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Option Traders Divided On Apple Inc. (AAPL)

Speculators are targeting Apple Inc. options that expire this Friday

by 8/27/2014 10:42 AM
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Apple Inc. (NASDAQ:AAPL) allegedly plans to release a 12.9-inch iPad next year, according to recent reports, and speculation continues to swirl around the anticipated September debut of the iPhone 6. However, there's been little reaction to the news today, with the shares sitting just a nickel higher at $100.94. In the tech name's options pits, meanwhile, short-term contracts are in demand. Specifically, AAPL's 30-day at-the-money implied volatility is 1.4% higher at 22.9%, and nine of the 10 most active options expire at this Friday's close.

Grabbing an early lead is the weekly 8/29 102-strike call, which is seeing a mix of sell- and buy-to-open activity. The call writers are gambling that AAPL will remain below $102 through the end of the week, allowing the contracts to expire worthless, and the traders to retain the initial premium collected as their maximum potential reward. However, should the shares topple the strike, the sellers could be at risk of assignment, and face theoretically unlimited losses.

Conversely, the weekly call buyers believe AAPL will hurdle the $102 mark. Specifically, they will profit at expiration if the stock is sitting north of $102.22 -- the strike plus the volume-weighted average price of $0.22 -- with theoretically unlimited gains from that point forward. If the shares end the week below $102, the most the traders will forfeit is the initial premium paid.

On the charts, it's been a solid year for Apple Inc. (NASDAQ:AAPL), which is up roughly 26% in 2014. More recently, the equity found a foothold atop the century mark, and hit a record high of $102.17 on Monday.


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Most Active Options Update: JDS Uniphase Corp (JDSU)

JDS Uniphase Corp option buyers are betting on an extended rebound

by 8/27/2014 10:06 AM
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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 network equipment maker JDS Uniphase Corp (NASDAQ:JDSU), which has been a target among call buyers.

Most Active Options Table

Since its post-earnings bear gap on Aug. 13, the shares of JDS Uniphase Corporation have recovered 9.4% to flirt with $11.92. The stock is now struggling to topple the $12 level, which emerged as a technical speed bump in late July and early August. Option traders remain optimistic, however, judging by recent buying trends.

On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open more than 42 JDSU calls for every put during the past two weeks. The resulting 10-day call/put volume ratio of 42.38 stands just 3 percentage points from a 52-week peak, implying that option buyers have initiated bullish bets over bearish at a near-annual-high clip recently.

Echoing that, JDSU saw roughly 16,000 calls change hands on Tuesday -- more than three times the norm, and more than 22 times the number of puts traded. Most active was the out-of-the-money October 13 call, where 7,237 contracts crossed, primarily on the ask side, suggesting they were bought. Plus, open interest jumped at the back-month strike overnight, confirming the initiation of fresh positions.

By purchasing the calls at a volume-weighted average price (VWAP) of $0.20, the buyers will profit if JDSU is perched atop $13.20 (strike plus VWAP) at the close on Friday, Oct. 17, when the options expire. Profit potential is theoretically unlimited north of breakeven -- which represents territory not charted since late April -- and risk is capped at the initial premium paid, should JDSU remain south of the strike through the option's lifetime.

While JDSU's 30-day at-the-money implied volatility jumped 5.3% to 29.2% yesterday -- pointing to a growing demand for short-term options -- the stock's near-term contracts can still be had at a relative discount. The equity's Schaeffer's Volatility Index (SVI) of 29% stands just 8 percentage points from an annual low, suggesting JDS Uniphase Corp's (NASDAQ:JDSU) front-month options are historically inexpensive at the moment.


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Achillion Pharmaceuticals, Inc. (ACH) Bulls Eye Higher Highs

Achillion Pharmaceuticals, Inc. options traders are confident in a continued rally

by 8/27/2014 10:00 AM
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Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN) soared 9% yesterday and struck a fresh two-year high of $12.06, after a Deutsche Bank analyst speculated the firm -- along with sector peer Arrowhead Research Corp (NASDAQ:ARWR) -- may be a takeover target. Not surprisingly, option volume more than tripled the daily average, and the stock's 30-day at-the-money implied volatility spiked 10.2% to 99.3%, signaling elevated demand for short-term contracts.

