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Cisco Systems, Inc. (CSCO) Targeted for Volatility Play

Breaking down a long strangle on Cisco Systems, Inc.

by 4/15/2014 9:55 AM
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Option Brief: Cisco Systems, Inc. (NASDAQ:CSCO) bounced back along with the broader equities market yesterday, advancing 1.7% to settle at $22.85. From a longer-term perspective, the shares have spent April dawdling between support near $22.50 and resistance at $23.20, but one options trader is betting on a breakout -- in one direction or another -- within the next six months.

While short-term options were in demand yesterday -- the security's 30-day at-the-money implied volatility jumped 11.3% to 24% -- it was the October series that saw the most action. Specifically, symmetrical blocks of 6,000 contracts traded at the October 22 put and October 23 call. Both blocks crossed on the ask side -- the puts for $1.21, the calls for $1.20 -- and open interest soared at both strikes overnight, pointing to the initiation of a long strangle.

As alluded to earlier, by buying both calls and puts on CSCO, the trader is hoping for a major move in either direction. Since the strangle was purchased for $2.41 per pair of contracts, the buyer will profit if the shares are sitting lower than $19.59 (put strike minus net debit) or higher than $25.41 (call strike plus net debit) when October-dated options expire. Risk, meanwhile, is limited to the initial premium paid for the strangle. Cisco Systems, Inc. (NASDAQ:CSCO) -- last seen 0.5% higher at $22.97 -- hasn't been south of the lower breakeven rail since December 2012, and hasn't been north of the upper breakeven rail since August 2013.


Wynn Resorts, Limited (WYNN) Traders Pay Up for Pre-Earnings Puts

Wynn Resorts, Limited is tentatively slated to report earnings next week

by 4/15/2014 9:51 AM
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Put players have been active in Wynn Resorts, Limited's (NASDAQ:WYNN) options pits lately, per data from three major exchanges. Specifically, over the course of the past 10 sessions, WYNN has racked up an International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 1.27, which ranks in the 81st percentile of its annual range. Simply stated, puts have been bought to open over calls at an accelerated clip in recent weeks.

It was a similar set-up in yesterday's trading, where puts traded at a 93% mark-up to the daily average -- and outpaced calls by a margin of more than 2-to-1. All 10 of the most active strikes expire within the next four-plus weeks, and against this increased demand for short-term options, the stock's 30-day at-the-money implied volatility (IV) jumped 9.9% to 40.5% -- its loftiest perch since July 2012.

WYNN's May 200 and 210 puts emerged as the two most sought-after strikes, where a collective 4,660 contracts changed hands. A healthy portion at each strike did so on the ask side, IV ran higher, and open interest rose overnight, making it safe to assume that a portion of Monday's activity was of the buy-to-open kind. Based on WYNN's current price of $210.40, the stock needs to surrender about 4.9% and 0.2% to breach the respective strike prices.

Risk for either group of option traders, meanwhile, is limited to the initial premium paid. However, according to WYNN's Schaeffer's Volatility Index (SVI) of 41% -- which ranks in the 100th percentile of its annual range -- the stock's front-month options are rather expensive at the moment, from a volatility perspective.

This may have to do with WYNN's impending quarterly earnings report, tentatively slated for release next week. The company has a mixed history in the confessional, besting analysts' bottom-line estimates in four of the past eight quarters. The stock has followed up these hot-and-cold quarterly announcements by averaging a gain of 1% in the subsequent session, and a loss of 0.1% the following week. With Wynn Resorts, Limited (NASDAQ:WYNN) sitting on a 69.5% year-over-year lead, a portion of the recent put buying -- particularly at the further out-of-the-money May 200 strike -- could be at the hands of shareholders picking up some protective puts in case of a post-earnings drop.


Option Bear Sets Sights On Sirius XM Holdings Inc. (SIRI)

Sirius XM Holdings Inc. option volume surges on block trade

by 4/15/2014 8:16 AM
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Option Brief: Sirius XM Holdings Inc. (NASDAQ:SIRI) put volume ran at a more than three-fold mark-up to call volume yesterday. Against this backdrop, SIRI's 30-day at-the-money implied volatility (IV) again reached a 52-week high, and finished 4.5% higher at 42.9% -- indicating stronger-than-usual demand for short-term options.

The satellite radio issue's most active option, however, was the intermediate-term September 3 put, where 10,000 contracts crossed the tape -- all the product of a block trade that went off just before the noon ET hour. In fact, this lot accounted for almost two-thirds of the overall volume in SIRI's options pits on Monday.

Digging deeper, the puts changed hands at the ask price of $0.25, suggesting they were purchased. Also, IV at the strike ticked higher, and nearly all of the contracts translated to open interest, making it safe to assume the puts were bought to open.

