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Traders See an Earnings Win for Urban Outfitters, Inc. (URBN)

Urban Outfitters, Inc.'s December 34 call is being bought to open today

by 11/17/2014 2:49 PM
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Urban Outfitters, Inc. (NASDAQ:URBN) is slated to report third-quarter earnings tonight, and ahead of this event, the stock's options pits are extremely busy. Calls, in particular, are being targeted -- trading at 22 times the expected intraday clip. What's more, the equity's 30-day at-the-money implied volatility (IV) is sitting 14.9% higher at 44.4% -- a 52-week acme -- suggesting short-term strikes are in demand.

Digging deeper, URBN's December 34 call is the most active strike, with 7,650 contracts exchanged so far. The vast majority have crossed at the ask price, IV is on the rise, and volume tops open interest -- all signs of buy-to-open activity. This theory is echoed by data from Trade-Alert.

Long story short, these buyers anticipate URBN shares will rally beyond $34 by back-month options expiration at the close on Friday, Dec. 19. The stock hasn't finished a session above that mark since mid-October, prior to the company issuing a quarterly profit warning, which resulted in a massive bear gap.

As alluded to earlier, Urban Outfitters, Inc. (NASDAQ:URBN) is preparing to tell all after tonight's closing bell. While the call buyers may be anticipating some post-earnings upside, the historical trend is to the downside. In fact, over the past four quarters, the stock has averaged a single-session post-earnings loss of 2.4%.


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Option Bulls Expect Halliburton Company (HAL) to Weather the Storm

Halliburton Company is down roughly 10% on poorly received M&A news

by 11/17/2014 2:31 PM
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Halliburton Company (NYSE:HAL) has plunged 10.3% today to $49.41, as Wall Street turns its nose up at the company's acquisition of Baker Hughes Incorporated (NYSE:BHI). Sharing in this sentiment is Cowen, which downgraded HAL to "market perform" from "outperform," and slashed its price target to $57 from $70, citing the stock's "limited appeal" during the takeover process. Against this backdrop, the equity has been placed on the short-sale restricted list, and options volume is running at five times what's typically seen at this point in the day.

Despite today's bearish gap, speculators are showing a rare preference for calls over puts. By the numbers, roughly 87,000 calls have changed hands, compared to around 52,000 puts. Short-term contracts are in demand, too, as evidenced by HAL's 30-day at-the-money implied volatility (IV), which is up 0.6% to 38.9% -- in the 97th percentile of its annual range.

Drilling down, Halliburton Company's (NYSE:HAL) November 51 call has seen the most action, with 11,210 contracts on the tape at last check. The majority of these calls have traded at the ask price, IV is higher, and volume outstrips open interest -- signifying buy-to-open activity. Amid today's sell off, delta on the call has dropped to 0.30 from 0.89 at the end of last week, suggesting a less than 1-in-3 chance the option will be in the money at this Friday's close, when front-month options expire.


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Most Active Options Update: Gilead Sciences, Inc. (GILD)

Gilead Sciences, Inc. option traders expect a bounce off the century mark

by 11/17/2014 2:09 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 biopharmaceutical concern Gilead Sciences, Inc. (NASDAQ:GILD), which is testing support at the century mark.

Most Active Options Table

Gilead Sciences, Inc. is down 1.7% at $100.32, bringing its month-to-date deficit to 10.4%. Since mid-August, the stock has ended just three sessions south of the century mark -- all in mid-October, amid the broad-market swoon. As such, speculators today are rolling the dice on a rebound for GILD this week.

The security has seen roughly 37,000 calls cross the tape, compared to fewer than 21,000 puts. Most active is the out-of-the-money November 105 call, where about 6,700 contracts have exchanged. While the International Securities Exchange (ISE) confirms that some of the contracts were bought to close, data from Trade Alert suggests some are being bought to open.

Implied volatility (IV) at the strike has popped 5.7 percentage points, and 84% of the contracts traded on the ask side -- collectively hinting at newly bought bullish bets. By purchasing the calls at a volume-weighted average price (VWAP) of $0.74, the buyers will begin to profit if GILD climbs back atop $105.74 (strike plus VWAP) by Friday's close, when the options expire. Risk, meanwhile, is capped at the initial premium paid for the contracts, should GILD remain south of the strike through the end of the week.