Most active was ACHN's September 12 call, where roughly 3,000 contracts were exchanged. Traders bought to open these calls at a volume-weighted average price (VWAP) of $0.89, resulting in an at-expiration breakeven mark of $12.89 (strike plus VWAP) -- territory not explored since January 2012. The buyers will rack up additional gains north of this point, while the most they stand to lose is the initial premium paid, should ACHN be resting below the strike at the close on Friday, Sept. 19 -- when the front-month contracts cease trading.

In early action, Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN) has given back a portion of Tuesday's gains, down 2.5% at $11.46. Nevertheless, the shares have still tacked on about 245% in 2014, and have outperformed the broader S&P 500 Index (SPX) by more than 320 percentage points during the past three months.


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Morgan Stanley (MS): Call Players React to Four-Year Peak

Morgan Stanley saw a mix of call selling and buying on Tuesday

by 8/27/2014 9:34 AM
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A sharp bounce off its 120-day moving average earlier this month helped send Morgan Stanley (NYSE:MS) to a four-year peak of $34.57 on Monday, and yesterday's close at $34.40 is just a stone's throw from this notable milestone. Against this backdrop, call volume accelerated to 1.7 times the average daily pace on Tuesday; however, not all of the activity was of the traditional bullish variety.

Drilling down, the two most active strikes in MS' options pits yesterday were the September 36 call and the September 35 call. The higher-strike calls were mostly traded at the bid price, pointing to seller-driven activity, while the lower-strike calls crossed at the ask price, suggesting they were bought. Open interest rose at both strikes overnight, making it safe to assume new positions were initiated.

By selling to open the September 36 calls, traders are expecting MS to stay south of the $36 mark through the close on Friday, Sept. 19, when front-month options expire. Meanwhile, by buying to open the September 35 calls, traders are banking on the stock to finish north of the $35 mark at expiration.

Currently, it appears to be a more opportune time to purchase premium on these front-month options, as opposed to selling premium. The stock's Schaeffer's Volatility Index (SVI) of 17% ranks lower than 96% of comparable readings taken in the past year. Plus, implied volatility at both the September 36 call and September 35 call is deflated relative to the equity's 30-day historical volatility (16.2%, 16.9% vs. 21.7%). Simply stated, MS' September-dated options are pricing in low volatility expectations at the moment.

On the fundamental front, Morgan Stanley (NYSE:MS) scored a legal win against fellow financial firm Charles Schwab Corp (NYSE:SCHW) on Tuesday. Specifically, the Financial Industry Regulatory Authority said MS did not poach former SCHW advisers in San Francisco in 2011, ending the two-year, $15 million lawsuit.


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Most Active Options Update: United States Steel Corporation (X)

One option trader is gambling on higher highs for United States Steel Corporation

by 8/26/2014 2:32 PM
Stocks quoted in this article:

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 United States Steel Corporation (NYSE:X), which has seen interesting call activity today.

Most Active Options Table

United States Steel Corporation is extending its quest for three-year highs, peaking at $39.48 in intraday action. At last check, the stock is flirting with a 1.5% lead at $39.39, and it looks like one option trader may be upping the bullish ante.

Around midday, symmetrical blocks of 2,000 contracts traded at the September 37 and 39.50 calls. The lower-strike calls crossed for $2.84 apiece -- closer to the bid price, suggesting they were sold. The higher-strike calls traded for $1.24 each -- closer to the ask price, implying they were likely bought. Plus, volume has surpassed open interest at the September 39.50 call, indicating a crop of new positions.

In other words, it looks like the speculator sold his now-in-the-money September 37 calls to close, for $568,000 (number of contracts x 100 shares per contract x bid price). She then used $248,000 of that (number of contracts x 100 shares per contract x ask price) to purchase the higher-strike September 39.50 calls, leaving her with $320,000 (minus the initial cost to buy the 37-strike calls).

By rolling up her calls, the trader expects X shares to continue their journey into new-high territory, toppling the $39.50 level by the close on Friday, Sept. 19, when front-month options expire. This bullish sentiment marks a change of pace among X option buyers, though, as the stock's 10-day put/call volume ratio on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sits at 2.41 -- just 3 percentage points from an annual high. In simpler terms, option buyers have been picking up X puts over calls at a near-annual-high clip during the past two weeks. A mass exodus of bears in the wake of X's rally could add fuel to the equity's fire.

Analysts are also wary of United States Steel Corporation (NYSE:X). While the stock has outperformed the broader S&P 500 Index (SPX) by more than 64 percentage points during the past three months, six out of 13 analysts maintain "hold" or worse opinions. Should more brokerage firms follow in the footsteps of Credit Suisse, a round of upgrades could propel the shares even higher.


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