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Most Active Options Update: Alibaba Group Holding Ltd (BABA)

Alibaba Group Holding Ltd traders anticipate a struggle near the century mark

by 10/27/2014 2:33 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 China-based e-commerce giant Alibaba Group Holding Ltd (NYSE:BABA), as traders roll the dice on a short-term struggle near the round-number century mark.

Most Active Options Table

Alibaba Group Holding Ltd is trading 2.6% higher today at $98.24, after Jefferies started the stock with an upbeat "buy" rating and a $118 price target -- territory yet to be charted by the Wall Street freshman. This forecast for a move above the century mark just echoes a recent trend witnessed among the brokerage bunch, but today's options activity reveals a number of traders are at odds with this outlook.

Taking a quick step back, calls are trading at two times the average intraday pace. Amid this accelerated activity -- and with earnings due out next week -- BABA's 30-day at-the-money implied volatility (IV) has surged 7.8% to a record peak of 46%, signaling elevated demand for short-term contracts.

Drilling down, BABA's weekly 10/31 100-strike call is most active, with 10,522 contracts on the tape at last check. The majority of these have crossed at the bid price, IV is up 4.8 percentage points, and volume outstrips open interest, suggesting new short positions are being initiated. By writing the calls, speculators expect BABA to stay beneath $100 through Friday's close, when the weekly series expires. Delta on the call is docked at 0.35, indicating a 35% chance the position will be in the money at week's end.

As touched upon, Alibaba Group Holding Ltd (NYSE:BABA) will take its inaugural turn in the earnings confessional ahead of next Tuesday's open. For the company's third quarter, Wall Street is calling for a per-share profit of 48 cents.


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Options Radar: Coach Inc, Huntsman Corporation, and Pfizer Inc.

Reviewing notable options activity on Coach Inc, Huntsman Corporation, and Pfizer Inc.

by 10/27/2014 2:07 PM
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Three stocks seeing notable options activity today are accessories designer Coach Inc (NYSE:COH), chemical expert Huntsman Corporation (NYSE:HUN), and blue chip Pfizer Inc. (NYSE:PFE). Here's a look at how today's options traders have been placing their bets on these three names.

  • Coach Inc (NYSE:COH) is up 0.4% to trade at $36.10 this afternoon, with the company slated to report fiscal first-quarter earnings tomorrow morning. Meanwhile, in the stock's options pits, contracts are changing hands at quadruple the usual intraday rate, and COH's 30-day at-the-money implied volatility has popped 3.4% to 39.6%, suggested elevated demand for short-term strikes. Seeing the most activity is the equity's weekly 10/31 38-strike call, where a sizable portion of the 3,363 contracts exchanged so far have been bought to open, as speculators gamble on end-of-week upside. Historically, the shares -- down roughly 36% in 2014 -- haven't ended a week atop the $38 level since mid-June. However, last time COH entered the quarterly confessional, the shares rallied 4.3% in the session following an earnings beat.

  • Huntsman Corporation (NYSE:HUN) has tumbled 5.8% to hover near $23.08, after reporting disappointing third-quarter sales -- though per-share earnings topped expectations (subscription required). In the options pits, puts are flying off the shelves at 14 times the intraday norm. The in-the-money November 24 put is HUN's most active strike, with nearly 4,500 contracts traded. Based on data from the International Securities Exchange (ISE), at least some of these puts are being bought to open, as traders roll the dice on continued downside through front-month options expiration.

  • Pfizer Inc. (NYSE:PFE) is slightly lower this afternoon at $29.09, after ending an agreement to develop a painkiller for Pain Therapeutics, Inc. (NASDAQ:PTIE) in favor of a deal with DURECT Corporation (NASDAQ:DRRX). Meanwhile, ahead of tomorrow morning's third-quarter earnings report, puts are being exchanged at a slightly accelerated rate. Nevertheless, PFE's November 30 call is the most active strike, and appears to be seeing buy-to-open activity, as traders gamble on the stock to topple the round-number $30 level by the close on Friday, Nov. 21, when front-month options expire.

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Most Active Weekly Options: Yahoo! Inc. (YHOO)

Yahoo! Inc. touched a decade-plus high earlier

by 10/27/2014 11:42 AM
Stocks quoted in this article:

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 Yahoo! Inc. (NASDAQ:YHOO), where weekly calls are being targeted.

Most Active Weekly Options Table

As we approach midday, Yahoo! Inc. options are trading at a nearly 30% mark-up to typical intraday levels. Moreover, weekly calls are in focus, making up eight of the 10 most active strikes. The weekly 11/28 44-strike call has seen the most action so far -- largely thanks to a 10,000-contract block that was exchanged just minutes ago, and appears to be tied to stock.

