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Whole Foods Market, Inc. (WFM) Rally Sparks a Rush of Call Buying

Whole Foods Market, Inc. call volume tripled the daily average on Wednesday

by 8/28/2014 9:33 AM
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A mysterious tweet from activist investor Carl Icahn sent shares of Herbalife Ltd. (NSYE:HLF) soaring yesterday, and may have been the catalyst for Whole Foods Market, Inc.'s (NASDAQ:WFM) 3.4% pop, as well. Regardless, the move higher had call players flooding the stock's options pits, with volume running at three times the daily average. Short-term contracts were in high demand, as evidenced by the equity's 30-day at-the-money implied volatility, which surged 18.9% to 24.0%.

The two most active WFM options were the weekly 8/29 40- and 40.50-strike calls, with all signs pointing to the purchase of new positions. The volume-weighted average price (VWAP) for the lower-strike calls was $0.19, making breakeven at tomorrow's close $40.19 (strike plus VWAP). Based on the VWAP of $0.21 for the higher-strike calls, breakeven for these more optimistic option traders is $40.71.

On the charts, WFM has been a long-term laggard, with the shares off more than 31% year-to-date. However, yesterday's surge and subsequent finish at $39.80 were enough to secure the stock its first daily close north of its 80-day moving average since March 21. With 10.5% of the equity's float sold short, a portion of yesterday's call buying may have been a result of shorts initiating hedges on any additional end-of-week gains.

In today's session, though, Whole Foods Market, Inc. (NASDAQ:WFM) is poised to resume its downward trajectory, after Wedbush started the security with a tepid "neutral" rating. This echoes the withstanding trend seen among the brokerage bunch, as half of covering analysts currently maintain a lukewarm "hold" suggestion toward WFM.


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Bulls Pile On as Weatherford International plc (WFT) Rallies

Weatherford International plc call volume has soared to 21 times the intraday average

by 8/27/2014 2:35 PM
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Weatherford International plc (NYSE:WFT) has jumped 3.5% today to trade at $23.73, after Mario Gabelli -- CEO of Gamco Investors Inc (NYSE:GBL) -- named the stock a "Top Pick." Option traders are responding in kind, sending call volume to 21 times what's typically seen at this point in the day. Short-term contracts are in heavy rotation, per the equity's 30-day at-the-money implied volatility (IV), which has surged 28.3% to 30.4%.

Most active are WFT's October 26 and 27 calls, where a collective 32,178 contracts have traded. A healthy portion of activity at each strike has occurred on the ask side, IV is trending higher, and volume easily outstrips open interest, making it safe to assume new positions are being purchased. Plus, data from the International Securities Exchange (ISE) confirms some of the day's action is of the buy-to-open kind.

Looking at the charts reveals that WFT has not traded north of either strike since September 2008. Heading into today's session, delta for the lower-strike call was docked at 0.11 and 0.068 for the higher-strike call. Given today's pop, these readings have surged to 0.27 and 0.19, respectively, signaling an increased probability the calls will be in the money at expiration on Friday, Oct. 17.

Widening the sentiment scope shows today's accelerated call volume diverges from the withstanding trend witnessed in WFT's options pits. At the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 0.70 ranks in the bearishly skewed 79th percentile of its annual range. Considering Weatherford International plc (NYSE:WFT) has tacked on an impressive 53.2% in 2014, a portion of this recent put buying could be at the hands of shareholders hedging against an unexpected decline.


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Most Active Options Update: Twitter Inc (TWTR)

Twitter Inc option players predict more upside in the short term

by 8/27/2014 1:57 PM
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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 Twitter Inc (NYSE:TWTR), which has seen accelerated call volume.

Most Active Options Table

Twitter Inc shares were last seen 0.4% lower at $48.01, swooning in sympathy with sector peer Facebook Inc (NASDAQ:FB). Nevertheless, TWTR has seen more than 100,000 calls change hands -- a 38% mark-up to the stock's average intraday call volume, and more than triple the number of puts exchanged.

The equity's 30-day at-the-money (ATM) implied volatility (IV) has popped 3.7% to 38.9%, reflecting a growing appetite for short-term options. Echoing that, the ATM September 48 call is hands down the most active strike, with more than 12,500 contracts traded. The majority of the calls crossed on the ask side, and IV at the strike is trending higher, collectively pointing to buy-to-open activity.

By purchasing the calls at a volume-weighted average price (VWAP) of $1.90, the buyers will make money if TWTR is sitting north of $49.90 (strike plus VWAP) at the close on Friday, Sept. 19, when front-month options expire. Profit potential is theoretically unlimited beyond breakeven, while the buyers' maximum risk is the initial premium paid, should TWTR backpedal south of $48 before expiration.

