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Options Update - Thursday, 2009.IV.9.

DP Sells: WFC (straddle)

Sold all the calls @ $4.25/contract from the straddle opened on the 2nd for a guaranteed 30% profit.
While the stock may run some more on the heels of their record breaking profits, with only a week to go to expiration, the time was right to take my own profits. Left the puts in place to expire worthlessly and/or to profit in case it turns out that they just miscounted or put the decimal point in the wrong place.

Options Update - Wednesday, 2009.IV.8.

The latest round of government shenanigans provided some quality chop on Wall street, which has translated directly to chop around the moving averages in the put/call ratio (as predicted earlier this week).

The ratio now stands at 1.39, which in itself is not that significant…however, the pattern of the last few days continues to match the pattern seen at the beginning of 2009. The only tangible difference is that the current pattern is more amplified, with higher peaks & deeper troughs.

And while the hypothetical trade entered at Friday’s open would’ve stopped out today (assuming adjusted stop for Tuesday’s high) for roughly a 1 point gain (SPY short from $83.50 -> $82.50), I would be fairly comfortable entering new short trades at tomorrow’s open based purely on the pattern matching with January.

Individual Items:

• Today’s buyout rumors & associated high call volumes: EMC, IDCC, JAVA(back on the wagon?), NTAP, OSIP, SEPR, TCK
• Buyout rumors with less enthusiastic bullish activity: ROK(essentially 1:1 calls:puts, which is a sharp change from the initial, exclusively bullish activity)
• Buyout rumors of previous days being hedged with (longer-term) puts today: TXT
• April ITM call options in PBR went absolutely nuts. No exaggeration; over 600k volume (that’s good for 2nd place overall, behind SPY, the ever present #1)!
• Big volume in DAI April 25. calls.
• The crazy premiums seen over the past week in DNDN continue, presumably in anticipation of phase 3 trial data later this month. With the stock trading in the mid 6’s, the May 6. straddle is priced in the high 5’s!

Options Update - Tuesday, 2009.IV.7.

Despite the sizeable decline across the indices, the put/call ratio declined a rather tame 17%, only just to the yearly moving average.

Continuing the hypothetical from previous posts, had I been short since Friday’s open, I’d adjust my stop down and continue holding, but I would not be confident in entering new trades, long or short, based on the latest reading.

One thing to notice, however, is that the pattern over the last few days is quite similar to what was seen during the first few trading days in 2009 and towards the end of February, both of which marked downtrends.

Individual Items:

• Most options speculators guessed wrong on BBBY, both in terms of volatility and direction. Lots of activity in the puts today (with volatility flat), but BBBY is up almost 15% AH!
• Daily slate of takeover news & associated call volume explosion seen in: ATW, BIIB, DBD, TXT
• Similar to TGT yesterday, options speculators are seemingly bullish on GPS; seeing increased volatility and action concentrated in calls.
• Sentiment turning bullish on GLD as well, calls outpacing puts 3:1.
• Interesting trade in CBG, with at least 1 investor going for a big volume Jan10 straddle at the 5. strike.

DP Buys: JAVA puts

Just a very minor position (0.5% total risk) with straight JAVA Apr09 5.puts.  Currently trading in the low 6's (in response to the IBM deal falling through), I'm betting on it falling rather quickly all the way back to the price levels seen before the deal was even rumoured (low-mid 4's).

With very little risk, I like the potential reward on this trade (cost basis for the OTM puts is @ $0.18/contract; looking to sell around $0.50).

Options Update - Monday, 2009.IV.6.

The put/call ratio rose for the 2nd straight day, reflecting the bearish action seen in the markets (making a lower low and a lower high (just barely!)). The indicator now sits in the area where we’ve seen multiple reversals over the last few months (although it is not significantly above the yearly moving average - such as the spike on March 30th, which marked the bottom of that dip).

Had I sold Friday’s open based on the spike down Thursday, I would at least have a stop in place, probably right around 850…just in case we get a move higher with the corresponding (& expected) dip in the put/call ratio.

Should we see further selling tomorrow with a corresponding continued rise in the ratio, I would be inclined to go long on Wednesday…but it’s more likely that we’ll just chop around the moving averages for the next couple days…

Individual Items:

• JAVA volatility back through the roof as the IBM deal falls through. Calls & puts active across the board. In related industry news, renewed RHT takeover rumors brought along the expected rise in call volume.
• Amidst falling natural gas prices, CHK calls were quite active. Huge volume in Jan10 60. LEAPs.
• Fairly heavy call action in TGT ahead of its earnings later this week. Volatility remains low, but it seems the options market/speculators expect at least in-line results.

Options Update - Friday, 2009.IV.3

As expected the put/call ratio bounced off its support and is now back in no man’s land, right around the 20-day moving average.

Selling Friday’s open based on Thursday’s put/call ratio would not have been entirely disastrous, even though the market action was not what was expected. The S&P finished at the day’s highs, but it did not take out the previous day’s high.

Individual Items:

• Daily crop of buyout rumors and resulting high call volumes seen in: HAL, MF, RS, TSRA
• The WSJ reported ANN as a takeover target - the options market seem to generally ignore this one; volatility remained flat; no really unusual volume/activity.
• JAVA call volume remains high, especially around the 9. strikes. Volatility has decreased significantly in the last few days. This might change if the latest reports are indeed true…
• BBBY volatility remains flat as we approach earnings on Tuesday.
• At least one person is bearish on consumer discretionary - ton of volume in XLY Jun09 25. puts.

DP Buys: SRS (call ratio/backspread)

With SRS falling to new 52-week lows, it's time to play a bounce on it. And by opening the positions at credit, I'm still protected if it continues falling amidst this continued bullish exuberance and government fuckery.
SRS April 20/40 1:2 ratio/backspread for a credit of $0.75.

Was looking to get some puts in AZO this morning...was waiting for a break below $155, but it reversed just above it.

Holding all other positions into the weekend, although looking to close out the FAZ & RIMM ratio/backspread to guarantee the credit premium profits. WFC straddle looking good at the moment. As long as it avoids thrash, it should do fine.

Options Update - Thursday, 2009.IV.2.

For the first time in 2 weeks (since March 18), the put/call ratio fell below 1.0, meaning that more calls than puts were traded today. Back to the zone around 0.85 where it has found support in the last couple months.

Thanks to the contrarian nature of the indicator, this is actually a (short term) bearish sign. By no means does it mean a top, but just like on the 18th, I wouldn’t be surprised if a day or two of selling followed.

(Obviously no indicator is 100%. This thing was bearish in early March and that didn’t work out so well. Cut losses and moved on. It was also bearish in early & late February, with much better results, fwiw.)

Some individual stock items:

• As it looks right now, the options community nailed the _huge_ price movement in RIMM and the non-action in MON as a result of their respective earnings. On a personal note, looks like I will just collect the premium on the RIMM put spread and move on without further profits.
• RTN April 35.call volume exploded!
• High call volumes seen today on FRX (takeover?) and S (has been the case for a few days now). Sprint has doubled in the last couple months…how much further can it go?
• WFC continues to show high put volumes, this time concentrated on May 10’s & 15’s.
• Puts considerably more active than calls on both AZO & IBM suggesting possible sideways/topping action.

DP Buys: WFC (straddle)

Near the close, opened a straddle in WFC with April 15's, getting filled at $3.25.

With a couple weeks to go until expiration, I'm looking for a move to either above $17.50 or below the $12.50-$13 range. There has been suspiciously high put activity in the name, but I wasn't comfortable enough going just with straight puts - I'm ok with paying the extra premium to protect against further bullish exuberance (and/or a non-event with all those puts).