Meanwhile, the closer-to-the-money November 103 call has seen more than 2,900 contracts change hands, more than three-quarters on the ask side. IV has jumped 4.6 percentage points, and volume exceeds open interest, making an even better case for buy-to-open activity.

The VWAP of the 103-strike calls is $1.24, putting at-expiration breakeven at $104.24. Again, risk is limited to the initial cash outlay, should GILD fail to reclaim $103 by week's end.

While short-term call buying has gained traction recently, the broader sentiment tides still favor the bears. The equity's Schaeffer's put/call open interest ratio (SOIR) of 1.07 stands higher than 82% of all other readings from the past year, suggesting near-term traders are more put-heavy than usual right now.

Outside of the options pits, though, 14 out of 17 analysts offer up "buy" or better ratings, with not a "sell" in sight. Plus, the average 12-month price target of $122.63 represents a premium of roughly 22% to Gilead Sciences, Inc.'s (NASDAQ:GILD) current price, and analysts at UBS recently opined that the "market is starting to underestimate Gilead's commercial prowess despite an overall HCV package that is first and best in class."


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SouFun Holdings Ltd (SFUN) Bulls Eye Double Digits

Today's call buyers expect SouFun Holdings Ltd to muscle atop $10

by 11/17/2014 1:55 PM
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SouFun Holdings Ltd (NYSE:SFUN) has slipped 1.7% this afternoon to hover near $8.80, bringing its year-to-date loss close to 47%. However, that isn't stopping options traders from wagering on an advance back into double-digit territory.

Getting into the details, calls are crossing the tape at quadruple the expected intraday clip. What's more, SFUN's 30-day at-the-money implied volatility has edged 2.7% higher to 59%, indicating strong demand for short-term strikes. Nevertheless, the most active option by far is the longer-term February 10 call, where 6,064 contracts have been exchanged.

More than four-fifths of the activity here has transpired at the ask price, and volume outstrips open interest, collectively hinting at newly bought bullish bets. This theory is corroborated by data from Trade-Alert. In other words, these buyers anticipate SFUN will topple $10 by the close on Friday, Feb. 20 -- something it hasn't done since Oct. 24 -- which is when the options expire.

There is another possibility, however. Considering 9.4% of SouFun Holdings Ltd's (NYSE:SFUN) float is sold short, some of today's call buyers may actually be short sellers picking up protection against any unexpected upside.


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Most Active Weekly Options: Cisco Systems, Inc. (CSCO)

Cisco Systems, Inc.'s weekly 12/5 26-strike put is being bought to open today

by 11/17/2014 1:36 PM
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The 20 stocks listed in the table below are the names that have attracted the highest weekly options volume during the past 10 trading days. Those 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 Cisco Systems, Inc. (NASDAQ:CSCO), where option traders are betting on a breach of recent support.

Most Active Weekly Options Table

Cisco Systems, Inc. last week notched its first weekly close north of $26 since August 2013, and with the stock bottoming out at an intraday low of $26 earlier, it seems like this former layer of resistance could now be switching to a more supportive role. Not everyone is convinced this level will hold, though, with a number of traders betting on a breach of this area over the next several weeks -- a time frame which encompasses this Thursday's annual shareholder meeting.

Specifically, CSCO's weekly 12/5 26-strike put has received notable attention today, with 3,364 contracts on the tape at last check. The majority of these calls have changed hands at the ask price, and just 300 contracts are currently in residence, making it safe to assume new positions are being purchased. The options market isn't too confident the put will be in the money at the close on Friday, Dec. 5, as its delta is docked at negative 0.33.

Widening the sentiment scope reveals option traders have taken the glass-half-empty approach to CSCO in recent weeks, despite the stock tacking on an impressive 17.6% in 2014 -- and tagging a fresh 52-week peak of $26.38 today. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), for example, the equity's 10-day put/call volume ratio of 1.21 ranks just 5 percentage points from an annual bearish peak. Should Cisco Systems, Inc. (NASDAQ:CSCO) continue to make its way up the charts, an unwinding of the hedges related to these bets could add fuel to the security's fire.


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