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Bank of America Corp (BAC) Bulls Bet On the Next Breakout

Bank of America hasn't traded north of $16.50 since mid-April

by 9/2/2014 11:25 AM
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After announcing a billion-dollar settlement two weeks ago for its part in the 2008 mortgage crisis, Bank of America Corp (NYSE:BAC) managed to break through previous congestion in the $16 area, with the equity last seen at $16.16. A number of option traders in today's session are targeting the next level of resistance, betting on the stock to topple the $16.50 mark by week's end.

The most active BAC option thus far is the weekly 9/5 16.50-strike call, where the majority of the 11,906 contracts traded have done so at the ask price, hinting at buyer-driven activity. Plus, implied volatility has risen 5.2 percentage points, pointing to the initiation of new positions. Considering BAC has not seen the north side of $16.50 since mid-April, delta on the call is docked at 0.14, suggesting a slim 14% chance the option will be in the money at Friday's close, when the weekly series expires.

From a wider sentiment perspective, today's bullish positioning among option players is just more of the same for Bank of America Corp (NYSE:BAC). Over the past 50 sessions, the stock has racked up a call/put volume of 4.47 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). What's more, this ratio ranks in the 76th percentile of its annual range, meaning long calls have been initiated over puts at a faster-than-usual clip of late.


Activision Blizzard, Inc. (ATVI) Calls Active as M&A Rumors Fly

Activision Blizzard, Inc. call volume accelerated on Friday

by 9/2/2014 10:23 AM
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Activision Blizzard, Inc. (NASDAQ:ATVI) call volume ran at four times the daily average on Friday, as speculation swirled the company could be in pursuit of sector peer Take-Two Interactive Software, Inc. (NASDAQ:TTWO). Short-term contracts were in high demand, as evidenced by the stock's 30-day at-the-money implied volatility (IV), which rose 5.2% to 20.4%.

Specifically, the equity's most active option on Friday was the September 22.50 call, where 8,509 contracts changed hands. The majority of these went off at the ask price, IV jumped nearly 4 percentage points, and open interest soared over the weekend, collectively hinting at the purchase of new positions.

Based on ATVI's current perch at $23.42, these calls are in the money. However, in order for the call buyers to profit at expiration, the stock must be sitting north of breakeven at $23.58 (strike plus the volume-weighted average price of $1.08) at the close on Friday, Sept. 19. Profit will accumulate north of here, while losses are limited to the initial premium paid, should Activision Blizzard, Inc. (NASDAQ:ATVI) settle south of $22.50 at expiration.


Bearish Bettor Eyes Downside for SM Energy Co. (SM)

SM Energy Co.'s October 80 put saw huge buy-to-open activity on Friday

by 9/2/2014 10:13 AM
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SM Energy Co. (NYSE:SM) added 1.5% last Friday (to close at $89.04) and a brow-raising 11.3% for the entire week, bringing the shares into positive territory for the year. Not surprisingly, options flew off the shelves, changing hands at more than twice the normal rate on Friday. Short-term bets were popular, as evidenced by an 8.5% increase in SM's 30-day at-the-money implied volatility to 30.1%.

Digging deeper, one major trader wagered on a near-term pullback for shares of the energy firm, buying to open 10,000 October 80 puts -- by far SM's most popular strike on Friday. According to Trade-Alert, this individual was likely adding to another 10,000-contract long position at the same strike, initiated earlier in the week. The volume-weighted average price (VWAP) for the contracts was $1.47, making breakeven at expiration $78.53 (strike less VWAP) -- a level touched as recently as Aug. 21.

In terms of profit and loss potential, gains will accumulate with each step below breakeven SM Energy Co. (NYSE:SM) shares are perched at the close on Friday, Oct. 17, when the back-month options expire. Conversely, the most the traders risk losing is the initial premium paid, should the shares be sitting above the strike at expiration. At last check, SM was 0.2% lower at $88.90.


Take-Two Interactive Software, Inc. (TTWO) Bulls Target Six-Year Highs

Take-Two Interactive Software, Inc. is soaring today on M&A-related rumors

by 8/29/2014 1:33 PM
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Take-Two Interactive Software, Inc. (NASDAQ:TTWO) has jumped 4.3% today, as rumors swirl that the video game maker could be a potential takeover target for sector peer Activision Blizzard, Inc. (NASDAQ:ATVI). In the stock's options pits, calls are running at 25 times the average intraday pace, with 16,000 contracts on the tape. As a point of comparison, fewer than 500 puts have been exchanged.

Traders are showing a preference for short-term contracts, as evidenced by the equity's 30-day at-the-money implied volatility, which is up 32.7% at 36.8%. Buy-to-open activity has been detected at TTWO's October 25 call, and according to Trade-Alert, a portion of the activity could be a result of speculators rolling up their now in-the-money September 23 and 24 calls to bet on more upside.

The volume-weighted average price (VWAP) for the October 25 calls is $0.56, making breakeven at the close on Friday, Oct. 17 -- when back-month options expire -- $25.56 (strike plus VWAP), a level not seen by the stock since August 2008. Profit will accrue on a move north of here, while losses are capped at the initial premium paid, should TTWO close south of the strike at expiration.

Today's move higher only highlights Take-Two Interactive Software, Inc.'s (NASDAQ:TTWO) withstanding technical tenacity, with the shares up 35% year-to-date to trade at $23.42. In spite of this, short interest accounts for 17.5% of the stock's available float. Should the security continue to make ground, an unwinding of these short positions could help fuel more gains. At present, it would take almost six sessions to cover all of TTWO's shorted shares.


Most Active Options Update: Netflix, Inc. (NFLX)

Netflix, Inc. options traders are placing eleventh-hour bets

by 8/29/2014 1:22 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 streaming video issue Netflix, Inc. (NASDAQ:NFLX), which has seen a flurry of eleventh-hour betting.

Most Active Options Table

Netflix, Inc. was last seen 0.5% higher at $477.79, and is on pace for a monthly gain of 13%. Meanwhile, options traders are placing their bets on where the stock will end the session, as the 10 most active options expire at the closing bell. What's more, volume has surpassed open interest at six of those strikes, underscoring our theory of new last-minute positions.

Among those is the weekly 8/29 480-strike call, which has seen more than 6,000 contracts change hands -- the most of any strike. The speculators buying the calls to open are doing so at a volume-weighted average price (VWAP) of $0.89, meaning they'll profit if NFLX settles north of $480.89 (strike plus VWAP) today. The stock touched an intraday high of $480.50 earlier, so surpassing breakeven isn't outside the realm of possibility. Should the equity close beneath $480, the buyers will forfeit the initial premium paid for the calls.

Those selling the calls to open are expecting NFLX to remain south of the strike through the close. In this best-case scenario, the calls will remain out of the money, and the sellers can retain the initial net credit. Should NFLX climb back atop the strike, the sellers' losses will begin to add up.

While intraday calls and puts are trading near parity, the former have emerged as the preferred options -- among buyers, anyway -- of late. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity's 10-day call/put volume ratio of 1.16 stands higher than 87% of all other readings from the past year. In other words, Netflix, Inc. (NASDAQ:NFLX) option buyers have picked up calls over puts at a faster-than-usual clip during the past couple of weeks.


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