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Option Clips: Chipotle Mexican Grill, IBM, and SanDisk Corporation

Reviewing notable options activity on Chipotle Mexican Grill, Inc., International Business Machines Corp., and SanDisk Corporation

by 4/17/2014 1:15 PM
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Three equities generating post-earnings buzz on StockTwits today are restaurateur Chipotle Mexican Grill, Inc. (NYSE:CMG), blue-chip tech titan International Business Machines Corp. (NYSE:IBM), and memory device maker SanDisk Corporation (NASDAQ:SNDK). Here's a look at how traders have been aligning their speculative bets today.

  • After rallying as high as $588.69 in intraday action, Chipotle Mexican Grill, Inc. (NYSE:CMG) is 1.6% lower at $543.42, despite reporting stronger-than-expected quarterly earnings and upping its full-year sales guidance. In addition, the company's board approved a $100 million increase to CMG's stock repurchase plan. Against this backdrop, total options volume is running at five times the intraday average, and the stock's 30-day at-the-money (ATM) implied volatility (IV) has plummeted 37.5% to 26.6%. While some of the recent option bulls may have cashed in their chips, a slew of traders are initiating eleventh-hour bets ahead of the close today, when April-dated options expire. The 10 most active options are, in fact, soon-to-expire front-month strikes, and all 10 have seen volume surpass open interest, hinting at fresh positions.

  • International Business Machines Corp. (NYSE:IBM) has dipped 3.3% to $189.90, after the firm reported a decline in first-quarter profit and revenue. However, the stock has found an ally in its 10-week moving average, which -- along with its 20-week counterpart -- has served as support since mid-February. Big Blue has seen a post-earnings drop of 27.5% in its 30-day ATM IV, which now sits at 15.3%, and overall options volume is running at four times the norm. While the options crowd was stocking up on puts ahead of last night's report, at least one cautious option bull is gambling on a short-term rebound for IBM. Specifically, it appears the trader constructed a bull call spread at the weekly 5/23 197.50- and 205-strike calls, for a net debit of $0.62 per pair of options. The spread will be profitable if IBM surmounts breakeven at $198.12 (bought call strike plus net debit) at options expiration on Friday, May 23.

  • Finally, SanDisk Corporation (NASDAQ:SNDK) is one of the biggest advancers on the Nasdaq today, thanks to well-received quarterly earnings and guidance. The shares are flirting with a 10.3% gain at $83.64 -- just a chip-shot from their all-time high of $85.37, tagged earlier this month. So far today, SNDK has seen roughly 25,000 calls cross the tape -- five times its average intraday volume -- and its 30-day ATM IV has notched a 24.8% post-earnings drop to 28.2%. For comparison, around 14,000 SNDK puts have changed hands. In fact, the four most active strikes are calls, and the July 85 call is the lone strike with a shelf-life longer than a few hours. The company's solid earnings showing likely has a few bears spooked, too. In the two weeks heading into the report, speculators on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) bought to open more puts than calls, and the resulting 10-day put/call volume ratio of 1.40 stands just 14 percentage points from an annual high.


Pre-Earnings Option Bulls Turn Out on Wal-Mart Stores, Inc. (WMT)

Wal-Mart Stores, Inc.'s May 80 call is being bought to open today

by 4/17/2014 11:15 AM
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Option Brief: Wal-Mart Stores, Inc. (NYSE:WMT) has spent most of the past year bouncing between $73 and $80, translating into a roughly 1.5% 52-week loss. This hasn't deterred today's option traders from betting on a breakout over the next four-plus weeks -- a time frame which includes the company's quarterly earnings report.

With roughly two hours under the belt in today's trading, around 14,000 WMT calls have crossed the tape, or more than four times the intraday average. The majority of this volume has centered on WMT's May 80 call, where a healthy portion of the 10,479 calls traded have done so at the ask price, pointing to buyer-driven activity. Meanwhile, implied volatility is higher, suggesting the initiation of new positions -- a theory echoed by Trade-Alert and data from the International Securities Exchange (ISE).

The volume-weighted average price (VWAP) for the calls is $0.23, making breakeven at the close on Friday, May 16, when the options expire, $80.23 (strike plus the VWAP). This mark sits roughly 1.4% below WMT's record peak of $81.37, tagged last December. Should WMT fail to muscle its way north of the round-number $80 level ahead of expiration, the most the speculators stand to lose is the initial cash outlay. However, WMT's Schaeffer's Volatility Index (SVI) of 14% ranks in the 35th percentile of its annual range, suggesting the stock's short-term options are attractively priced, from a volatility perspective.

If today's call buyers are eyeing the company's impending earnings report -- scheduled for Thursday, May 15 -- history is not in their favor. Despite besting consensus bottom-line estimates in six of the past eight quarters, WMT averages a loss of 0.9% in the subsequent session. In today's session, though, Wal-Mart Stores, Inc. (NYSE:WMT) is edging its way closer to the $80 level. At last check, the stock was up 0.3% to trade at $77.45, following reports that it will llaunch a store-to-store money transfer service later this month.


Zynga Inc (ZNGA) Option Bulls Bet On a Post-Earnings Rally

Short-term Zynga Inc calls were in focus yesterday

by 4/17/2014 11:10 AM
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Option Brief: Zynga Inc (NASDAQ:ZNGA) is trading 1.5% higher at $4.17 this morning, amid the launch of the game maker's new title, FarmVille 2: Country Escape, for the Apple Inc. (NASDAQ:AAPL) iPhone and iPad, as well as Google Inc (NASDAQ:GOOGL) Android-based devices. Meanwhile, in yesterday's options pits, ZNGA calls stole the spotlight, with 36,000 contracts exchanged versus only 7,600 puts. Amid this activity -- especially at short-term strikes -- the stock's 30-day at-the-money implied volatility (IV) rose 9.1% to 76.1%.

