, suggesting they were sold, and call open interest at the November 25 strike fell overnight. In other words, it seems many call traders were liquidating positions in light of front-month options expiration after the close today.

Ahead of the company's turn in the earnings spotlight, option players on the International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE) were scooping up PDCO calls at a rapid-fire rate. The equity's 10-day call/put volume ratio of 4.83 implies that, during the past two weeks, nearly five PDCO calls were bought to open for every one put purchased. This ratio ranks in the 69th percentile when compared to similar readings taken during the past year, underscoring the escalating optimism.

At last check, the shares of PDCO have given back 1.3% to linger in the $25.85 region. Containing the stock's pullback, however, is its ascending 100-day moving average, which has played the part of near-term support since late October.

 
Ex-Dividend Players Pounce on Prudential Financial, Inc. (PRU)
Andrea Kramer (akramer@sir-inc.com)

11/20/2009 10:40:17 AM

Prudential Financial, Inc. (PRU: sentiment, chart, options) was pummeled by call traders on Thursday, a day ahead of the financial firm's ex-dividend date (today). During the course of the session, the security saw close to 64,000 calls change hands – nearly 10 times its average daily volume of fewer than 6,500 calls, and roughly 14 times the number of PRU puts traded.

Most active was the in-the-money November 45 call, which saw about 19,800 contracts cross the tape. The majority of the volume changed hands at the ask price, suggesting they were bought. However, call open interest at the 45 strike actually depleted overnight, confirming our suspicions that many traders exercised their options in order to buy the shares of PRU and capture the dividend, which is payable on Dec. 18, according to Thomson Reuters.

The rush to cash in on Prudential's dividend is further reflected in the stock's Schaeffer's put/call open interest ratio (SOIR), which measures options slated to expire within three months. In light of yesterday's plunge in short-term call open interest, the equity's SOIR skyrocketed overnight, from 1.27, in the 64th annual percentile, to 1.63, in the 97th annual percentile.

At last check, the shares of PRU have inched lower along with the broad market, backpedaling 41 cents, or 0.8%, to hang out in the $47.60 neighborhood. Containing the stock's rally attempts has been its descending 100-week moving average, which has acted as a technical roadblock since mid-September.

 
Option Traders Flock to Intel (INTC) Calls
Jocelynn Drake (jdrake@sir-inc.com)

11/20/2009 9:02:16 AM

Options traders flocked to Intel (INTC: sentiment, chart, options) on Thursday, as more than 236,000 contracts changed hands. This surge in volume was more than double the equity's average daily trading volume, according to data from WhatsTrading.com. Furthermore, it appears that traders have a preference for calls, as 67% of the volume changed hands on the call side.

Drilling down on the action in the front three months of options, we find that the November 19 call added 3,500 new positions, while the November 19 put shed 3,000 positions. The December 20 put saw its open interest decline by 3,500 positions, while the December 18 put added 3,000 new positions. In the January series, the 20 call added 5,500 contracts and the 21 call increased its open interest by 5,000 new positions.

The International Securities Exchange (ISE) shows a growing preference for puts. The 10-day put/call volume ratio comes in at 0.79, which is higher than 82% of all those taken during the past year.

Meanwhile, Wall Street is thoroughly smitten with the shares. According to Zacks, the stock has earned 23 "buy" ratings, seven "holds," and three "sells." In fact, INTC could start the morning off on the right foot after BMO Capital Markets initiated coverage of the shares with an "outperform" rating. This new ranking comes after Bank of America Merrill Lynch downgraded the shares to "neutral" on Thursday.

 
Options Players Continue to Hedge Bearish Bets on Sears Holdings (SHLD)
Jocelynn Drake (jdrake@sir-inc.com)

11/20/2009 8:58:09 AM

Options trading was brisk on Sears Holdings (SHLD: sentiment, chart, options) on Thursday, as more than 51,000 contracts crossed the tape. This jump in volume was 2.7 times the equity's average single-session trading volume of 18,914 contracts, according to data from WhatsTrading.com. In addition, 70% of the volume changed hands on the call side.

