Using Friday's Options Activity to Get Ready for Monday's Market (Part I)

 |  Includes: AMD, BBRY, COH, JWN, LULU, NOK, SKS
by: SA Editor Rocco Pendola

In addition to my own scans and watch lists, I use two main sources to follow options-related news: Daily Seeking Alpha columns by Frederic Ruffy and Andrew Wilkinson. While I get great use out of these sources and have even made money thanks to them, you have to be careful not to chase the stocks or options they mention. Occasionally, you can find examples to capitalize on. Below I detail options brought to my attention by these sources and how investors might consider playing them - or the underlying security - if at all, during the trading week.

This week's recap and analysis includes contributions from two other sources of options information: Frequent Seeking Alpha contributor optionMONSTER and's InPlay service. Both provide alerts on notable options activity throughout the day.

My attention spans most of Friday's trading day, including early in the session, so some information may change. Lately I have found it useful to go back and review past selections. I do this not to tout my record but to, hopefully, create learning experiences for myself and Seeking Alpha's audience. As with all of my articles, use my suggestions and analysis as the impetus for future research.

Advanced Micro Devices (NASDAQ:AMD): Earlier in the week, I reminded myself that before its CEO debacle, AMD traded close to $10.00 per share. With the shares clearly oversold, I recommended speculation via a long play on the AMD August $8 calls with the stock trading well under $7.00. Turns out AMD's quarterly report, relayed on Thursday, was a winner and investors juiced the stock by about $1.00, as of mid-morning Friday.

Throughout the morning, you could have sold AMD August $8 calls that you acquired on Monday at $0.05 for between $0.10 and $0.16. Not bad, but an in-the-money play, as usual, would have probably been a better bet. While ITM options cost more to get into, it is the classic case of you get what you pay for. Throughout Friday morning, the AMD August $5, $6 and $7 calls traded up between $0.71-$0.96, $0.61-$0.84 and $0.27-$0.48, respectively.

Saks (NYSE:SKS), Coach (NYSE:COH), Nordstrom (NYSE:JWN) and Lululemon (NASDAQ:LULU): My penchant for high-end retailers might finally be paying off. Updating last week's options article, here's how the first three stocks and associated options plays look, as of Friday's close:

Stock Friday, July 1 close Friday, July 8 close Friday, July 15 close Friday, July 22 close Option plays, Midpoint price, Friday, July 8
Option plays, Midpoint price, Friday, July 15 Option plays, Midpoint price, Friday, July 22
SKS $11.41 $11.56 $10.99 $11.37 Jan 2012 $10, $14 call ($2.25, $0.52) Jan 2012 $10, $14 call ($1.90, $0.40) Jan 2012 $10, $14 call ($2.08, $0.42)
COH $65.99 $66.82 $65.48 $66.80 Jan 2012 $60 ($10.00) Jan 2012 $60 ($9.30) Jan 2012 $60 ($10.00)
JWN $48.24 $50.25 $50.44 $51.50 Jan 2012 $50 ($4.45) Jan 2012 $50
Jan 2012 $50 ($5.22)
Click to enlarge

As for LULU, it keeps chugging along. It closed Friday's session at $63.44, up from $60.54 the same time one week ago.

Nokia (NYSE:NOK): sent the following alert early Friday regarding "unusual option activity" in Nokia:

NOK calls are outpacing puts (5.5K total calls have traded vs. 1.7K puts). Most notable are the Sept 7 calls... NOK reported earnings yesterday (July 21) before the open.

I cannot help but agree with fellow Seeking Alpha contributor Follow My Alpha's view of Nokia's situation. Follow My Alpha summed up my view of investing on the basis of the story, sentiment and momentum in one subtitle better than I have in a series of articles on the subject: Fundamentals Meaningless Without Ideas.

Really, Nokia and Research in Motion (RIMM) should get together. Both companies wallow in a state of inept mediocrity. Sure, on paper, both stocks look like incredible values, but, in both cases, management continues to preach about "exciting" things. Neither team has yet to deliver.

Just as I cannot get excited about what amounts to a RIMM value trap, I cannot get excited about NOK. At this point, I think NOK and RIMM trade in a range for some time. That makes bearish credit spreads a decent bet.

You need to trade some serious size, however, to realize meaningful income from low-priced NOK option spreads. Therefore, I would stay away. With RIMM, however, you could sell the August $31 call, buy the August $35 call and receive a credit of roughly $0.27 per spread. To realize maximum profit from this bear call spread, you need RIMM to close below $31 by the August options expiration date.

To view part two of this week's options article, click here.

Disclosure: I am short RIMM.