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Will the Cliffs Natural Resources Inc (CLF) Rally Run Out of Steam?

Casablanca won control of Cliffs Natural Resources Inc's board today, sending shares soaring

by 7/29/2014 2:44 PM
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At Cliffs Natural Resources Inc's (NYSE:CLF) annual shareholder meeting today, Casablanca Capital LP came out the clear victor in its six-month proxy fight against CLF, by winning control of its board. Wall Street is cheering the news -- sending shares of CLF up 7.9% to $17.90. In the stock's options pits, overall volume has soared to nearly four times what's typically seen at this point in the day, but a number of speculators are betting on today's rally to run out of steam over the next several weeks.

Specifically, the most active CLF strike today is the August 17 put, where 5,717 contracts have traded -- mostly at the ask price, hinting at buyer-driven volume. Plus, implied volatility has shot 3.7 percentage points higher, and volume exceeds current levels of open interest, making it safe to assume new positions are being initiated.

By purchasing these now out-of-the-money (OTM) puts to open for a volume-weighted average price (VWAP) of $0.68, traders expect Cliffs Natural Resources Inc (NYSE:CLF) to be sitting below breakeven at $16.32 (strike less VWAP) at the close on Friday, Aug. 15 -- when front-month options expire. Profit will accrue on a move down to zero, while losses are capped at 100% of the premium paid, should the contracts expire OTM. At last check, delta for the puts had moved to negative 0.32 from negative 0.55 at last night's close, suggesting a less than 1-in-3 shot the puts will be in the money at expiration.


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Options Radar: Michael Kors, Buffalo Wild Wings, and Windstream

Reviewing notable options activity on Michael Kors Holdings Ltd, Buffalo Wild Wings, and Windstream Holdings, Inc.

by 7/29/2014 2:04 PM
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Three stocks seeing notable options activity today are apparel issue Michael Kors Holdings Ltd (NYSE:KORS), restaurateur Buffalo Wild Wings (NASDAQ:BWLD), and telecom concern Windstream Holdings, Inc. (NASDAQ:WIN). Here's a look at how today's options traders have been placing their bets on KORS, BWLD, and WIN.

  • The recent fall from grace for KORS has been well documented, and on the charts, the shares are off 17% from their Feb. 25 record peak of $101.04. In today's session, the stock is extending this slide, off 0.5% to churn near $83.82. In spite of this, call volume is running at nearly two times the average intraday level, with one bull in particular keeping the faith on a near-term bounce. The two most active KORS options today are the weekly 8/1 85-strike and the September 90 calls, and Trade-Alert speculates the former are being sold to close, while the latter are being bought to open. In other words, this speculator may possibly be rolling her bullish bet on Michael Kors Holdings Ltd up and out. Looking ahead, the company will report fiscal first-quarter earnings next Monday morning, which falls within the lifetime of the newly initiated September calls.

  • Ahead of tonight's turn in the earnings confessional, BWLD has tacked on 1% to trade at $166.34 -- and earlier came within striking distance of its record peak of $167.36, tagged on July 1. Meanwhile, in Buffalo Wild Wings' options pits, overall volume has soared to nearly five times what's typically seen at this point in the day. Premium on these pre-earnings bets is on the rise, per the security's 30-day at-the-money (ATM) implied volatility (IV), which is up 5.4% to 41.6% -- in the 92nd percentile of its annual range. Drilling down, it appears new positions are being opened at the in-the-money August 165 call and the out-of-the-money August 160 put.

  • WIN soared to a three-year high of $13.30 today, after the company announced plans to spin off a portion of its telecommunications network into a publically traded real estate investment trust (REIT). At last check, though, the security was still enjoying a 13.5% lead to trade at $11.96. Against this backdrop, speculators are flooding the equity's options pits, with overall volume running at 28 times the average intraday pace. Traders, in particular, are showing a preference for short-term contracts, per Windstream Holdings, Inc.'s 30-day ATM IV, which is up 35.3% to 34.3% -- in annual-high territory. Among specific strikes, fresh positions are being created at WIN's August 13 and September 12 calls. On the fundamental front, the company will report second-quarter earnings before the open next Thursday, Aug. 7.

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Most Active Options Update: 3D Systems Corporation (DDD)

3D Systems Corporation put options are hot as earnings approach

by 7/29/2014 12:54 PM
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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 3D Systems Corporation (NYSE:DDD), which has been heavily targeted by put buyers ahead of earnings.

