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Time Warner Inc (TWX) and the $1.2 Million Bearish Bet

Time Warner Inc puts continue to see accelerated activity

by 11/21/2014 2:49 PM
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Option bears have set their sights on Time Warner Inc (NYSE:TWX) in recent months, as evidenced by data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). The equity's 50-day put/call volume ratio of 0.58 ranks higher than all other readings taken over the past year, meaning puts have been bought to open over calls at an annual-high clip.

It's a similar setup in today's session, with puts trading at nearly 14 times the intraday average, and outpacing calls by a roughly 10-to-1 margin. The majority of the day's put volume occurred when two massive blocks totaling 22,604 contracts were bought to open at TWX's December 75 put. If this activity came at the hands of one trader, she ponied up roughly $1.2 million for her bearish bet ([11,852 contracts * $0.54 premium paid] + [10,752 contracts * $0.55 premium paid] * 100 shares per contract).

This is the most the speculator stands to lose, should TWX maintain its perch atop $75 through the close on Friday, Dec. 19, when the soon-to-be front-month contracts expire. Meanwhile, her profit will accrue on a move south of the respective breakeven marks of $74.46 and $74.45 (strike less the premiums paid). The options market isn't too confident the put will be in the money at expiration, as its delta is docked at negative 0.18.

This bearish positioning is a bit surprising, considering TWX is up roughly 20% in 2014. As such, it's possible that a portion of the recent put buying -- particularly at out-of-the-money strikes -- could be a result of shareholders protecting paper profits against an unexpected decline.

Today, the shares are off 0.6% at $80.09, despite two upbeat fundamental developments. Specifically, DISH Network Corp (NASDAQ:DISH) has extended an olive branch to TWX's Turner Broadcasting division -- as well as CBS Corporation (NYSE:CBS). Additionally, Time Warner Inc (NYSE:TWX) scored a legal victory in its proposed merger with Comcast Corporation (NASDAQ:CMCSA).


Options Radar: J C Penney Company Inc, AbbVie Inc, and Dollar General

Reviewing notable options activity on J C Penney Company Inc, AbbVie Inc, and Dollar General Corp.

by 11/21/2014 2:37 PM
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Option traders have taken a shine to department store J C Penney Company Inc (NYSE:JCP), drugmaker AbbVie Inc (NYSE:ABBV), and discount retailer Dollar General Corp. (NYSE:DG). Here's a look at how speculators have been placing their bets on JCP, ABBV, and DG.

  • J C Penney Company Inc (NYSE:JCP) is following the broader equities market higher, up 0.8% at $7.32. However, the stock remains 20% lower year-to-date, and options traders are rolling the dice on a longer-term slump for the shares. Intraday put volume is running at a slightly accelerated clip relative to the norm, and has outpaced call volume by a margin of 2-to-1. Most active by a mile is the deep out-of-the-money January 2017 4-strike put, which has seen more than 6,200 contracts cross the tape. Implied volatility (IV) has popped 2.2 percentage points at the strike, and most of the puts traded on the ask side, underscoring our theory of freshly bought bearish bets. By purchasing the puts to open, the buyers expect JCP to breach $4 -- and sink into record-low territory -- within the next couple of years.

  • AbbVie Inc (NYSE:ABBV) is 2.9% higher at $67.05, and earlier notched a record peak of $67.29, as traders and analysts celebrate a regulatory win. Specifically, the European Medicines Agency (EMA) recommended approval for two of ABBV's hepatitis C drugs. In light of the news and the stock's subsequent rally, Morgan Stanley hiked its price target to $72 from $65, and reiterated an "overweight" rating. In the same optimistic vein, ABBV calls are trading at a 61% mark-up to the average intraday rate, and outnumber puts by a margin of more than 10-to-1. Digging deeper, it looks like short-term bulls are rolling the dice on higher highs for ABBV, buying to open the soon-to-be front-month December 70 calls.

  • Finally, Dollar General Corp. (NYSE:DG) is also flirting with record highs. The security topped out at $67.95 earlier, and was last seen 1.7% higher at $67.65. DG Wednesday said it expects to update Family Dollar Stores, Inc. (NYSE:FDO) shareholders about the duo's M&A status with the Federal Trade Commission (FTC) in the "coming weeks," and specifically, how many stores DG will need to sell to win FTC approval of an FDO buyout. Against this backdrop, DG's 30-day at-the-money IV hit a 52-week peak earlier, reflecting escalating demand -- and, thus, higher prices -- for short-term options. Calls are trading at eight times the typical intraday clip, and one bull constructed a spread to offset the cost of relatively expensive front-month options. The investor bought a block of 6,930 December 70 calls, and simultaneously sold an equal number of December 75 calls, resulting in a net debit of $1.50 per pair of contracts. The strategist's reward will increase from $71.50 (bought strike plus net debit) to $75, at which his profit potential peaks at $3.50 (difference between call strikes, minus net debit), no matter how high DG climbs between now and expiration on Friday, Dec. 19. On the flip side, the trader will forfeit just the net debit if the stock fails to conquer $70.


