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Evaluating The $1 Million Bet On Applied Materials, Inc. (AMAT)

One trader bought to open more than 15,000 Applied Materials, Inc. calls on Friday

by 7/28/2014 10:11 AM
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Applied Materials, Inc. (NASDAQ:AMAT) has been in a sharp downtrend lately, losing 7.7% last week to close at $21.23. That didn't stop call traders from taking to the semiconductor concern's options pits on Friday, where volume more than tripled the expected daily amount.

Digging deeper, more than one-third of the 59,000 calls that were exchanged did so at the January 2015 25-strike call, including a block of 15,162 contracts that crossed at the ask price of $0.67 each, just before the close. Open interest at the strike soared over the weekend, making it safe to assume new positions were initiated.

Breaking down the aforementioned block trade, the speculator laid out over $1 million for his bet (premium paid * number of contracts * 100 shares per contract). This represents his maximum risk, should AMAT shares be sitting below $25 at January 2015 options expiration. On the other hand, gains are theoretically unlimited, north of the at-expiration breakeven mark of $25.67 (strike plus premium paid).

Friday's headline trader isn't necessarily bullish, however. Given the stock's recent losses, the deep out-of-the-money status of the calls, and AMAT's high levels of short interest (i.e., 6.3% of the equity's float), it's possible this individual is a short seller seeking protection against a big move to the upside.

Part of the trader's strategy may be related to Applied Materials, Inc.'s (NASDAQ:AMAT) planned merger with Tokyo Electron Ltd., as developments like this often lend themselves to increased volatility. In fact, AMAT's losses last week may have stemmed from reports that Chinese authorities are opposed to the takeover. Just this morning, the U.S.-based company refiled an application with China's Ministry of Commerce, asking that the deal be approved.


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

One speculator closed out a calendar spread on Netflix, Inc.

by 7/25/2014 2:09 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 this afternoon is Netflix, Inc. (NASDAQ:NFLX), with one trader closing out a spread ahead of today's weekly expiration.

Most Active Options Table

Today's options activity on Netflix, Inc. is a little skewed, with call volume running at 89% of the usual level, and put volume arriving at 1.09 times the stock's intraday average. Meanwhile, 30-day at-the-money implied volatility on NFLX has tumbled to a new 52-week low of 29.1%.

One of the most active NFLX options is the weekly 7/25 425-strike put, where nearly 6,000 contracts have traded. Open interest at this strike stands at just 2,059 contracts, so it looks like last-minute speculators are adding new positions here ahead of tonight's expiration.

However, at least one trader appears to be closing out a position at this strike. Around midday, two matching blocks of 470 contracts each traded simultaneously at the weekly 7/25 425-strike put and the August 425 put. Data from the International Securities Exchange (ISE) confirms customer-level liquidations at both strikes, with the weekly puts bought to close and the August puts sold to close. This activity indicates the closeout of a calendar spread on NFLX.

On the charts, Netflix, Inc. (NASDAQ:NFLX) is down 0.7% this afternoon to trade at $422.33. The stock has gained 14.7% so far in 2014, but is currently on track for a weekly finish below its 10-week moving average for the first time in more than two months.


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Why This Trader May Be Selling Rite Aid Corporation (RAD) Calls

A sweep of 1,500 September 9 calls traded in Rite Aid Corporation's options pits earlier

by 7/25/2014 2:08 PM
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Rite Aid Corporation (NYSE:RAD) is sinking this afternoon, off 3.6% at $7.12. Elsewhere, options volume has picked up slightly, with calls holding a decisive advantage over puts, and the stock's 30-day at-the-money implied volatility has popped 3.3% to 36.4%, indicating elevated demand for short-term options.

Although RAD calls are popular today, not all of these traders are of the traditional bullish variety -- unlike what we observed yesterday in sector peer Walgreen Company (NYSE:WAG). The biggest sweep to cross the tape centered on the deep out-of-the-money September 9 call. Specifically, just after 10:40 a.m. ET, it appears 1,500 contracts at this strike were sold to open, with one individual expressing skepticism in RAD's ability to rally north of $9 by September options expiration. This theory is upheld by data from the International Securities Exchange (ISE).

In terms of profit and loss potential, if the shares are sitting below the strike at the close on Friday, Sept. 19 -- when the back-month contracts cease trading -- the calls will expire worthless, allowing the seller to retain the initial premium collected as his reward. However, if the drugstore stock topples the strike between now and then, the call writer risks assignment, and faces theoretically unlimited losses.

