Real-time equity news [E U]
U.S. stock market report
1520 ET 7Dec2012-Traders eye Quiksilver upside calls before earnings
——————————————————————————–
Options traffic on sportswear retailer Quiksilver Inc is heavily
tilted on the call side ahead of the company’s fourth-quarter earnings slated
for next Thursday. The shares rose 4.98 percent to $4.21 and in the options
patch, traders exchanged 6,445 calls and 1,134 puts so far on ZQK late in the
session. The volume is 5.9 times the daily average, according to Trade Alert.
The December $5 strike calls, which are out-of-the-money and expiring in two
weeks, have 4,329 lots in play against zero open interest positions, Trade Alert
data show. It appears most of these calls were purchased earlier in the session
for an average premium of five cents apiece, perhaps by one or more strategists
expecting the price of the underlying shares to pop after earnings, said
Interactive Brokers Group options analyst Caitlin Duffy.
“The stock posted double-digit percentage gains following the release of
third-quarter earnings in September and after the second-quarter earnings report
in April of this year,” Duffy added. Buyers of the $5 strike front month calls
early on Friday may profit at expiration should shares top the breakeven price
of $5.05. In addition, the May 2013 $5 strike calls traded 1,400 times. “Shares
have been grinding higher in recent weeks and are up 28.4 percent since
October,” said WhatsTrading.com options strategist Frederic Ruffy.
Reuters Messaging:
doris.frankel.reuters.com@reuters.net
1453 ET 7Dec2012-SandRidge Energy three-way options play targets gains
——————————————————————————–
About 72,000 call options traded on SandRidge Energy Inc late on
Friday, more than three times their daily average, which was driven by a
three-way bullish spread. “SandRidge Energy has been on a wild run higher
recently, and a huge three-way spread is looking for even more gains,” said
optionMonster analyst Chris McKhann in comments on the firm’s website.
According to optionMonster data, a trader sold 12,000 June $6 strike calls
for $1.59 against open interest of more than 28,000. At the same time, the
strategist bought 24,000 June $7 calls for $1.13 and sold two blocks of 12,000
June $9 calls for 50 and 49 cents, with volume at each of those strikes above
open interest.
McKhann noted the trader appears to be rolling the June $6 strike calls,
which are now in-the-money, up to the higher-strike vertical spread. “The move
doubles the size of the position while allowing the trader to take some money
off the table in the process,” McKhann said. Traders exchanged a total of about
104,000 option contracts on the oil and gas company so far, according to Trade
Alert. Shares of SandRidge rose 6.03 percent to $7.20.
Reuters Messaging:
doris.frankel.reuters.com@reuters.net
1250 ET 7Dec2012-Topeka Capital recommends PulteGroup April call spreads
——————————————————————————–
Topeka Capital Markets, in a note, advised clients to purchase April call
spreads on homebuilder PulteGroup Inc to position for potential gains.
“We believe the catalysts for PulteGroup are pricing power at 70 percent of
active neighborhoods, reduced speculative home sales, and growing demand for
move-up homes,” wrote Topeka Homebuilding analyst James McCanless in a note this
week. He initiated coverage on the stock with a buy.
Given that bullish outlook and skew dynamics pointing towards upside
movement, Topeka equity derivatives strategist Philip Saunders recommends
investors purchase April $16-$20 PulteGroup call spreads. Using Thursday’s stock
close price, the spread could be bought for $1.45. The spread starts to generate
profits with shares trading above $17.45 upon April expiration. Maximum profit
of $2.55 per contract is achieved with shares of PHM trading at or above $20
upon April expiration. Maximum loss is limited to the premium paid, or $1.45.
Options on Ryland Group and Toll Brothers continue to trade
at relatively high 90-day implied volatility levels, ranking in the 73rd and
62nd percentile respectively, Saunders said. KB Home brings up the rear
in terms of implied volatility, ranking around the 20th percentile on a 30-day
and 90-day basis. Saunders cited the 30-day implied volatility levels in KB Home
since it is due to report fourth-quarter results around Dec. 21. December
at-the-money KBH options imply a 2.9 percent earnings related move, up or down,
for the share’s price, significantly below its average move of 9.2 percent over
the last eight earnings announcements. “Add in a sector high short interest
ratio of 30 percent and you have an incredibly cheap option in KBH,” he said.
“Long December at-the-money straddles in KBH would make a ton of sense here.”
Reuters Messaging:
doris.frankel.reuters.com@reuters.net
1216 ET 7Dec2012-SFG views CVS Dec calls as attractive ahead of analyst day
——————————————————————————–
Derivative strategists at Susquehanna Financial Group believe that investors
should consider short-term December options on CVS Caremark Corp heading
into the company’s analyst day next Thursday, an event that could potentially
move the stock.
SFG Food and Drug Retailing analyst Bob Summers has a positive rating on CVS
Caremark with a $50 price target. For those who share SFG’s bullish outlook and
believe the stock could see volatility around this year’s analyst day, SFG
derivative strategists recommend a purchase of the Dec $47 strike calls as a way
to get low-cost, low-risk exposure into the event. Based on Thursday’s closing
stock price of $46.71, the calls could be bought for 56 cents, setting up a
breakeven price of $47.56 with risk on the downside limited to the premium paid.
SFG strategists highlight the large move in shares of nearly 9 percent
following the Dec. 20 analyst day last year. The December at-the-money CVS
straddle is priced around 2.9 percent, implying a more moderate move of 2.9
percent for the share’s price over the next 15 days and through this year’s
analyst day. “Given the 8.9 percent move on the Analyst Day last year, we thus
believe an argument can be made that these options appear attractive,” SFG said
in a note.