In the front three months of options, the November 75 call added 3,500 positions, while the December 70 call increased its open interest by 2,000 positions. The December 70 put added 2,500 new positions. Meanwhile, the December 85 call added roughly 1,800 new positions.

Overall, options players appear to be relatively optimistic toward the shares of the retailer. The Schaeffer's put/call open interest ratio comes in at 1.20, which is lower than 79% of all those taken during the past year. In other words, short-term options speculators have been more optimistic toward the shares only 21% of the time during the 12 months.

In fact, the International Securities Exchange (ISE) has seen an increase in call trading. During the past 10 trading sessions, nearly six calls have been purchased to open for every one put purchased to open. This ratio of calls to puts is higher than 89% of all those taken during the past 12 months, pointing to a growing optimism toward the shares.

However, this wealth of call options could be used as a hedge against a healthy short position on the shares. During the past month, the number of SHLD shares sold short increased by nearly 4% to 15.5 million shares. This buildup of bearish bets is 11.6 times the equity's average daily trading volume and accounts for 15.5% of the company's total float. These calls could protect these bearish bets against a jump in the price of the shares.

 
Commentary by WhatsTrading.com
 
Terra Industries (TRA) $39.91 +4.75%

11/20/2009 3:00:04 PM

Terra Industries (TRA) is up $1.80 to $39.90 and options volume is running 4X the average daily on news Terra stockholders have approved all three of CF Industries' nominees to Terra's Board of Directors. We are pleased that Terra stockholders have voiced their support for CF Industries' proposed acquisition of Terra by voting for all three of our director nominees. It is time to move forward and put these two great companies together, according to a statement from Stephen Wilson, CF Industries' chief executive. TRA investors seem pleased as well. Shares are up. 24K calls and 13K puts traded on the stock. Nov 40, Dec 39, and Dec 40 calls are the most actives.

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Yahoo Inc (YHOO) $15.51 -0.64%

11/20/2009 2:00:07 PM

96,000 calls traded on Yahoo (YHOO) today, or 8X the expected. A lot of the activity was due to two strategists. At about 12:20, one bought 20K January 2011 calls at 95 cents apiece against a position in 465K YHOO shares at $15.53. Thirty minutes later, a strategist sold Jan 2011 20 - 30 call spreads at 87 cents, 22000X, and also sold the Jan 2011 12.5 - 15 strangle at $2.75, 20000X, against a position in 520K shares at $15.53.

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Allstate Corporation (ALL) $28.81 -0.21%

11/20/2009 12:00:13 PM

Allstate (ALL) is down 10 cents to $28.77 and Dec 31 calls are active, with almost 12K traded. One player bought 5000 at 20 cents and another 6000 at 20 cents. The contract has almost 40K of open interest and the most OI of any ALL contract. So, the actoin might be closing.

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Bank of America Corporation (BAC) $16.04 -0.25%

11/20/2009 11:20:05 AM

A massive butterfly spread surfaced in BofA (BAC) a few moments ago. Shares are down 2 cents to $16.06 and the strategist is focused on the January 2011 calls. To be specific, they sold 100000 Jan11 30 calls at 37 cents to create the body of the fly. They bot half as many (50K each) of both the Jan11 20 calls and Jan11 40 calls, at $1.82 and 12 cents, respectively, for the wings. Consequently, they paid $1.20 per fly and are positioned for shares to move towards $30 during 2010.

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Alliant Techsystems (ATK) $85.10 -.15%

11/20/2009 10:00:05 AM

Alliant Techsystems (ATK) sees a bullish 3-legged trade Thursday, as 1,250 February $75/$80 put spreads are sold for $1.20 to help finance the purchase of 1,250 February $90 calls for a net debit of $1. Shares have pulled back in recent days after posting great earnings and running higher on big volume recently, but this low volume pullback looks healthy. The military ammunition, weapon, and vehicle supplier trades just 9.45X earnings, 0.59X sales, and 12.5X cash flow.

