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Option Clips: Twitter Inc, PepsiCo, Inc., and United Continental

Reviewing notable options activity on Twitter Inc, PepsiCo, Inc., and United Continental Holdings Inc

by 4/16/2014 12:32 PM
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Two stocks generating buzz on StockTwits today are microblogging pioneer Twitter Inc (NYSE:TWTR) and soft drink heavyweight PepsiCo, Inc. (NYSE:PEP). What's more, another name attracting unusual options attention is air carrier United Continental Holdings Inc (NYSE:UAL). Here's a look at how today's option traders have been placing their bets on these three names.

  • An upgrade to "neutral" from "underperform" at Sterne Agee isn't helping Twitter Inc (NYSE:TWTR) shake its negative bias, as the stock is off 2.3% today at $44.48 after enjoying its biggest single-session gain on record yesterday. (This is likely an unwelcome development for yesterday's aggressive bullish speculators.) Meanwhile, total Twitter option volume is slightly elevated, running at a 40% mark-up to average intraday levels. With April options set to expire at tomorrow's close, it appears as though some speculators are closing out of their short-lived positions. The 10 most active TWTR strikes today expire tomorrow, implied volatility (IV) is dropping at these strikes, and open interest trumps volume, suggesting that positions are being purchased and sold to close across a host of strikes.

  • Ahead of its earnings report tomorrow morning, PepsiCo, Inc. (NYSE:PEP) is up 1.2% at $84.94. What's more, PEP is also under the microscope as a possible interested party for a large stake of SodaStream International Ltd (NASDAQ:SODA). In the options pits, call volume is running at three times the usual pace, with notable attention at the April 85 call. Given that IV has surged at this strike, and a healthy portion of the volume has traded at the ask price, it is possible these are eleventh-hour bets on a post-earnings pop. PepsiCo has managed to top analysts' per-share estimates in each of the past eight quarters, but has averaged a post-earnings gain of just 0.6% in the subsequent session.

  • Finally, call players have descended upon United Continental Holdings Inc (NYSE:UAL), bringing call volume to nearly triple what's typically seen on an intraday basis. Accounting for more than half of this action is a 10,000-contract block at the September 52.50 strike. Volume exceeds open interest, and the block went off closer to the bid price, suggesting the out-of-the-money calls may have been sold to open. By placing this trade, the call seller presumes that UAL will stay beneath $52.50 through September options expiration. In its eight-plus-year history, UAL has never traded north of this level.

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Call Sellers Rush to Eldorado Gold Corp (USA) (EGO)

Eldorado Gold Corp's (USA) options activity centers on the October 7 call

by 4/16/2014 12:31 PM
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Option Brief: Eldorado Gold Corp (USA) (NYSE:EGO) call volume is exploding today. So far, more than 18,000 contracts are on the tape -- a 13-fold mark-up to the typical intraday pace. For comparison, fewer than 600 puts have been exchanged.

The vast majority of EGO's call volume has taken place at the October 7 strike, where 18,178 contracts have changed hands. Two-thirds of the activity transpired at the bid price, and volume dwarfs open interest at the strike, indicating the contracts were sold to open on the gold miner.

Long story short, the call writers anticipate EGO will finish south of the 7 strike at October options expiration -- in which case, the contracts will be rendered worthless, and the traders will retain the initial premium collected. On the other hand, if the stock advances beyond the strike, the sellers may be assigned, and on the hook to deliver the shares for $7 apiece, no matter how much they're worth. Right now, delta on the contracts sits at 0.27, indicating a slim 27% chance that they will expire in the money.

On the technical front, Eldorado Gold Corp (USA) (NYSE:EGO) has added to its double-digit year-over-year deficit today, shedding 1.2% to trade at $5.73. Fundamentally speaking, the company is scheduled to report first-quarter earnings after the close on Thursday, May 1. EGO has not fared well under the spotlight, falling shy of analysts' consensus bottom-line estimates in six of the past eight quarters, for an average loss of 1.7% in the subsequent week.


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Las Vegas Sands Corp. (LVS) Option Traders Eye Extended Losses

Las Vegas Sands Corp.'s April 74 put is being bought-to-open today

by 4/16/2014 11:25 AM
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Option Brief: After hitting a six-year high of $88.28 in early March, Las Vegas Sands Corp. (NYSE:LVS) entered a period of consolidation, shedding roughly 15% in that time to churn near $74.91. In today's session, although the stock is enjoying a boost from the broader-equities market, it is staring up at its 32-week moving average -- a previous layer of support that could now be switching roles to act as resistance. In the stock's options pits, meanwhile, puts are trading at more than two times the average intraday pace, as traders gamble on LVS to resume its recent downtrend in the very near term.