Reuters Messaging:
doris.frankel.reuters.com@reuters.net
1149 ET 7Dec2012-SFG recaps key equity option trades this week
——————————————————————————–
One stock that is attracting mostly front-month options flow this week is
Nexen Inc with some investors speculating that shares might
settle near $27 by December expiration as they await a decision from regulators
on a takeover bid for the Canadian energy company. Canada refused to offer any
hints on Friday on the timing of a decision on a bid by China’s CNOOC Ltd
for Nexen.
“Distribution plays have been commonplace in Nexen over the past two weeks,”
said derivative strategists at Susquehanna Financial Group in a recap of this
week’s key equity option trades. “It continued with an investor on Thursday
buying 9,000 Dec $25 strike calls and selling 18,000 $27 strike calls in the 1×2
call spread for $1.10. This adds to Wednesday’s trading where a trader bought
9,000 of these same spreads for $1.15. “Overall flow seems to indicate investors
expect that the stock will finish somewhere just below $27 at December expiry,”
SFG said.
Among U.S. oil and gas stocks, SFG said a seemingly opening investor in
Freeport-McMoRan Copper & Gold bought 10,000 Feb $40 strike calls for 17
cents after the stock sold off following its deal for Plains Exploration &
Production and McMoRan Exploration Co. “We also saw an opening
investor sell puts and buy calls in the May $28 put-$34 call risk reversal,
3,000 times, collecting 10 cents,” they said. Investors may be looking for a
rebound in shares with pending ultra-deep results and after hedge fund manager
Lee Cooperman indicated he was buying shares on weakness Wednesday, SFG said.
Regarding options on Bank of America, an investor looked bullish
with the sale of both Feb $9 strike puts and Feb $10 strike puts, 10,000 times,
collecting 59 cents for the package versus buying 20,000 March $11 calls for 48
cents and buying 60,000 March $13 strike calls for nine cents, SFG said. Over
the course of the past week SFG also noted sellers of Jan 2014 volatility in
Texas Instruments. Thursday’s trading consisted of an investor selling
5,000 Jan 2014 $35 strike calls at $1.15, likely done as part of an overwriting
strategy. These same contracts were sold 15,000 times on Tuesday while another
10,000 Jan 2014 $40 strike calls were sold on Wednesday at 40 cents, SFG said.
Reuters Messaging:
doris.frankel.reuters.com@reuters.net
1005 ET 7Dec2012-Traders appear to buy volatility in S&P; related products-SFG
——————————————————————————–
Investors appeared to be buying volatility in S&P; related products heading
into the deadline of the so-called “fiscal cliff” of tax hikes and spending cuts
set to begin next year, according to derivative strategists at Susquehanna
Financial Group in a recap of this week’s option trades.
In the past few days in the SPDR S&P; 500 Trust, SFG strategists
noticed a trend of investors selling the December weekly options expiring on
Dec. 15 and buying standard monthly December options, expiring on Dec. 23 and
buying longer-dated volatility through December options, expiring on Dec. 28 or
Dec. 31 and January options. The investors are essentially indicating that they
expect implied volatility levels will climb between Dec. 22 and year end, SFG
said. On Thursday, the trading continued with a trader selling 15,000 Dec weekly
$136 put/$145 SPY call strangles at 30 cents, expiring on Dec. 15. An investor
also sold 15,000 Dec $137 puts to buy 7,500 Jan $140 puts and there was a buyer
of a Dec weekly $138-Jan $138 put calendar, trading 20,000 times, delta neutral.
Examples from Wednesday include buyers of 20,000 Dec Quarterly $140 strike
puts for $1.99, at least 10,000 Dec Qty $136-$140 put spreads, 60,000 Jan
$128-$135 put spreads for up to 88 cents, and at least 10,000 Jan $145 strike
calls.
SFG noted buyers of upside calls in the S&P; 500 February options on
Thursday, including one investor who got long 10,000 February 1,525 calls for
$2.50. “This is very similar to buying 100,000 Feb $152.5 calls in the SPY for
25 cents,” SFG said. Similarly, in the EEM, a fund that tracks the MSCI
Emerging Markets Index, investors bought the Jan $42 strike calls and the Jan
$43 strike calls, 20,000 times, delta neutral in separate trades, SFG said. On
Wednesday in the EEM, and similar to Thursday’s bullish Jan spread in the FXI
China fund, a participant bought 23,000 Jan $43-$47 call spreads, SFG said.
Reuters Messaging:
doris.frankel.reuters.com@reuters.net
0920 ET 7Dec2012-Total option open interest stands at 3.42 mln contracts
——————————————————————————–
A total of 13.2 million contracts changed hands in the U.S.-listed options
market on Thursday, resulting in net open interest growth of 1.96 million calls
and 1.46 million puts, Trade Alert said.
Bank of America Corp, Apple Inc, Sandridge Energy Inc
and McMoRan Exploration Co attracted the greatest increase in
open option positions.
Top five new positions opened include 60,000 BAC March 2013 $13 strike
calls, 47,000 Nokia Corp January 2014 $7 strike calls, 42,000
Nexen Inc December $27 strike calls, 27,000 Procter and Gamble
Co July 2013 $72.50 strike calls and 21,000 SD December $8 strike calls,
data from Trade Alert show.
Reuters Messaging:
