Today's market sentiment is driven by extreme greed, with the Fear & Greed Index at 86, which had increased from the previous closing of 85. As reported by CBOE, the total put/call ratio for today was 0.79. The index put/call ratio was 0.84, and the equity put/call ratio was 0.61. The CBOE volatility index (VIX) put/call ratio was 0.45. In the following, top stocks had been identified through our daily options scanning process, with the scanning criteria where the daily call volume ratio was above 2.00 (2x of the average call volume) with a call volume above 10,000.
Average Call Volume
Daily Volume Ratio
Phillips 66 (PSX)
Amarin Corporation (AMRN)
Source: Schaeffer's Research
Unusual option activities can be an indicator or precursor of a major movement for the underlying stock. This article will try to identify the bullish factors for Amarin Corporation and Phillips 66.
Amarin Corporation is a biopharmaceutical company focused on the commercialization and development of therapeutics to improve cardiovascular health. AMRN closed at $9.16 with 10.49% gain. The volume of 12.27M was 2.38x of the 30 day average volume of 5.16M.
3 Bullish Factors
- Progressing on protecting the commercial potential of Vascepa. The United States Patent and Trademark Office, USPTO, had published notification of Notice of Allowance for U.S. Patent Application Serial Number 13/610,217. This application includes claims intended to protect the Vascepa (icosapent ethyl) indication approved by the U.S. Food and Drug Administration based on Amarin's MARINE clinical trial results. A Notice of Allowance is issued after the USPTO makes a determination that a patent can be granted. After issuance, Amarin plans to list this patent in the FDA's Orange Book.
- Continuing to seek more protection for Vascepa. The company is trying to get Vascepa approved for other indications, including the treatment of adult patients with high triglyceride levels (≥200 mg/dL and <500 mg/dL), who are also on statin therapy for elevated LDL-C (low-density lipoprotein cholesterol) levels.
- Technically, AMRN is gaining buying momentum, as RSI (14) crossed past 50 middle-line and closed at 54.60. The MACD (12, 26, 9) has been showing bullish trend, and the MACD difference diverged.
AMRN has a negative operating cash flow of -90.11M with a levered free cash flow of -24.42M. AMRN currently has a total cash of $215.11M and a total debt of $130.78M. Vascepa alone could potentially contribute over $1B. There will be even more potential if a large pharma partner becomes involved. In short, AMRN's fundamental strength relies on Vascepa.
The most active call, excluding Jan. 18, 2013 options, is Feb 15, 2013 call at the strike of $10 with a volume of 9,337 and an open interest of 2,462. The implied volatility is 92.3, and the chance of breakeven is 24.26. The historical volatility is 37.29 for 1 month, 65.18 for 3 months, and 68.02 for 1 year.
For bullish AMRN investors, a credit put spread of $10/$12 can be reviewed, as it reduces overall cost comparing to outright calls and offset certain time decay while achieving a favorable risk/reward ratio.
Phillips 66 is a holding company engaging in producing natural gas liquid, NGL, and petrochemicals. PSX closed at $55.15 with 1.16% gain on Thursday with a volume of 5.98M, 26.7% more than 30 day average volume.
6 Bullish Factors
- East Coast market expansion. Phillips 66 inked a deal with Global Partners L.P. (GLP) for 50,000 barrels per day of North Dakota crude oil that is to be delivered to its Bayway refinery in New Jersey by rail.
- Improving asset utilization as Phillips 66 intends to redirect some of its transportation assets to form a master limited partnership.
- Phillips 66's margins are expected to strengthen as it increases its ability to serve the growing international refined products market.
- Phillips 66 is targeting cost reduction over $200 million by the end of 2013.
- Cash flow is strong for Phillips 66. The company generates $5.72B operating cash flow with a levered free cash flow of $3.68B. Analysts are expecting 7.15% (per annum) growth for next 5 years.
- Fundamentally, Phillips 66 has an operating margin of 4.1% and net margin of 2.9%, which are higher than the industry averages. Phillips 66 has ROE of 23.1 (vs. industry average of 12.6) and low debt-to-equity ratio of 0.4. Phillips 66 has a low P/E of 6.46 (vs. industry average of 10.6). The Forward P/E is only 7.3, much lower than the S&P 500's average of 13.3.
- Technically, the MACD (12, 26, 9) turned to show a bullish trend on Thursday with increasing buying momentum, where the RSI (14) closed at 63.24. Phillips 66 is bullish while continuing to trade above its 50-day MA of $51.08.
PSX will be reporting its Q4 2014 earnings on January 30, 2013. Analysts are expecting an EPS of $1.72 with revenue of $44.27B for the current quarter. Analysts are estimating an EPS of $7.87 with revenue of $182.88B for the fiscal 2012. PSX has given 2 upside surprises for the past 2 quarterly earnings (25.30% and 26.40%).
The most active call was Jan. 18, 2013 call at the strike price of $55 with a volume of 26,108 and an open interest of 83,620. The implied volatility is 22.9, and the chance of breakeven is 37.13. The historical volatility is 34.80 for 1 month, 32.58 for 3 months and 29.39 for 6 months.
Bullish investors can review our credit put spread setup as published on December 16, 2012. The safer entry point would be around $51.00 in the near term.
Note: All numbers/prices are quoted from the closing of January 17, 2013 with the data provided from Barron's, Morningstar, Schaeffer's Investment Research, Inc., Google Finance, and Yahoo Finance. Investors and traders are recommended to do their own due diligence and research before making any trading/investing decisions.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in PSX over the next 72 hours.