Most Active Options Table

3D Systems Corporation (NYSE:DDD) is 4.8% higher at $54.51, erasing yesterday's losses stemming from Amazon.com, Inc.'s (NASDAQ:AMZN) foray into the 3-D printing market. DDD may be rallying amid reports that RBC Capital expects the company to upwardly revise its earnings guidance Thursday morning, when it's scheduled to unveil its second-quarter figures. Historically, the firm has matched or exceeded the Street's per-share profit projections in six of the past seven quarters, resulting in an average one-week post-earnings gain of 5% for DDD shares.

Despite its impressive earnings reactions, DDD is attracting bearish options bettors today. Specifically, the stock's deep out-of-the-money August 48 put is by far the most active option, with more than 2,200 contracts exchanged. The majority of the puts crossed on the ask side, and implied volatility is trending higher, hinting at new positions. Underscoring this theory, volume has surpassed open interest at the front-month strike.

The volume-weighted average price (VWAP) of the puts is $0.97, meaning the buyers will reap a reward if DDD is docked south of $47.03 (strike minus VWAP) -- in territory not charted since early May -- at the close on Friday, Aug. 15, when the options expire. The buyers' profit will increase as DDD sinks below breakeven, while risk is capped at the initial premium paid for the puts, should the shares remain atop the strike through the option's lifetime.

On the charts, today's rebound has DDD on pace to finish atop its 10-day moving average for just the second time since July 7. From a longer-term perspective, however, 3D Systems Corporation (NYSE:DDD) has shed more than 40% in 2014. Should the shares extend their retreat after earnings, losses could be exacerbated by a round of bearish brokerage notes. Currently, DDD boasts 10 "buy" or better endorsements, compared to three "holds" and two "sell" or worse ratings.


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Option Bull Bets $1.6 Million On Wynn Resorts, Limited

Wynn Resorts, Limited's September 240 call is in focus today

by 7/29/2014 12:30 PM
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Wynn Resorts, Limited (NASDAQ:WYNN) is up 3% to trade at $217.18 this afternoon, after posting a second-quarter earnings beat earlier. Not surprisingly, options traders are rushing to the call side of the aisle, where volume is running at 12 times the intraday norm.

Most popular in WYNN's options pits is the September 240 call, where roughly 13,800 contracts have crossed the tape, compared to open interest of just over 1,000. The majority of the calls were exchanged as a block of 10,750 contracts, which traded near the ask price, at $1.45 each -- suggesting they were bought, and Trade-Alert has marked the block "opening" -- for a total cash outlay of nearly $1.6 million (premium paid * number of contracts * 100 shares per contract). This amount represents the call buyer's maximum potential risk, should the contracts expire out of the money. By contrast, the bettor's potential gains are theoretically unlimited, north of the at-expiration breakeven mark of $241.45 (strike plus premium paid).

On the charts, Wynn Resorts, Limited (NASDAQ:WYNN) has performed well, tacking on roughly 63% year-over-year. In fact, with this morning's sharp move higher, the casino stock has broken through a previous layer of resistance at its 120-day moving average, and this trendline could now reverse roles to act as support. Should that happen, WYNN could benefit from some short-covering activity, as nearly 5% of the equity's float is sold short.


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E I Du Pont De Nemours And Co (DD) Traders Eye More Upside

E I Du Pont De Nemours And Co call volume has soared to 22 times the typical pace

by 7/29/2014 10:40 AM
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E I Du Pont De Nemours And Co (NYSE:DD) is benefiting from broad-market tailwinds today, with the shares up around 1.7% at last check. The move higher has sparked a rush of call activity in the stock's options pits, with the contracts trading at almost 22 times the average intraday pace. Nearly all of the day's call volume has centered on the September 67.50 strike, as traders roll the dice on extended gains for the blue chip.

Drilling down, the majority of the 24,217 contracts traded at this out-of-the-money strike have done so at the ask price. Plus, implied volatility has edged higher, and only 2,134 contracts are currently in residence here. Plus, Trade-Alert confirms that new calls are being purchased at this strike today.

Based on the volume-weighted average price (VWAP) of $0.65, breakeven for the call buyers at the close on Friday, Sept. 19 -- when back-month options expire -- is $68.15 (strike plus VWAP). Gains will accumulate with each additional step north of here, while losses are capped at the initial premium paid, should DD finish south of the strike at expiration.

On the charts, E I Du Pont De Nemours And Co (NYSE:DD) has done well over the long term, with the shares up roughly 60% from their November 2012 lows near $42. More recently, however, the stock has been churning in the $64.50-to-$66.50 neighborhood, after gapping lower in late June following tepid earnings guidance. Although today's positive price action temporarily sent DD through the upper end of this range, the equity has since pared a portion of these earlier gains to trade at $66.43.


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