Short-Term Skeptic Ups the Ante on EMC Corporation (EMC)

One EMC Corporation option trader rolled her short call up and out

by 11/21/2014 1:31 PM
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EMC Corporation (NYSE:EMC) has tacked on nearly 19% in 2014, and today, the stock is up 0.3% amid a broad-market rally. In spite of this strong technical showing, the stock's recent rally attempts have stalled out near the $31 mark. In fact, the equity topped out at a 13-year peak of $30.66 on Tuesday, but was last seen lingering near $29.93. Against this backdrop, one option trader is betting big on this area to continue resisting EMC's advances over the next month, but is giving herself a little bit of breathing room.

Taking a quick step back, EMC calls are trading at five times the intraday average, and are outpacing puts by a nearly 7-to-1 margin. The majority of the day's action has centered on the stock's December 32 call, where 24,758 contracts are on the tape. The bulk of this volume occurred when a massive block of 24,470 contracts was sold to open for $0.18 apiece, resulting in an initial net credit of $440,460 (number of contracts * premium collected * 100 shares per contract).

Diving deeper into the data reveals this block changed hands at the same time a smaller-sized lot of 4,485 November 30 calls was bought to close, and according to Trade-Alert, this activity was a result of one speculator rolling her short call position up and out. By initiating the new short position with the December 32 calls, this trader is expecting EMC Corporation (NYSE:EMC) to churn south of $32 through the close on Friday, Dec. 19 -- when the soon-to-be front-month options expire.


Options Check-Up: Qihoo 360 Technology, Starbucks, and Trina Solar

Analyzing recent option activity on QIHU, SBUX, and TSL

by 11/21/2014 9:12 AM
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Among the stocks attracting attention from options traders lately are anti-virus firm Qihoo 360 Technology Co Ltd (NYSE:QIHU), coffee purveyor Starbucks Corporation (NASDAQ:SBUX), and alternative energy concern Trina Solar Limited (ADR) (NYSE:TSL). Below, we'll break down how options buyers are positioning themselves, and how much speculators are willing to pay for their bets on QIHU, SBUX, and TSL.

  • QIHU closed Thursday 0.7% lower at $67.55, bringing its year-to-date loss to 17.7%. What's more, the shares continue to test support at their 100-week moving average, and are on pace to close below this trendline for the third time in the past seven weeks -- before which it had never been breached. Nevertheless, traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open more than three QIHU calls for every put during the past 10 weeks. The resultant 50-day ISE/CBOE/PHLX call/put volume ratio of 3.40 ranks just 3 percentage points from an annual acme, suggesting traders are betting bullishly ahead of Qihoo 360 Technology Co Ltd's upcoming turn in the earnings confessional -- after the close next Monday. Meanwhile, short-term options are priced rather affordably right now, in spite of the aforementioned event. QIHU's Schaeffer's Volatility Index (SVI) of 51% ranks in the bottom one-third of all readings taken in the previous year.

  • SBUX landed 0.5% higher yesterday at $78.20, as the shares continue their northward trek atop long-term support from their 80-week moving average. More recently, the java name has been in rally mode, up 10.5% since touching a mid-October low of $70.77. Nevertheless, traders at the ISE, CBOE, and PHLX have been rolling the dice on downside for Starbucks Corporation. The equity's 50-day put/call volume ratio across those three exchanges checks in at 0.74, in the 79th annual percentile. An unwinding of these bearish bets could result in tailwinds for SBUX. Meanwhile, those hoping to use options to gamble on the security's near-term trajectory are in luck. SBUX's SVI of 17% is lower than 78% of comparable readings from the past 12 months, suggesting short-term contracts can be had at a relative bargain.

  • Finally, TSL finished flat yesterday at $10.50, and remains 23.2% lower year-to-date. Looking ahead, the company is scheduled to report earnings before the open next Monday. The stock tends to make wild swings in the aftermath of these quarterly events, shedding 8% in the session following its August release, and gaining nearly 31% in May. Ahead of this report, traders have been wagering on losses for Trina Solar Limited (ADR). The security's 10-day ISE/CBOE/PHLX put/call volume ratio of 0.83 rests above 94% of similar readings from the previous 52 weeks. On a related note, TSL's SVI of 72% sits in the 41st percentile of its annual range, suggesting short-term options are slightly less expensive than usual, from a volatility perspective.


Breaking Down Today's Big SunPower Corporation (SPWR) Spread

SunPower Corporation's January 2015 series of options has been popular today

by 11/20/2014 2:41 PM
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SunPower Corporation (NASDAQ:SPWR) is up 3.7% this afternoon, after last night announcing restructuring measures that will cost up to $25 million. At last check, the stock was sitting at $29.12. Meanwhile, activity in the options pits is running fast and furious -- especially on the call side, where intraday volume more than doubles the expected amount.

Getting into the details, the three most active options are the January 2015 29- and 32-strike calls, and the 27-strike put. It appears a bullish spread totaling 7,000 contracts is being opened at the two call strikes, while a number of puts are being sold to open to help finance the spread. In other words, the trader expects SPWR to rally up to $32 over the next two months.

Taking a step back, it's been a tough year for SunPower Corporation (NASDAQ:SPWR). Even after today's gains, the shares are in negative year-to-date territory, and have underperformed the broader S&P 500 Index (SPX) by almost 28 percentage points during the past three months. As a result, traders at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have been upping the bearish ante in recent weeks.


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