At last check, the majority of the day's put volume had centered on LVS' April 74 strike, where 4,572 contracts have traded thus far. The vast majority of these puts have crossed at the ask price, implied volatility is up 1.6 percentage points, and volume easily outstrips open interest, collectively inferring buy-to-open activity. Delta for the put is docked at negative 0.36, suggesting a 36% chance the put will be in the money at tomorrow's close, when front-month options expire.

Although LVS tagged an intraday low of $73.98 this morning, risk for today's put buyers is limited to the initial premium paid, should LVS fail to breach the $74 mark again by tomorrow's close. According to Trade-Alert, the volume-weighted average price for the puts is $0.62.

Looking ahead, Las Vegas Sands Corp. (NYSE:LVS) is slated to tell all in the earnings confessional after next Thursday's close. The casino concern has fallen short of analysts' estimates in five of the past eight quarters, averaging a loss of 0.4% the following week. For LVS' first quarter, the consensus forecast is for a profit of 93 cents per share -- a roughly 31% improvement over the company's year-ago results.


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Option Bears Predict a Summer Swoon for AT&T Inc. (T)

AT&T Inc.'s most active strike yesterday was the June 36 put

by 4/16/2014 10:40 AM
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Option Brief: AT&T Inc. (NYSE:T) call volume ran ahead of put volume yesterday, but the most active option was actually a put. Specifically, close to 6,800 contracts traded at the June 36 strike. Nearly three-quarters were exchanged off the ask price, and open interest added almost 5,800 positions overnight, collectively indicating buy-to-open activity. A portion of these bearish bets are confirmed by data from the International Securities Exchange (ISE).

By purchasing the puts to open, the traders expect T to extend its journey south of the 36 strike through June options expiration. Specifically, based on the option's volume-weighted average price (VWAP) of $1.13, the speculators are eyeing the breakeven level of $34.87 (strike less VWAP). However, if the shares rebound above $36, the most the T put buyers stand to lose is the initial premium paid. At last check, the security was churning just north of yesterday's close, at $35.70.

On the fundamental front, AT&T Inc. (NYSE:T) will take its turn under the earnings spotlight next Tuesday evening. The Street is expecting a per-share profit of 69 cents from the telecom name -- a 5-cent improvement from the stock's year-ago result.


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Bearish Betting Heats Up on Herbalife Ltd. (HLF)

Herbalife Ltd. speculators are buying puts at a rapid-fire rate

by 4/16/2014 10:32 AM
Stocks quoted in this article:

Herbalife Ltd. (NYSE:HLF) can't stay out of the news. Within a week, reports emerged of an FBI investigation into HLF's business practices, the firm was slapped with a class action lawsuit by shareholders calling it a pyramid scheme, and now sources say New York Attorney General Eric Schneiderman is probing the nutritional supplements supplier. Against this backdrop -- and ahead of Herbalife's turn in the earnings confessional later this month -- speculators are scooping up bearish bets at a near-annual-high clip.

On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock has racked up a 10-day put/call volume ratio of 1.48. This ratio sits higher than 97% of all other readings from the past year, suggesting option buyers have picked up HLF puts over calls at a much faster-than-usual clip during the past two weeks.

As a result, HLF's Schaeffer's put/call open interest ratio (SOIR) rests at 1.56, indicating that puts outnumber calls among options expiring within three months. What's more, this ratio registers in the 85th percentile of its annual range, implying that short-term options players have rarely been more put-heavy during the past year.

In the soon-to-expire April series of options, speculators yesterday picked up HLF's April 52 put, which saw an overnight open interest increase of nearly 1,400 contracts -- the most of any strike. Considering four out of five of the front-month puts traded at the ask price, it's safe to assume a healthy portion were bought to open.

By buying the puts -- which expire at the end of the holiday-shortened week -- the traders expect HLF to retreat beneath $52 over the next couple of sessions. Risk, meanwhile, is limited to the initial premium paid for the puts, should the stock -- last seen 0.4% higher at $55.27 -- remain atop the strike.

Elsewhere, short interest rose 13.4% during the most recent reporting period, and now accounts for more than one-third of HLF's total available float. At the security's average daily trading volume, it would take more than seven sessions to repurchase all of these pessimistic positions.

On the charts, Herbalife Ltd. (NYSE:HLF) has surrendered more than 30% in 2014, pressured lower by its 10-week moving average. And if history is any indicator, it could get a bit rougher after the firm reports earnings on Monday, April 28. While the company has exceeded the Street's per-share profit predictions in each of the past eight quarters, HLF averages a one-week post-earnings loss of 4.1%.


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