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Morgan Stanley (MS) Bears Don't Buy Earnings-Induced Rally

Morgan Stanley puts are trading at an accelerated clip today

by 10/17/2014 10:34 AM
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It's been a strong day on the corporate earnings front, and financial firm Morgan Stanley (NYSE:MS) is no exception. At last check, the stock was up 3.2% at $33.56, after posting an 87% rise in third-quarter profit -- easily beating analysts' consensus bottom-line estimate. However, not everyone is convinced the security can sustain this post-earnings momentum. In fact, put volume is running at a 26% mark-up to the average intraday pace this morning, with a number of speculators betting on a quick retreat for the shares.

Drilling down, the weekly 10/24 33-strike put has seen the most action in MS' options pits, with 1,472 contracts on the tape. More than three-quarters of these contracts have traded at the ask price, and volume outstrips open interest, pointing to the purchase of new positions. Amid today's rally, delta on the put has dropped to negative 0.36 from negative 0.58 at last night's close, suggesting a decreased probability the option will be in the money at next Friday's close, when the weekly series expires.

From a wider sentiment perspective, today's trend toward puts only highlights the withstanding trend witnessed in MS' options arena. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), for example, Morgan Stanley's (NYSE:MS) 50-day put/call volume ratio of 0.68 ranks in the bearishly skewed 82nd annual percentile.


Honeywell International Inc. (HON) Option Bulls Triple Their Money

Honeywell International Inc. has surged more than 3% following its quarterly earnings report

by 10/17/2014 10:00 AM
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Option players were active on Honeywell International Inc. (NYSE:HON) ahead of the industrial giant's quarterly earnings report, which was released bright and early this morning. Overall volume traded at two times the daily average, but calls emerged as the options of choice. By the numbers, 6,290 calls changed hands, versus 5,010 puts. Eleventh-hour bulls rolled the dice on some earnings-related upside, and by the looks of it, their bets are paying off.

Specifically, the most active HON strike on Thursday was the October 87.50 call, where 2,533 contracts crossed the tape. The majority of these went off at the ask price, implied volatility surged 8.6 percentage points, and open interest rose overnight -- all signs of buy-to-open activity. Traders purchased these calls at a volume-weighted average price of $0.67, and thanks to today's post-earnings pop, the options are currently priced at $2.11, resulting in a profit of 215%.

Heading into today's session, HON was down 5.5% on the year, due mostly in part to the security's 11% decline since hitting its most recent high of $96.93 on Sept. 19. However, on the heels of Honeywell International Inc.'s (NYSE:HON) better-than-expected third-quarter results and an upwardly revised full-year forecast, the stock has soared 3.2% to trade at $89.14.


Options Check-Up: Cirrus Logic, Molycorp Inc, and Alcatel Lucent SA

Analyzing recent option activity on Cirrus Logic, Inc., Molycorp Inc, and Alcatel Lucent SA (ADR)

by 10/17/2014 7:24 AM
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Among the stock attracting attention from options traders lately are integrated circuit specialist Cirrus Logic, Inc. (NASDAQ:CRUS), rare earths producer Molycorp Inc (NYSE:MCP), and telecommunications firm Alcatel Lucent SA (ADR) (NYSE:ALU). Below, we'll break down how options buyers are positioning themselves, and how much speculators are willing to pay for their bets on CRUS, MCP, and ALU.

  • Option traders have grown increasingly bullish on CRUS ahead of its turn in the earnings confessional the evening of Wednesday, Oct. 29. Specifically, the stock's 10-day call/put volume ratio at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) has risen to 10.51 from its Oct. 1 reading of 0.73, and is now ranked in the 88th annual percentile. Simply stated, calls have been bought to open over puts with more rapidity just 12% of the time within the past year. With CRUS boasting a short interest-to-float ratio of 11.3%, though, a portion of this recent call buying -- particularly at out-of-the-money strikes -- could be at the hands of shorts hedging against a post-earnings bounce. Since hitting its most recent high of $24.74 on Sept. 2, the stock has surrendered 19% to trade at $20.03. Regardless of the reason, premium on Cirrus Logic, Inc.'s short-term options is relatively expensive at the moment, as evidenced by the stock's 30-day at-the-money (ATM) implied volatility (IV) of 56.3%, which ranks higher than 87% of similar readings taken in the past year.

