Monday Options Update: WFT, MS, AET, IYR, SCHW, UNG, AMTD,

Weatherford International Limited (WFT) – The slight 1.5% decline in shares to $18.02 today has not deterred some option traders from making bullish plays on the oil and equipment services firm. The August 17.5 strike price had 9,200 puts sold short for an average premium of 1.50 apiece. The investor(s) who sold the puts will retain the full premium as long as shares remain higher than $17.50 by expiration next month. Traders appear to expect shares of WFT to remain high enough such that the puts remain out-of-the-money by expiration. However, such individuals must be prepared to have shares of the underlying put to them at an effective price of $16.00 in the event that the puts land in-the-money and are exercised. Additional bullishness on the stock appeared in the November contract where it looks as though one trader initiated a covered call strategy. The sale of 1,600 calls at the November 23 strike price yielded a premium of 95 cents each. Perhaps the investor purchased shares at an effective price of $17.07 and simultaneously sold the call options to establish a potential exit strategy. If the November 23 calls land in-the-money by expiration the investor will have the shares called away from him. At that point he will have attained profits of about 35% on the accretion in market value of WFT.

Morgan Stanley (MS) – The global financial services firm has experienced a 1.5% decline in shares to stand at $26.50 today. Investors wary of continued bearish movement in the price of the underlying were seen picking up protective put options on the stock. The just out-of-the-money August 26 strike price had more than 7,500 puts purchased for an average premium of 1.97 per contract. The puts will prove profitable to those holding the options if shares slip another 9% through the breakeven share price of $24.03 by expiration. We note that Morgan Stanley’s share price has remained higher than the $25.00 since the start of May 2009. Thus, some option traders expect MS to give back gains enjoyed during the firm’s recovery period since touching down to a 52-week low of $6.71 on October 10, 2008.

Aetna, Inc. (AET) – The health care benefits company jumped to the top of our ‘hot by options volume’ market scanner after investors purchased about 25,000 bullish calls in the January 2010 contract. Shares of the Hartford, CT-based firm are higher today by approximately 1.5% to $24.41. Traders actively-seeking call options on the stock today appear to be looking for shares of AET to recover significantly by the start of 2010. Investors scooped up 25,000 calls at the January 40 strike price for an average premium of 38 cents per contract. Profits will begin to amass for holders of the calls if shares can surge 65% higher to breach the breakeven point at $40.38 by expiration. The stock would need to rise toward the 52-week high of $44.64 attained back on day one of the Beijing Olympics, August 8, 2008.

iShares Dow Jones U.S. Real Estate Index ETF (IYR) - Shares of the real estate fund have slipped slightly by less than 1% today to stand at $31.18. Bearish sentiment by option investors was seen in the August contract where one investor bracing for downward movement in the price of the ETF initiated a put spread. The spread involved the purchase of 3,000 puts at the August 30 strike price for a premium of 1.60 per contract against the sale of 3,000 puts at the lower August 27 strike for 65 cents apiece. The net cost of the pessimistic position amounts to 95 cents and yields maximum potential profits of 2.05 if shares were to decline to $27.00 by expiration next month. The market price of IYR would need to decline approximately 7% before the trader responsible for the transaction begins to amass profits at the breakeven point of $29.05.

Charles Schwab Corp. (SCHW) – It appears that an investor might be rolling a significant amount of call open interest in the July 18 series to the same August strike this morning. Shares of the broker are 1.3% higher at $17.00 having spent the last month gradually easing from a peak of $18.88. Volume at the July contract of 13,600 contracts has been matched by the pattern in the August contract where the investor appears to be extending the time horizon of a trade in which he expects Schwab’s share price to rally back towards the June peak. The trader is selling out the July calls in exchange for August at a net 25 cent cost today. Option implied volatility has risen to 41.5% from a reading of 37.8% last week.

U.S. Natural Gas Fund (UNG) – Option traders have been busy buying up puts on the natural gas fund today as fears for a double-dip recession prey on energy complex weaknesses. Signs of a crack in the price of oil were pounced on by short-sellers who quickly shaved $2.40 off the price of crude for August delivery. Natural gas prices, which have failed to maintain pace with rising oil since the March-time low, reached a fresh one-year low today at $3.42 per BTU. The natural gas ETF, which is a pure play on the price of natural gas stayed true to form and put in a fresh low of its own at $12.31. Meanwhile, option traders appeared to be rolling existing bear plays looking for a further leg lower for gas prices. Many analysts have sounded off highly positive notes on the prospects for this laggard, yet the reality appears to be for a collapse even though hurricane season is now into its second month. Investors sold July 12 strike puts to buy further away-from-the-money protection at the August 10 strike today. July puts were sold at 31 cents to pay 22 cents for August puts.

TD Ameritrade Holding Corp. (AMTD) – The financial services firm has bucked today’s downward trend by enjoying a more than 2% rally in shares to $17.15. We observed one investor taking profits today by closing out a short position in the near-term August contract. It appears that the trader originally sold approximately 5,000 calls short at the July 17.5 strike price for a volume-weighted average price (VWAP) of 1.27 apiece back on June 3, 2009. Today he has bought back the calls for just 27 cents and pocketed 1.00 per contract. Call selling some 5,600 times at the August 17.5 strike price for 70 cents each may be indicative of a repeat performance by the trader. He will similarly realize profits by expiration if he is able to purchase-to-close the short position for less than 70 cents.

Comments

[jessieliver...:]

Why the heck would someone sell 12 puts to buy 10 puts. This makes no sense

Jul 06 05:09 PM

[Market Sniper:]

Two different strikes in two different months. Makes total sense.


On Jul 06 05:09 PM jessielivermore wrote:

> Why the heck would someone sell 12 puts to buy 10 puts. This makes
> no sense

Jul 06 07:32 PM

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Jul 10 09:07 AM

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Jul 10 09:08 AM