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Daily Rundown, November 20

11/20/2009 9:00:02 AM

Stocks are set to open lower on weakness in overseas markets and disappointing earnings forecast from Dell Computer (DELL). Forty-five minutes before the start of trading in New York, stock index futures indicate that the Dow Jones Industrial Average might lose 60 or 70 points at the open. \n
\nOverseas markets are mostly lower ahead of the weekend. After slipping 1.3 percent Thursday, Japans Nikkei lost another .5 percent after the Japanese government said the economy was back in deflation for the first time since 2006. Hong Kongs Hang Send slipped .8 percent.\n
\nMajor averages are broadly lower across Europe for a second day. Frances CAC 40 is pacing the decline with a .7 percent loss. \n
\nIn the US, the news is light. Dell Computer shares are taking a hit after the computer maker reported a quarterly profit of 28 cents per share, which missed Street estimates by a nickel. Dell blamed a slowdown in business IT spending for the 54 percent drop in net profits. \n
\nMetals, mining and energy names might see weakness for a second day after crude oil fell 73 cents to $76.73 a barrel and gold lost $4.20 to $1137.70 an ounce. \n
\nNo economic data is scheduled for today and bonds are holding modest gains in light early action. The benchmark is up 1/32nd and now yields 3.33 percent. \n
\nThe dollar is flat at 88.98 against the Yen. The euro fell .0092 to 1.4830 against the buck. \n
\nMeanwhile, the options expiration might add a little volatility to the mix for the equity market. Today is the last day to trade any remaining November 2009 options before they expire Saturday morning and volume is likely to pick up as players square positions. \n

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Unusual Activity Roundup, Nov 19

11/19/2009 4:20:01 PM

Some less actively traded names seeing bullish order flow: Nordic Tankers (NAT), Cogent Comm. (CCOI), ArcSight (ARST). Bearish order flow: Cypress Bioscience (CYPB), Blackrock (BLK), GSI Commerce (GSIC). Post Earnings Activity: Sears Holding (SHLD), Netease (NTES), NetApp (NTAP), Suntech Power (STP), Gamestop (GME), Trina Solar (TSL), Williams Sonoma (WSM), the Limited (LTD). Pre-Earnings Activity: Dell Computer (DELL), Gap Stores (GPS), Dress Barn (DBRN). Ex-Div Activity: J&J (JNJ), Prudential (PRU).

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Bunge Ltd (BG) $63.10 +0.80%

11/19/2009 3:20:13 PM

Bunge shares have crossed into positive territory and showing good relative strength amid the ag names like POT, MOS, and CF which are pulling back from recent gains. Like yesterday, it could be potential takeover talk is also driving a pick up in call buying in the No. $65 calls which have trade over 1,600 contracts, mostly in small lots. Likely speculation that a bid might emerge before end of week as the three way battle between CF, AGU and TRA is coming to a shareholders vote today and tomorrow.

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Pre Paid Legal Services Inc (PPD) $33.85 -17.70%

11/19/2009 2:20:04 PM

Pre-Paid Legal Services (PPD) shares spiked down about 10 minutes ago and are getting slammed midday on news the co. has received a complaint letter from the FTC related to Identity Theft Shield and Affirmative Defense Response System (ADRS) Program. PPD is down $5.91 to $35.22 and options activity is running 11X average daily on increasing interest in Nov 35, Dec 30 and Dec 35 puts.

