Schaeffer's Options Center

Andrea Kramer (akramer@sir-inc.com)

11/6/2009 11:30:48 AM

Pessimistic option players rushed to place their bets on Intrepid Potash, Inc. (IPI: sentiment, chart, options) on Thursday, ahead of the company's third-quarter earnings release. After the closing bell, it appears the skeptics may have got their wish, as the potash producer recorded an 81% drop in quarterly profit, thanks to significantly lower sales volumes and gross margins. However, the results were roughly in line with analysts' expectations.

During the course of Thursday's session, IPI saw close to 3,500 puts cross the tape – almost doubling the number of IPI calls traded, and nearly tripling its average daily put volume of about 1,200 contracts. Most of the volume consisted of fresh positions at the November 27 strike, which saw more than 1,000 contracts traded on put open interest of fewer than 500. The at-the-money 27 strike is now home to peak put open interest in the front-month series, with about 1,150 contracts outstanding.

Yesterday's bearish bias mimics the recent trend on the International Securities Exchange (ISE), where speculators during the past two weeks have purchased to open more IPI puts than calls. In fact, the equity's 10-day put/call volume ratio of 1.23 ranks in the 89th annual percentile, implying that IPI puts have been flying off the shelves at a much faster pace than usual lately.

In late-morning trading, the shares of IPI have surrendered 35 cents, or 1.3%, to hover near the $27 level. Containing the equity's pullback may be support at its 10-month moving average, which has acted as a foothold for the stock since May.

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Andrea Kramer (akramer@sir-inc.com)

11/6/2009 11:08:09 AM

International Game Technology (IGT: sentiment, chart, options) was a popular target in the options pits on Thursday, as traders placed their bets ahead of the firm's fiscal earnings report, which hit the Street after the closing bell. The slot-machine maker reported a stronger-than-expected profit in the fiscal fourth quarter, and said it saw signs that business was beginning to stabilize.

During the course of the session, IGT saw roughly 5,200 puts and 4,900 calls cross the tape, more than tripling its average daily volume of about 1,600 puts and 1,500 calls. The November 18 put was most active, with close to 1,800 contracts changing hands. On the flip side, the November 19 call attracted the most attention, with roughly 1,400 contracts traded. The 18 and 19 strikes are now home to peak put and call open interest in the front-month series, with about 3,750 puts and 3,000 calls in residence, respectively.

Ahead of the company's turn in the earnings spotlight, most near-term traders were skeptical of IGT. The stock's Schaeffer's put/call open interest ratio of 1.06 ranks in the 80th annual percentile, indicating that short-term speculators have been more bearishly biased toward the equity only one-fifth of the time during the past 52 weeks.

In light of the firm's pleasant quarterly figures, the shares of IGT have defied the broad-market trend lower today, advancing $1.70, or 9%, to linger in the $20.20 region.

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Andrea Kramer (akramer@sir-inc.com)

11/6/2009 10:37:13 AM

Put traders converged on MGM MIRAGE (MGM: sentiment, chart, options) on Thursday, after the casino concern posted a third-quarter loss. During the course of the session, the stock saw about 23,100 puts change hands, more than doubling its average daily volume of fewer than 10,500 puts.

Digging deeper into yesterday's put volume, we find that one investor or institution honed in on the 15 strike. The security's deep-in-the-money November 15 and March 15 puts each saw 10,000 contracts cross the tape. All of the contracts traded at the ask price, suggesting they were bought, with the front-month puts exchanged for $5.60, and the longer-term contracts exchanged for $6.00.

The preference for puts runs counter to the recent trend on the International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE). During the past couple of weeks, speculators on the ISE and CBOE have bought to open more MGM calls than puts. In fact, the stock's 10-day call/put volume ratio currently stands at 2.67, in the 84th annual percentile. In other words, option players on the exchanges have rarely scooped up MGM calls at a more rapid pace during the past year.

At last check, the shares of MGM have backpedaled 22 cents, or 2.3%, to hang out in the $9.50 neighborhood. Pressuring the stock lower is its 10-day moving average, which, in conjunction with its 20-week counterpart, has acted as impenetrable resistance since mid-September.

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Jocelynn Drake (jdrake@sir-inc.com)

11/6/2009 9:11:54 AM

Options trading was heavy on McDonald's (MCD: sentiment, chart, options) on Thursday, as more than 69,400 contracts changed hands on the security. The jump in volume was nearly three times the equity's average daily trading volume of 23,900 contracts, according to data from WhatsTrading.com. In addition, approximately 60% of the volume changed hands on the call side.

Looking at the action in the front three months of options, we find that the November 62.50 call added approximately 7,000 new positions. Meanwhile, the January 2010 60 call added 12,000 new positions and the January 2010 60 put added approximately 13,000 new positions in a potential straddle trade.

The International Securities Exchange (ISE) has seen an uptick in call trading, as 1.8 calls have been purchased to open for every one put purchased to open during the past 10 trading sessions. This ratio of calls to puts is higher than 80% of all those taken during the past year.

However, sentiment among options players is far from an optimistic extreme. The Schaeffer's put/call open interest ratio rests at 1.29, as put open interest outnumbers call open interest among options slated to expire in less than three months. What's more, this ratio is higher than 80% of all those taken during the past year, indicating that short-term options players have been more skeptical of the shares only 20% of the time during the past 12 months.

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Jocelynn Drake (jdrake@sir-inc.com)

11/6/2009 9:05:15 AM

Whole Foods Market (WFMI: sentiment, chart, options) was the center of some brisk options trading on Thursday, as more than 76,100 contracts crossed the tape. This jump in volume was nearly six times the equity's average daily trading volume, according to data from WhatsTrading.com. Furthermore, 52% of the volume changed hands on the put side.

Digging into the action in the front three months of options, we find that the November 27 put shed more than 7,000 positions, while the November 31 put dropped roughly 8,000 positions. Meanwhile, the November 37 call shed 8,000 positions.

Overall, the International Securities Exchange (ISE) has seen a preference for calls over puts. During the past two trading weeks, two calls have been purchased to open for every one put purchased to open. This ratio of calls to puts is higher than 65% of all those taken during the past year.

Meanwhile, the Schaeffer's put/call open interest ratio sits at 1.00, which is lower than roughly two-thirds of the readings taken during the past year. In other words, short-term options players have been more optimistically aligned toward the shares only one-third of the time during the past 12 months.

On the other hand, Wall Street is extremely skeptical of the shares. According to Zacks, the stock has earned zero "buy" ratings, 11 "holds," and two "strong sells." Any upgrades from this group could add some lift to the shares.

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