Technically speaking, TWTR has outperformed the broader S&P 500 Index (SPX) by more than 42 percentage points during the past three months, and yesterday notched its highest close since late March after announcing the expansion of its ad network. Now, the stock is struggling to make a definitive move north of $48, which halted the equity's post-earnings rally in late July, and is home to the security's stagnating 10-month moving average.

In light of Twitter Inc's (NYSE:TWTR) advance, its 14-day Relative Strength Index (RSI) sits at a lofty 76 -- in overbought territory, suggesting today's breather may have been in the short-term cards. Delta on the aforementioned calls stands at 0.53, implying about a 1-in-2 shot of the option expiring in the money.


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Options Radar: Herbalife Ltd., 3D Systems, and Tractor Supply Company

Reviewing notable options activity on Herbalife Ltd., 3D Systems Corporation, and Tractor Supply Company

by 8/27/2014 1:23 PM
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Three names seeing notable options activity today include nutritional supplement specialist Herbalife Ltd. (NYSE:HLF), 3-D printing name 3D Systems Corporation (NYSE:DDD), and farm equipment retailer Tractor Supply Company (NASDAQ:TSCO). Here's a look at how today's options traders have been placing their bets on HLF, DDD, and TSCO.

  • Herbalife Ltd. (NYSE:HLF) soared to an intraday high of $52.15 earlier, sparked by speculation surrounding Carl Icahn's cryptic "BIG deal" tweet. At last check, though, the stock was up 2.9% at $50.92. In HLF's options pits, calls are trading at two times the average intraday pace, and the equity's 30-day at-the-money (ATM) implied volatility (IV) is 11.1% higher at 51.4%, signaling increased interest in short-term contracts. Specifically, buy-to-open activity has been detected at HLF's September 55 and weekly 9/5 51.50-strike calls, as traders roll the dice on extended gains for the security.

  • 3D Systems Corporation (NYSE:DDD) announced a new advisory board for its high school education initiative, which includes members from industry heavyweights Intel Corporation (NASDAQ:INTC) and General Electric Company (NYSE:GE), among others. In the wake of the announcement, DDD has soared 2.5% to $52.73, and is trading north of its 80-day moving average for the first time since late July. Amid this move higher, calls are trading at a faster-than-usual clip on DDD, with speculators buying to open the equity's weekly 9/5 54-strike call. Meanwhile, DDD's 30-day ATM IV tumbled to a fresh 52-week low earlier, but was last seen up fractionally at 38.7%.

  • Tractor Supply Company (NASDAQ:TSCO) has rallied almost 16% from its July 10 annual low of $57.20, and, as such, the stock's 14-day Relative Strength Index (RSI) of 72 is signaling a move into overbought territory. It's no surprise, then, to see the equity down 0.7% in today's session to trade at $66.31. Option traders don't expect this negative price action to last, though. Specifically, 81% of the 4,442 puts traded today -- 19 times the intraday average -- have crossed at the September 60 strike, and the majority of the action has occurred on the bid side, signaling seller-driven activity. Volume outstrips open interest here, pointing to the initiation of new short positions. Simply stated, these put writers expect TSCO to maintain its perch atop this round-number mark through the close on Friday, Sept. 19, when front-month options expire.

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Option Bulls Charge Activision Blizzard, Inc. (ATVI)

Activision Blizzard, Inc. calls are flying off the shelves

by 8/27/2014 11:36 AM
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Option traders are blitzing Activision Blizzard, Inc. (NASDAQ:ATVI) today. Calls are the clear options of choice, with more than 9,500 contracts on the tape, versus an expected intraday volume of fewer than 900. What's more, the stock's 30-day at-the-money implied volatility is 1.9% higher at 20.4%, signaling increased demand for short-term options.

The vast majority of this morning's volume has transpired at the September 23 call, where 9,321 contracts are on the tape. According to Trade-Alert and data from the International Securities Exchange (ISE), these calls are being bought to open at a volume-weighted average price (VWAP) of $0.56. Therefore, even though the calls are currently at the money -- with ATVI up 0.4% at $23.11 -- the traders need the shares to rally more than 1.9% to reach the at-expiration breakeven mark of $23.56 (strike plus VWAP). Gains are theoretically unlimited north of here, while losses are capped at the initial premium paid, should the equity be sitting below $23 at the close on Friday, Sept. 19 -- when the front-month contracts expire.

Taking a step back, Activision Blizzard, Inc. (NASDAQ:ATVI) has had a strong 2014, with the shares gaining nearly 30%, riding atop support at their 40-day moving average. In fact, three weeks ago, the video game stock touched a record high of $23.79 in the wake of a second-quarter earnings beat, before entering a period of consolidation at the aforementioned trendline.


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