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Salesforce.com (CRM) $62.40 -1.90%

11/19/2009 1:20:14 PM

Salesforce.com (CRM) options have been busy over the past few days after the company unveiled its new enterprise collaboration application called Salesforce Chatter. The product is unique; as it is designed for business, but also includes the ability to use popular social networking tools like Twitter and Facebook. It leverages the popularity of social networking apps to help a companys employees communicate more effectively in this new media world (link to additional details.)\n
\n"Why do I know more about strangers on Facebook than my own employees? Now, through Salesforce Chatter, my business is tweeting me. My employees can use the models they love to get the collaboration they need," according to Marc Benioff, chairman and CEO of salesforce.com.\n
\nThe action in the Salesforce.coms share price has been interesting. While the stock has been performing well in 2009, up 94.4 percent year-to-date, it is down over the last few days despite a lot of hype about the companys latest foray into social networking. CRM is down $1.28 to $62.32 today and off 6.8 percent since Monday. Moreover, as the chart below shows, there has been a steady increase in interest in CRM puts. Put open interest, a measure of outstanding options contracts, is up from 72K contracts on Nov 11 to 105K contracts today, an increase of 43 percent.\n
\n\nA falling stock price and increasing interest in puts is a sign that bearish sentiment is building. It seems kind of odd for a company in the midst of launching a true breakthrough product. Perhaps its a case of buy the rumor, sell the news? For whatever reason, the action in CRM stock and options doesnt seem to reflect a lot of enthusiasm for the new product. Next, investors will be tuning in to the companys second Keynote address at Dreamforce 2009 beginning at noon eastern time and then its final presentation at 7:15 p.m. \n

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More Options Commentaries and Observations by Schaeffer’s

 
Market Recap: Stocks Skid on Dell's Weakness, Dollar's Strength

Stocks started the day on a negative note, after the latest quarterly earnings results from Dell (DELL) hit the Street with a resounding thud. The firm fell woefully short of analysts' profit and revenue expectations, sparking concerns about the health of the broader tech sector. Elsewhere, European Central Bank president Jean-Claude Trichet warned that "... it is too early to declare the [financial] crisis over." Nevertheless, Trichet indicated that supportive stimulus measures must soon be unwound, prompting traders to buy the U.S. dollar in a safe-haven stampede. The greenback's gains pressured oil futures lower, and energy stocks soon joined tech issues in the red.

read more...

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Trading Tools to Build Your Portfolio: A Bearish Bet on Best Buy Co., Inc.

Stocks started the day on a negative note, after the latest quarterly earnings results from Dell (DELL) hit the Street with a resounding thud. The firm fell woefully short of analysts' profit and revenue expectations, sparking concerns about the health of the broader tech sector. Elsewhere, European Central Bank president Jean-Claude Trichet warned that "... it is too early to declare the [financial] crisis over." Nevertheless, Trichet indicated that supportive stimulus measures must soon be unwound, prompting traders to buy the U.S. dollar in a safe-haven stampede. The greenback's gains pressured oil futures lower, and energy stocks soon joined tech issues in the red.

read more...

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Option Activity Alert: Skepticism Builds Toward Chevron Corporation

Stocks started the day on a negative note, after the latest quarterly earnings results from Dell (DELL) hit the Street with a resounding thud. The firm fell woefully short of analysts' profit and revenue expectations, sparking concerns about the health of the broader tech sector. Elsewhere, European Central Bank president Jean-Claude Trichet warned that "... it is too early to declare the [financial] crisis over." Nevertheless, Trichet indicated that supportive stimulus measures must soon be unwound, prompting traders to buy the U.S. dollar in a safe-haven stampede. The greenback's gains pressured oil futures lower, and energy stocks soon joined tech issues in the red.

read more...

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The Option Coach: Strategies in Review

Stocks started the day on a negative note, after the latest quarterly earnings results from Dell (DELL) hit the Street with a resounding thud. The firm fell woefully short of analysts' profit and revenue expectations, sparking concerns about the health of the broader tech sector. Elsewhere, European Central Bank president Jean-Claude Trichet warned that "... it is too early to declare the [financial] crisis over." Nevertheless, Trichet indicated that supportive stimulus measures must soon be unwound, prompting traders to buy the U.S. dollar in a safe-haven stampede. The greenback's gains pressured oil futures lower, and energy stocks soon joined tech issues in the red.

read more...

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