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Why Bulls are Rallying Around AK Steel Holding Corporation (AKS)

AK Steel Holding Corporation is up almost 6% today amid a sector-wide surge

by 9/17/2014 2:52 PM
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Steel stocks are in rally mode today amid a number of well-received fundamental developments, and at last check, sector component AK Steel Holding Corporation (NYSE:AKS) was up 5.7% at $10.19. Against this backdrop, options traders are once again targeting the stock's calls, with volume running at a 59% mark-up to the average intraday pace.

Easily, the most active AKS option is the October 10 call, where 4,168 contracts have changed hands. The majority of these calls have traded at the ask price, and implied volatility has edged higher -- two indications new positions are being purchased.

The volume-weighted average price (VWAP) for the calls is $0.50, making breakeven at the close on Friday, Oct. 17 -- when back-month options expire -- $10.50 (strike plus VWAP). Profit will accrue beyond this point, while risk is limited to the initial premium paid, should AKS settle in single-digit territory at expiration.

Based on the equity's Schaeffer's Volatility Index (SVI) of 46%, which ranks lower than 79% of similar readings taken in the past year, these call buyers can rest easy knowing they picked up these short-term options at a relative bargain. Plus, the Schaeffer's Volatility Scorecard (SVS) reading for AKS stands at a lofty 100, meaning the stock tends to make outsized moves, relative to what the options market has priced in.

As noted, AK Steel Holding Corporation (NYSE:AKS) is trading comfortably higher today -- extending its year-to-date lead to 24.3% -- after announcing yesterday it has completed its acquisition of Russia-based OAO Severstal's U.S. units. Elsewhere in the sector, Nucor Corporation (NYSE:NUE) upwardly revised its third-quarter outlook, while United States Steel Corporation (NYSE:X) unveiled a pair of cost-cutting measures.


Options Radar: Dresser-Rand Group, FedEx Corporation, and Joy Global

Reviewing notable options activity on Dresser-Rand Group Inc., FedEx Corporation, and Joy Global Inc.

by 9/17/2014 2:02 PM
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Three stocks seeing notable options activity today are industrial solutions provider Dresser-Rand Group Inc. (NYSE:DRC), shipping company FedEx Corporation (NYSE:FDX), and mining equipment maker Joy Global Inc. (NYSE:JOY). Here's a look at how today's options traders have been placing their bets on these three names.

  • Dresser-Rand Group Inc. (NYSE:DRC) has gained over 7% today to trade at $72.71 -- and earlier hit a record high of $75.32 -- following news of a "potential transaction" with Sulzer. The rally is being met with intense options trading activity, as volume is running at 21 times the typical intraday pace. In fact, DRC's 30-day at-the-money (ATM) implied volatility (IV) hit a 12-month peak of 49.5% just before noon, but was last seen 4% lower at 39.4%. Looking more closely, option bulls are buying to open the stock's October 80 call -- DRC's most active strike by a wide margin -- in the hopes of higher highs for the security.

  • FedEx Corporation (NYSE:FDX) is also rallying on news, after revealing a fiscal first-quarter earnings beat this morning. At last check, the equity was 3.3% above breakeven at $159.74, fresh off its own record high of $161.65. In options land, contracts are crossing the tape at an intraday rate six times the usual, with calls outnumbering puts. However, not all of these FDX call traders are of the bullish variety. In fact, the equity's most active strike is the out-of-the-money September 162.50 call, which is being sold to open in anticipation of a short-term ceiling.

  • Joy Global Inc. (NYSE:JOY) is up 2.3% to hover near $59.75, and option traders are responding by targeting calls. At last check, 14,000 contracts are on the tape, compared to an expected amount of fewer than 1,800 at this point in the afternoon. What's more, JOY's 30-day ATM IV has soared 11.4% to 26.5%, signaling elevated demand for short-term options. According to data from the International Securities Exchange (ISE), traders are selling to close their September 58 calls; meanwhile, others are buying to open the September 59.50 call.


Most Active Options Update: Facebook Inc (FB)

Facebook Inc option traders gamble on end-of-week gains

by 9/17/2014 1:50 PM
Stocks quoted in this article:

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 Facebook Inc (NASDAQ:FB), as traders roll the dice on an Alibaba-related halo effect.