  • Put players have been active on MCP of late. At the ISE, CBOE, and PHLX, for example, the equity's 10-day put/call volume ratio of 1.86 ranks just 7 percentage points from an annual bearish peak. This shouldn't be too surprising, though, considering the security has shed 73.3% year-to-date, and closed Thursday at $1.50. The cost to purchase Molycorp Inc's short-term options is on the high end -- which is good news for call sellers -- per the equity's 30-day ATM IV of 132.4%, which arrives above 98% of comparable readings taken in the past year. This could be due to the company's upcoming earnings report, tentatively slated for release between Wednesday, Nov. 5 and Monday, Nov. 10.

  • ALU also has its quarterly earnings report on the horizon, due out the morning of Thursday, Oct. 30. Option traders at the ISE, CBOE, and PHLX have been scooping up puts at an accelerated clip in the weeks leading up to the scheduled event. In fact, the stock's 10-day put/call volume ratio of 0.19 ranks in the 86th percentile of its annual range. Option traders have been willing to pay a bit more for their pre-earnings bets -- ALU's 30-day ATM IV of 59% is sitting higher than 87% of all other readings taken over the past 12 months. On the charts, Alcatel Lucent SA (ADR) (NYSE:ALU) tagged a fresh annual low of $2.28 yesterday, before settling the session at $2.36. Year-to-date, the shares are down 46.4%.


Netflix, Inc. (NFLX): A Lesson in Winning the Options Game

Netflix, Inc.'s post-earnings plunge has put buyers sitting on a steep profit

by 10/16/2014 2:59 PM
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Netflix, Inc. (NASDAQ:NFLX) is having a terrible day, with the shares off 19.8% to $359.79, after the company revealed uninspiring new subscriber data in last night's third-quarter earnings results. The news followed reports of increased competition on the streaming front, and was met with a wave of bearish brokerage notes. Not everyone is ruing today's bearish gap, though. In fact, yesterday's put buyers are profiting big time from the day's steep sell-off.

As my colleague Andrea Kramer noted yesterday, a number of pre-earnings option bears targeted the stock's October 380 puts on Wednesday, which were purchased for a volume-weighted average price (VWAP) of $0.96. Thanks to today's earnings-induced plunge, the puts are now in the money, and are currently trading at $18.85. Doing the math, that's a profit of 1,864%!

Elsewhere on the Street, short sellers are most likely cheering today's turn of events, considering more than 10% of the stock's float is sold short. For the sake of comparison, though, let's say one of these short sellers borrowed one share of NFLX yesterday when the equity was trading at $450. Hypothetically speaking, say this short bought back her borrowed share today when Netflix, Inc. (NASDAQ:NFLX) was at its intraday low of $331, resulting in a much slimmer 26.4% return on her original investment .


Most Active Weekly Options: Twitter Inc (TWTR)

Twitter Inc call traders take aim at the round-number half-century mark

by 10/16/2014 2:08 PM
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The 20 stocks listed in the table below are the S&P 500 Index (SPX) components that have attracted the highest weekly 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 Twitter Inc (NYSE:TWTR), which has seen an uptick in call trading.

Most Active Weekly Options Table

Twitter Inc calls are being exchanged at a 14% mark-up to the typical intraday rate, and short-term contracts are in focus, as the equity's 30-day at-the-money implied volatility (IV) has popped 6.3% to 77.2%. While the most active option is of the longer-term variety -- specifically, the January 2016 50-strike call, which is largely being sold to open -- one weekly call is seeing significant activity.

In particular, TWTR's weekly 10/24 50-strike call has attracted a fair share of attention, with roughly 3,300 contracts on the tape. Nearly half have crossed at the ask price, and volume has surpassed open interest, hinting at newly bought bullish bets. In short, these call buyers anticipate TWTR will topple the round-number half-century mark by next Friday's closing bell, when the weekly series expires.

On the charts, Twitter Inc (NYSE:TWTR) has given back about 1.7% today to trade at $49.14. However, the shares appear to have found a foothold atop the $48 level, which corresponds with their 60-day moving average. What's more, TWTR has outperformed the broader S&P 500 Index (SPX) by an astounding 41.3 percentage points during the past three months.


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