Long story short, Monday morning's put buyer expects shares of Sirius XM Holdings Inc. (NASDAQ:SIRI) to dip below $3 by September options expiration, five-plus months from now. If they don't (and the trader opts to hold the block all the way through expiration), the individual will sacrifice 100% of the initial premium paid, or $250,000 (10,000 contracts * 100 shares per contract * $0.25 per contract). At yesterday's close, the stock was at $3.13.


Option Clips: Herbalife, Halcon Resources, and National-Oilwell Varco

Reviewing notable options activity on Herbalife Ltd., Halcon Resources Corp, and National-Oilwell Varco, Inc.

by 4/14/2014 12:46 PM
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Three equities generating buzz on StockTwits today are nutritional supplements provider Herbalife Ltd. (NYSE:HLF), as well as energy issues Halcon Resources Corp (NYSE:HK) and National-Oilwell Varco, Inc. (NYSE:NOV). Here's a look at how traders have been aligning their speculative bets today.

  • Herbalife Ltd. (NYSE:HLF) is back in the spotlight today, amid unconfirmed reports that the FBI is investigating the firm's business practices. The stock dropped 14% on Friday, but has since bounced back 8% to flirt with $55.61. Nevertheless, HLF remains on the short-sale restricted list, and its 30-day at-the-money implied volatility (IV) has gapped 20.1% lower to 69.1%. Against this backdrop, puts are flying off the shelves at more than twice the average intraday rate, with roughly 17,000 contracts exchanged. For comparison, fewer than 9,000 HLF calls have changed hands thus far. Most active is the April 50 put, where close to 2,500 contracts have traded. However, today's put bias is nothing new for Herbalife, which is slated to report earnings after the close on Monday, April 28. The stock sports a 10-day put/call volume ratio of 1.38 on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). This ratio sits just 5 percentage points from a 52-week peak, reflecting a much healthier-than-usual appetite for long puts over calls during the past two weeks.

  • Halcon Resources Corp (NYSE:HK) has shot 10.1% higher to $5.01, following sector peer Goodrich Petroleum Corporation (NYSE:GDP) into the black. HK call volume is running at 17 times the norm this afternoon, with roughly 21,000 contracts exchanged. Meanwhile, just over 1,100 HK puts have crossed the tape. Nine of the 10 most active strikes are calls, with the July 6 call accounting for nearly half of the volume. Almost all of the calls have traded on the ask side, IV has jumped 7.6 percentage points, and volume has surpassed open interest -- all signs of newly bought bullish bets. However, it's worth noting that short interest accounts for 12.5% of the stock's total available float, and would take more than 11 sessions to buy back, at HK's average pace of trading. As such, it's possible that short sellers are buying the out-of-the-money calls to limit losses in the event of a continued rally.

  • Finally, National-Oilwell Varco, Inc. (NYSE:NOV) has edged 1.8% higher to $79.56, bringing it into the black for 2014. Speculators are wagering on more upside for the stock in the short term, with intraday call volume running at double the normal pace. More than 4,100 calls have changed hands, compared to around 2,100 puts. Most popular is the weekly 5/2 80-strike call, where nearly 1,600 contracts have traded, primarily at the ask price. Plus, IV is trending higher and volume exceeds open interest, underscoring our theory of buy-to-open activity. The goal of the call buyers is for NOV to be sitting north of $80 when the options expire at the close on Friday, May 2 -- just five sessions after the company's turn in the earnings confessional.


BlackBerry Ltd (BBRY) Puts Sellers Confident in Short Term

Following recent trends, BlackBerry Ltd puts are being sold (rather than bought) to open

by 4/14/2014 12:01 PM
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Roughly 22,000 BlackBerry Ltd (NASDAQ:BBRY) puts are on the tape so far today -- more than doubling the expected intraday volume, and easily outpacing the 15,000 calls traded. Not surprisingly, the most active strike is on the put side of the aisle.

Diving into the details, 8,104 contracts have been exchanged at the cell phone maker's May 6 put. The majority crossed as a sweep of 6,810 contracts, which transpired at the bid price, hinting at seller-driven activity. What's more, implied volatility at the strike is on the upswing, and volume has surpassed open interest, making it safe to assume new neutral-to-bullish bets were initiated.

Simply stated, today's BBRY put writers expect the shares -- currently 1.1% lower at $7.20 -- to remain above the 6 strike through the close on Friday, May 16, when the back-month options expire. If that happens, the contracts will be rendered worthless, and the sellers will retain the initial premium collected as their maximum potential profit. However, if BlackBerry tumbles south of the strike, the traders could be assigned, and forced to buy the shares for $6 each, regardless of their price at the time.

Put writing has been a popular strategy in BBRY's options pits of late. During the past 50 sessions, in fact, more than 113,000 puts have been sold to open, versus roughly 96,400 bought to open. It's no wonder, either -- since hitting a 10-year low of $5.44 in December, the stock has tacked on 32.4%.

In fundamental news, BlackBerry Ltd (NASDAQ:BBRY) announced over the weekend plans to release patches for the "Heartbleed" bug by this Friday. A top executive described the risk posed to BBRY users as "extremely small."


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