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Option Bears Line Up for Herbalife Ltd. (HLF)

Herbalife Ltd. dropped on Friday, but is pointed higher this morning

by 10/20/2014 9:45 AM
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Herbalife Ltd. (NYSE:HLF) is up 1.3% out of the gate -- thanks to a "buy" initiation and a whopping $110 price target at Pivotal Research -- but it was a different story on Friday, when the shares dropped 3.1% to close at $45.43. Not surprisingly, options activity tilted in a bearish direction, with puts trading at a 60% mark-up to the expected intraday rate. While short-term strikes were in demand -- per the stock's 30-day at-the-money implied volatility, which hit an annual high on Friday and ended 5.5% higher at 108.4% -- the most active strike was of the longer-term variety.

Diving right in, the January 2015 35-strike put was HLF's most popular option on Friday, with roughly 5,200 contracts on the tape. Almost all of them crossed at the ask price, and open interest added 4,710 positions over the weekend, collectively suggesting the purchase of fresh bearish bets. This theory is corroborated by data from the International Securities Exchange (ISE) and Trade-Alert.

By buying the puts to open, Friday's speculators expect shares of Herbalife Ltd. (NYSE:HLF) to drop below $35 by January 2015 options expiration. Looking back, however, the stock hasn't breached this level since April 2013. As such, delta on the put is a mere 0.23, suggesting a less than 1-in-4 chance the option will be in the money at expiration.


Skepticism Grows On Underperforming Transocean LTD (RIG)

Transocean LTD's weekly 10/31 30-strike call is being sold to open today

by 10/17/2014 2:34 PM
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Cowen weighed in on a number of oil-and-gas issues today following Baker Hughes Incorporated's (NYSE:BHI) dismal earnings report, and for Transocean LTD (NYSE:RIG), that meant a downgrade to "market perform" from "outperform" and price-target cut to $30 from $39. Against this backdrop, shares of RIG have plunged 5.9% to $28.37. Meanwhile, in the options pits, overall volume is running at a slightly accelerated clip, and a number of speculators are setting a ceiling for the shares through month's end.

Specifically, the stock's most active call is the weekly 10/31 30 strike, where 2,205 contracts have changed hands -- mostly at the bid price, hinting at seller-driven activity. Plus, volume outstrips open interest, pointing to the initiation of new short positions. By writing the calls to open, traders expect RIG to stay south of $30 through the close on Friday, Oct. 31 -- when the weekly series expires. Amid today's plunge, delta on the call has dropped to 0.34 from 0.54 at last night's close, suggesting a decreased probability the option will expire in the money.

Today's steep sell-off only highlights RIG's withstanding technical troubles, with the shares down more than 42% year-to-date. In spite of this, there are still pockets of optimism found around the Street. In fact, the consensus 12-month price target of $32.19 stands at a 13.5% premium to the equity's current perch. Should Transocean LTD (NYSE:RIG) continue in its downward trajectory, another round of price-target cuts could pressure the shares lower.


Most Active Options Update: Ford Motor Company (F)

Ford Motor Company sees a rare uptick in pre-earnings call volume

by 10/17/2014 1:28 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 automaker Ford Motor Company (NYSE:F), as one pre-earnings options trader bucks the withstanding bearish trend.

Most Active Options Table

Ford Motor Company has sold off sharply since hitting a three-year high of $18.12 in late July, with the shares off nearly 22% to trade at $14.17. The stock has been making an attempt at technical redemption in recent sessions, and today, F is up 1.4% following an encouraging report on European auto sales. Amid this bounce, calls are trading at 1.4 times the average intraday pace, with one speculator in particular eyeing an extended rebound over the next two weeks -- a time frame that captures F's next quarterly earnings report.

Specifically, F's weekly 10/31 14.50-strike call has seen the most action today, with 18,396 contracts on the tape. The majority of this activity occurred when a massive multi-exchange sweep of 17,310 contracts was bought to open for $0.21 apiece, resulting in an initial cash outlay of $363,510 (number of contracts * premium paid * 100 shares per contract).

This is also the most the trader has to lose, if F remains south of $14.50 through the close on Friday, Oct. 31 -- when the weekly series expires. Gains, meanwhile, are theoretically unlimited, should the stock rally past breakeven at $14.71 (strike plus premium paid) over the next two weeks.

As touched upon, Ford Motor Company (NYSE:F) will take its turn in the earnings confessional ahead of the open next Friday, Oct. 24. Events such as these can often spark accelerated price action in a stock, and today's option bull appears to be hoping for a post-earnings move to the upside. The withstanding trend in F's options pits has tended toward the skeptical side, though. 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 0.36 ranks in the bearishly skewed 86th percentile of its annual range.


Morgan Stanley (MS) Bears Don't Buy Earnings-Induced Rally

Morgan Stanley puts are trading at an accelerated clip today

by 10/17/2014 10:34 AM
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It's been a strong day on the corporate earnings front, and financial firm Morgan Stanley (NYSE:MS) is no exception. At last check, the stock was up 3.2% at $33.56, after posting an 87% rise in third-quarter profit -- easily beating analysts' consensus bottom-line estimate. However, not everyone is convinced the security can sustain this post-earnings momentum. In fact, put volume is running at a 26% mark-up to the average intraday pace this morning, with a number of speculators betting on a quick retreat for the shares.

Drilling down, the weekly 10/24 33-strike put has seen the most action in MS' options pits, with 1,472 contracts on the tape. More than three-quarters of these contracts have traded at the ask price, and volume outstrips open interest, pointing to the purchase of new positions. Amid today's rally, delta on the put has dropped to negative 0.36 from negative 0.58 at last night's close, suggesting a decreased probability the option will be in the money at next Friday's close, when the weekly series expires.

From a wider sentiment perspective, today's trend toward puts only highlights the withstanding trend witnessed in MS' options arena. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), for example, Morgan Stanley's (NYSE:MS) 50-day put/call volume ratio of 0.68 ranks in the bearishly skewed 82nd annual percentile.


Honeywell International Inc. (HON) Option Bulls Triple Their Money

Honeywell International Inc. has surged more than 3% following its quarterly earnings report

by 10/17/2014 10:00 AM
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Option players were active on Honeywell International Inc. (NYSE:HON) ahead of the industrial giant's quarterly earnings report, which was released bright and early this morning. Overall volume traded at two times the daily average, but calls emerged as the options of choice. By the numbers, 6,290 calls changed hands, versus 5,010 puts. Eleventh-hour bulls rolled the dice on some earnings-related upside, and by the looks of it, their bets are paying off.

Specifically, the most active HON strike on Thursday was the October 87.50 call, where 2,533 contracts crossed the tape. The majority of these went off at the ask price, implied volatility surged 8.6 percentage points, and open interest rose overnight -- all signs of buy-to-open activity. Traders purchased these calls at a volume-weighted average price of $0.67, and thanks to today's post-earnings pop, the options are currently priced at $2.11, resulting in a profit of 215%.

Heading into today's session, HON was down 5.5% on the year, due mostly in part to the security's 11% decline since hitting its most recent high of $96.93 on Sept. 19. However, on the heels of Honeywell International Inc.'s (NYSE:HON) better-than-expected third-quarter results and an upwardly revised full-year forecast, the stock has soared 3.2% to trade at $89.14.


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