Most Active Options Table

All eyes will be on the tech sector this Friday, when China-based e-commerce concern Alibaba Group Holding Ltd. (BABA) will begin trading its shares on the Big Board. It appears a number of Facebook Inc option bulls may be hoping a successful BABA IPO will have a halo effect on its fellow Internet issues, and are targeting front-month calls in today's session to gamble on a quick pop by week's end.

Taking a quick step back, roughly 50,000 FB calls have changed hands today, compared to around 32,000 puts. The most active option is the September 77.50 call, where a healthy portion of the 8,513 contracts traded have done so at the ask price, hinting at buyer-driven activity. Meanwhile, implied volatility is up 3.4 percentage points, signaling the initiation of new positions.

The out-of-the-money calls are being purchased for a volume -weighted average price (VWAP) of $0.27, making breakeven at this Friday's close -- when front-month options expire -- $77.77 (strike plus VWAP). Gains will accumulate north of here, while losses are capped at the initial premium paid, should FB close out the week south of the strike price.

This bullish positioning isn't surprising, considering Facebook Inc (NASDAQ:FB) has rallied 40% year-to-date. In fact, the shares tagged the $78.36 mark last Thursday -- their highest perch on record. This week, although the stock succumbed to weakness in momentum names early on, FB found a foothold atop its 50-day moving average, and was last seen 0.3% higher at $76.31.


Sony Corp (ADR) (SNE) Options Heat Up as Stock Tanks

Sony Corp (ADR) option traders are betting on a bounce

by 9/17/2014 11:59 AM
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Sony Corp (ADR) (NYSE:SNE) short-term options are in demand today, as the stock's 30-day at-the-money (ATM) implied volatility (IV) has jumped 5.3% to 24.6%. The equity was last seen 6% lower at $19.04 -- putting it among the biggest losers on the Big Board -- after the firm once again reduced its earnings guidance, and scrapped its dividend, announced plans to cut about 1,000 jobs, and warned of an impairment loss for its smartphone unit. Nevertheless, some option traders are gambling on a rebound over the next few months, with intraday call volume running at five times the norm.

While the aforementioned ATM IV surge points to growing demand for short-term options, SNE's January 2015 20-strike call is most active by a mile, with more than 1,500 contracts exchanged. The majority of the calls traded on the ask side, and IV is trending higher at the strike, hinting at newly bought positions.

In a nutshell, the call buyers expect SNE to reclaim its perch north of $20 by January options expiration. Profit potential is theoretically unlimited north of $20.73 (strike plus volume-weighted average price of $0.73), while risk is capped at the initial premium paid for the contracts, should SNE remain south of the round-number strike through the option's lifetime.

In light of Sony Corp's (ADR) (NYSE:SNE) drop today, delta on the January 2015 20-strike calls has fallen to 0.41 from 0.57 at yesterday's close. In other words, the options market is giving the calls about a 41% shot of expiring in the money.


Most Active Options Update: Cliffs Natural Resources Inc (CLF)

Short-term put buyers target Cliffs Natural Resources Inc

by 9/17/2014 11:56 AM
Stocks quoted in this article:

The 20 stocks listed in the table below are the S&P 400 MidCap Index (MID) components that 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 Cliffs Natural Resources Inc (NYSE:CLF), where put buyers are active amid the stock's intraday retreat.

Most Active Options Table

Cliffs Natural Resources Inc is down 2% around midday at $14.82, bringing its year-to-date deficit to 43.5%. Meanwhile, the mining stock's options pits are busy, with total volume running at a 38% mark-up to the expected amount at this point in the session. Short-term strikes are being targeted, too, per the equity's 30-day at-the-money implied volatility (IV), which has edged 2.3% higher to 46.6%.

Most active is CLF's out-of-the-money October 13 put, where 4,246 contracts are on the tape. The majority have crossed at the ask price, and IV rose on a multi-exchange sweep of 2,700 contracts, suggesting buy-to-open activity. This theory is partially confirmed by data from the International Securities Exchange (ISE).

By buying to open the Cliffs Natural Resources Inc (NYSE:CLF) puts at a volume-weighted average price (VWAP) of $0.21, the speculators anticipate the shares will be sitting below breakeven of $12.79 (strike less VWAP) at the close on Friday, Oct. 17, when the back-month options expire. The stock hasn't traded at such low levels since March 2009. Additional gains will accrue on a move all the way down to zero, while the buyers' maximum potential loss is capped at the initial premium paid, should the contracts expire out of the money.


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