Meanwhile, the next most active option is the weekly 10/31 43.50-strike put, where roughly 6,900 contracts are on the tape. The majority crossed at the bid price, implied volatility is higher, and volume outstrips open interest, collectively suggesting sell-to-open activity -- a portion of which is confirmed by data from the International Securities Exchange (ISE). In sum, these put writers expect YHOO to maintain its perch atop $43.50 through the end of this week, when the weekly contracts expire.

On the charts, Yahoo! Inc. (NASDAQ:YHOO) has added 2.5% so far to trade at $44.60, and earlier tagged a new 14-year high of $44.64. As such, delta on the put has plummeted to negative 0.23 from negative 0.49, meaning the options market is giving the put a less than 1-in-4 chance of being in the money at expiration.


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Option Bulls Expect Vanda Pharmaceuticals Inc. (VNDA) to Rebound

Vanda Pharmaceuticals Inc. is sagging in the face of lowered guidance

by 10/27/2014 10:59 AM
Stocks quoted in this article:

Vanda Pharmaceuticals Inc. (NASDAQ:VNDA) is down 3% this morning at $10.77, after lowering its guidance -- and despite posting a narrower-than-expected third-quarter loss. In fact, the stock has been down by as much as 14.2% today -- and was placed on the short-sale restricted (SSR) list. Things were quite different last Friday, when the shares rallied 7.6%, prompting traders to flood VNDA's options pits.

Looking more closely at Friday's action, contracts crossed at triple the usual daily rate. Additionally, the equity's 30-day at-the-money implied volatility (IV) spiked 15.6% to 109.3%, signaling elevated demand for short-term strikes.

Most active by a healthy margin was VNDA's November 13 call. Two-thirds of the 1,980 contracts traded did so at the ask price, IV popped, and open interest added 1,461 contracts over the weekend. All things considered, it's safe to assume new bullish bets were initiated at the out-of-the-money strike. Alternatively, it's possible the calls were bought to serve as an upside hedge, as 43.4% of the equity's float is sold short.

In a nutshell, Friday's buyers expect Vanda Pharmaceuticals Inc. (NASDAQ:VNDA) to topple $13 by the close on Friday, Nov. 21, when front-month options expire. However, the stock hasn't explored these levels in more than a month. As such, delta on the call is just 0.24, denoting a slightly less than 1-in-4 chance the option will be in the money at expiration.


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Short-Term Option Buyers Circle Rite Aid Corporation (RAD)

Rite Aid Corporation (RAD) traders are gambling on the stock's near-term trajectory

by 10/27/2014 10:43 AM
Stocks quoted in this article:

The shares of Rite Aid Corporation (NYSE:RAD) are fractionally higher at $4.80 this morning, as traders weigh reports that the company -- along with peer CVS Health Corp (NYSE:CVS) -- recently disabled Apple Inc.'s (NASDAQ:AAPL) Apple Pay system. In the options pits, speculators are scrambling to bet on RAD's short-term trajectory.

Specifically, RAD's 30-day at-the-money implied volatility (IV) has jumped 5.4% to 44.8%, underscoring the growing demand for short-term contracts. Calls have outnumbered puts by a margin of more than 2-to-1.

Digging deeper, it looks like bulls are buying to open the weekly 11/7 5-strike call, where IV rocketed 14.2 percentage points higher at the time of the biggest trade, and nearly all the contracts have crossed on the ask side. By purchasing the calls at a volume-weighted average price (VWAP) of $0.10, the speculators will reap a reward if RAD topples $5.10 (strike plus VWAP) by the close on Friday, Nov. 7, when the weekly series expires -- which also encompasses Rite Aid's monthly sales release on Thursday, Oct. 30. Risk is limited to the initial premium paid for the calls, should RAD remain south of the strike through the option's lifetime.

Bears, meanwhile, are buying to open the weekly 11/28 4.50-strike put, at a VWAP of $0.15. In order to profit on the play, the buyers need RAD to breach $4.35 -- which would mark a new annual low -- by the closing bell on Friday, Nov. 28. Again, risk is capped at the VWAP, should the equity stay north of the strike through expiration.

On the charts, Rite Aid Corporation (NYSE:RAD) has shed more than 44% since touching a decade-plus peak of $8.61 in June. Nevertheless, ISI Group this morning launched coverage with a "buy" recommendation. However, RAD is no stranger to upbeat analyst attention; half the brokerage firms following the beleaguered equity maintain "buy" or better opinions, and the consensus 12-month price target of $6.75 represents expected upside of 41% to RAD's current price. Should the security continue to struggle, a flood of downbeat analyst attention could exacerbate selling pressure on the shares.


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