On the charts, Rite Aid Corporation (NYSE:RAD) has been a long-term outperformer, adding roughly 150% year-over-year. However, the shares have been trapped in the $7.00-$7.40 area since early June. That said, it's possible this morning's trader is employing a covered call strategy to generate some additional income on a RAD stock position. Looking ahead, the company is scheduled to release July sales data next Thursday.


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Options Radar: Brightcove Inc, Cerner Corporation, and Deckers Outdoor

Reviewing notable options activity on Brightcove Inc, Cerner Corporation, and Deckers Outdoor Corp

by 7/25/2014 12:33 PM
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Three stocks seeing notable options activity today are cloud-based solutions provider Brightcove Inc (NASDAQ:BCOV), health care IT issue Cerner Corporation (NASDAQ:CERN), and footwear designer Deckers Outdoor Corp (NYSE:DECK). Here's a look at how today's options traders have been placing their bets on these three names.

  • Brightcove Inc (NASDAQ:BCOV) is crashing today, down 36.7% at $6.50, and fresh off a new annual low of $6.06. Precipitating the swoon was the company's trip to the earnings confessional last night, where -- despite posting a narrower-than-expected second-quarter loss -- BCOV disappointed with its third-quarter and full-year guidance. The result was a rush of downgrades and price-target reductions from firms such as B. Riley and RBC, among others. With the shares landing on the short-sale restricted (SSR) list this morning, traders are piling into BCOV's options pits -- especially on the put side, where volume is running at 402 times the intraday average. The stock's 30-day at-the-money (ATM) implied volatility (IV) has also spiked by 14.7% to 70.2%, signaling strong demand for short-term options -- and making now a good time to sell premium on the equity. Accordingly, it appears one individual sold to open a block of 10,000 deep out-of-the-money (OOTM) August 5 puts earlier, possibly assuming the worst is already over for Brightcove, and future downside limited.

  • Meanwhile, Cerner Corporation (NASDAQ:CERN) has gained 1.9% to trade at $56.67, following a solid showing in the earnings confessional last night. Specifically, the firm matched the Street's second-quarter per-share earnings estimate, topped the consensus revenue projection, and lifted its full-year outlook. In CERN's options pits, total activity is running at six times the typical intraday clip. Most active is the August 60 call, which bullish speculators are buying to open to take aim at additional short-term upside in the shares.

  • Finally, Deckers Outdoor Corp (NYSE:DECK) is popping today, up over 4% to rest near $88.90. Earlier, in fact, the shares hit a fresh two-year high of $94.80, in the wake of last night's slimmer-than-expected fiscal first-quarter loss, and a string of bullish brokerage notes from Canaccord Genuity, Credit Suisse, ISI Group, and Jefferies. In options land, total volume is nine times what's expected at this point in the session, and traders are apparently selling premium on the deep OOTM September 55 put. Meanwhile, it looks like a few eleventh-hour bulls are buying to open the weekly 7/25 94-strike call, amid hopes for even higher highs for DECK.


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Micron Technology, Inc. (MU) Bulls Target More Upside

Micron Technology, Inc.'s September 28 call is being bought to open today

by 7/25/2014 10:46 AM
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Micron Technology, Inc. (NASDAQ:MU) call players have been active this week, which isn't too surprising, given the stock's roughly 154% year-over-year advance. In today's session, conservative option bulls are buying to open the equity's in-the-money (ITM) September 28 call, as they gamble on extended gains for the semiconductor stock over the next two months.

Today's traders are paying a volume-weighted average price (VWAP) of $5.86 for the calls, making breakeven at the close on Friday, Sept. 19 -- when back-month options expire -- $33.86 (strike plus VWAP). Gains will accumulate north of here, while losses are capped at 100% of the premium paid, should MU settle south of the strike at expiration. At last check, the security was sitting just south of breakeven at $33.67.

As noted, these call buyers are playing it safe by buying to open such a deep ITM strike. In fact, delta on the call is docked at a lofty 0.89, suggesting an 89% chance the option will expire in the money. What this also means is that for every point Micron Technology, Inc. (NASDAQ:MU) adds through September options expiration, the value of this call will increase 0.89 point. Conversely, for every point the equity loses over the next eight weeks, the call's value will decrease by 0.89 point.


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