Digging deeper, ZNGA's May 4.50 call was easily the most active option on Wednesday, as roughly 20,200 contracts -- including several large blocks -- crossed the tape. IV popped at the strike, and open interest added nearly 13,600 positions overnight, making it safe to assume new bullish bets were initiated. Long story short, yesterday's traders anticipate ZNGA shares will surmount $4.50 by the closing bell on Friday, May 16, when the soon-to-be front-month options expire. No matter what happens, however, the most the buyers have at stake is the initial premium paid.

Within the aforementioned option's lifetime, Zynga Inc (NASDAQ:ZNGA) is scheduled to report first-quarter earnings -- specifically, next Wednesday evening. While the company has matched or exceeded analysts' average bottom-line estimates in seven of the previous eight quarters, the stock's post-earnings reaction has traditionally been volatile. In January, a 1-cent earnings beat resulted in a 25.6% gain in the following week; however, in July 2012, an earnings miss prompted the shares to shed nearly 45% in the subsequent week.


Micron Technology, Inc. (MU) Bullish Bets Fly Off the Shelves

Micron Technology, Inc. calls are trading at more than twice the intraday norm

by 4/17/2014 10:52 AM
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Option Brief: Micron Technology, Inc. (NASDAQ:MU) is bucking the broad-market trend lower this morning, enjoying a post-earnings halo lift from sector peer SanDisk Corporation (NASDAQ:SNDK). The shares of MU are 4.4% higher at $23.46, and options traders are rolling the dice on more upside for the memory maker in the short term.

Already today, MU has seen roughly 67,000 calls cross the tape -- more than two times the average intraday volume. For comparison, around 29,000 MU puts have traded. Most active is the weekly 5/23 22.50-strike call, where more than 10,000 contracts have changed hands, primarily in a sweep just before 10 a.m. ET. The calls crossed at the ask price of $1.67 apiece, volume has surpassed open interest at the strike, and implied volatility is trending higher -- hinting at newly bought bullish bets.

By purchasing the calls to open, the buyer will make money if MU powers north of $24.17 (strike plus premium paid) by the close on Friday, May 23, when the options expire. Risk is capped at the initial cash outlay for the calls, should MU retreat and finish beneath the strike at expiration. However, the stock's Schaeffer's Volatility Index (SVI) of 39% sits just 12 percentage points from an annual low, implying that MU's short-term options are inexpensive right now, from a historical standpoint.

Not everyone on Wall Street shares the same optimistic outlook as the aforementioned call buyer, though. Short interest accounts for 11.9% of Micron Technology, Inc.'s (NASDAQ:MU) total available float, representing more than four sessions' worth of pent-up buying demand. Should the shares extend their recent rally -- MU is on pace for an 11% gain this week -- a rush to cover by the shorts could translate into contrarian tailwinds.


Why This Sirius XM Holdings Inc. (SIRI) Trader is Selling Options

Sirius XM Holdings Inc. will report earnings ahead of next Thursday's open

by 4/17/2014 9:55 AM
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Option Brief: Sirius XM Holdings Inc. (NASDAQ:SIRI) will take its turn in the earnings confessional ahead of next Thursday's open. As is often the case in the days leading up to such an event, premium on the stock's short-term options has grown. For example, SIRI's Schaeffer's Volatility Index (SVI) has risen to an annual high of 44%, while two weeks ago, this metric stood at a slimmer 34%. Echoing this is the equity's 30-day at-the-money implied volatility (IV), which shot to a 52-week high in yesterday's session. Simply stated, as demand for SIRI's short-term options has increased, so has the cost.

While hefty premium can serve as a deterrent for option buyers, it makes selling options an attractive strategy, and may have been the motivation behind one particular trader in SIRI's options pits yesterday. In the latter half of the session, one massive block of 20,591 May 3.50 calls changed hands at the bid price of $0.06, pointing to seller-driven activity. What's more, IV ticked higher as the transaction crossed, and the strike saw the biggest increase in open interest overnight, making it safe to assume that new positions were initiated.

By selling to open these out-of-the-money calls, the expectation is for SIRI -- presently priced at $3.14 -- to stay south of $3.50 through the close on Friday, May 16, when the soon-to-be front-month options expire. In this best-case scenario, the calls will expire worthless, and the trader can pocket the initial credit collected as her full potential reward. For Wednesday's call writer, this equates to $123,546 (number of contracts * premium collected * 100 shares per contract). Risk, meanwhile, is theoretically unlimited, should SIRI rally past the strike, and the call seller be assigned.

One way to minimize risk on a short call is to study the charts, and it appears Wednesday's call writer may have done just that. SIRI hasn't traded north of $3.50 since mid-March. What's more, its 20-day moving average -- currently located at $3.19 -- has emerged as a newfound layer of resistance, and put a quick stop to SIRI's two most recent rally attempts.

As noted, Sirius XM Holdings Inc. (NASDAQ:SIRI) will report quarterly earnings next week. SIRI has matched or exceeded analysts' bottom-line estimates in five of the past eight quarters, with the stock posting an average gain of 1.1% and 1.2% in the subsequent day and week, respectively. For SIRI's first quarter, consensus estimates are for a profit of 2 cents per share -- in line with the company's year-ago results.


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