Using Friday's Options Activity to Get Ready for Monday's Market

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 |  Includes: AAPL, F, P, SIRI, TSLA
by: SA Editor Rocco Pendola

In addition to my own scans and watch lists, I use three main sources to follow options-related news: Daily Seeking Alpha columns by Frederic Ruffy, Andrew Wilkinson and optionMONSTER.

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.

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.

Ford (NYSE:F): In his Friday column, Ruffy highlighted option activity in F calls:

... a Sep 12 – 13 call spread trades on the automaker at 21 cents, 34,476X on ISE. Data indicate a customer rolled a position down in strikes. Sep 13 calls on Ford are 17.3% out-of-the-money with five weeks of life remaining and open interest of 84K. Today’s spread trader is possibly closing out the position on diminishing hopes for a move beyond $13, but opening a new position in the 12s to keep a bullish position open on Ford. Shares touched new 52-week lows of $9.87 Monday, but are up 12.3% since that time. Still, F is a far cry (-41.5%) from the 52-week highs seen in early 2011.

So, the trade Ruffy pulled takes a step back, but still expects F to at least challenge the $12-level by September. An upward move in the shares ahead of next month that stops considerably short of $12 could allow for a nice profit given the large size of the trade.

For those of us who trade smaller size, I like the looks of long-dated, OTM calls on F. I personally own March 2012 $16 calls, which have hung pretty steady in the $0.23-$0.27 range or thereabouts through both down days and up.

Because Andrew Wilkinson and optionMONSTER did not publish options columns on Seeking Alpha for Friday, I update some other current suggestions, potential trades and controversies.

Apple (NASDAQ:AAPL): The strategy of selling AAPL puts remains strong. On August 8th, I noted the following:

Bottom line, you can collect considerable income for taking on "risk" that will likely never come to fruition. And, if it does, would you be upset over being "forced" to buy AAPL at a discount, even if it, temporarily, trades below your entry price? With that in mind, if you look out more than a month, the premiums on AAPL puts are even more inflated. For instance, as of this writing, the September $350s traded for $13.53 and the October $350s painted $20.11.

As of Friday's close, those same contracts trade at $7.32 and $14.25, respectively. If you entered one of those trades earlier in the week, you can already close them out for a tidy profit. Of course, you could hang on for further upside as well.

If you have $38,000 or so and you want to buy 100 shares of AAPL with it, you might as well sell a put to get yourself there. The premium, for instance, on the AAPL Sept $375 call was $15.05 at Friday's close. Even if you never get put the shares, there's nothing wrong with collecting $1,505 for your troubles and waiting a bit longer for a nice entry on AAPL. Of course, you run the risk of missing a non-stop elevator ride up, but I think several instances will come where you can take advantage of weakness in the shares.

Tesla Motors (NASDAQ:TSLA): In the same August 8th article, I suggested selling TSLA August $23 puts for about $1.00. As of Friday's close, it looks as if they're setting up to expire worthless. I am still a proponent of selling TSLA puts to get long and using the proceeds to purchase long-dated, ATM and OTM TSLA call options.

Sirius XM (NASDAQ:SIRI): After Ian Bezak set them straight this week, a commenter to one of my Seeking Alpha articles gave me some excellent advice about how I should handle the couple dozen or so SIRI permabulls who have now taken to harassing me:

The real mystery is why you even bother responding to the ad hominem attacks against you. The rampant defensiveness, which is a sure sign of insecurity, should speak for itself. So many people with no clue why they are investing in SIRI or AAPL or SodaStream (NASDAQ:SODA) come on here hoping for group therapy sessions, and view any even slightly negative commentary as a mortal threat to their investment strategy. But since they never really had a strategy in the first place, the only response they can muster is personal. I say let them embarrass themselves with these posts. You're not the one who has to justify his positions.

Honestly, it's a weakness I have. It's tough for me to let these things go, even though I know that everything the writer of the comment said stands true.

I want to make my history on Sirius XM clear. As I wrote in a blog post at my website, I came on the scene at Seeking Alpha with guns blazing. I quickly realized that that was not the correct approach. It reminded me too much of what turned out to be a partially unpleasant career in talk radio. I figured readers would appreciate the honesty. I know I do when I see others make similar admissions.

As I turned bullish on Sirius XM, I articulated both a short- and long-term view on the stock, which seems to get lost each time I write an article that includes the ticker.

The short-term view was simple. I loaded up on SIRI September $2.50 calls because I thought the pre-earnings run the stock tends to exhibit was going to materialize. It did not. The chart broke down. And I sold on July 26th, I believe, for about a $350 loss. For me, that's hardly getting killed on a trade. I don't use percentages to determine my mental stop. Generally, I use a dollar figure, but this can vary significantly from trade to trade.

As I was writing bullish short-term articles, I was also publishing very clear and cautious articles that illustrated the possible ways my long-term stance might turn. To say i flipped because I am bearish now is nothing more than a flat-out lie. And it is indeed the typical defensive reaction made by SIRI commenters when anything slightly negative comes out about their stock.

Consider the following excerpts from the articles I wrote that focused on the long-term while I was holding SIRI September $2.50 calls.

From June 28th - Sirius XM: Over-Reliant on the Auto Industry at the Expense of Online and Mobile:

In the interest of clarity, I do not think Sirius XM should abandon the automobile as its primary source of revenue ... I fear, however, that management might be focusing too hard on this marriage at the expense of more than viable side bets.

The deals with automakers keep coming, yet Sirius XM lacks in other crucial arenas. First, as an Internet-only subscriber, I can tell you first hand that the sound quality of Sirius XM's online stream is abysmal at best. The functionality of its online interface (tuner, channel guide, etc.) is not much better, even after a recent redesign ...

The company has done virtually nothing to promote itself, other than poorly-executed, cheap and fleeting publicity stunts. There's no reason why you should be able to walk around a major U.S. city for 12 hours a day and not bump into - or overhear someone talking about - Sirius XM. Frankly, it's inexcusable.

When Howard Stern re-signed with Sirius XM, both parties touted how excited they were that his show would be available via a mobile app. According to a website that tracks the popularity of apps in Apple's (AAPL) App Store, the Sirius XM app has seen its popularity decrease in recent months. Like SIRI's Internet stream, users give the iPhone/iPad app poor reviews.

At day's end, Sirius XM management appears to have, for all intents and purposes, neglected online and mobile, the two areas it probably should - given its competition - focus on alongside the auto industry. Instead of working to ensure that it gets its name out into the mainstream and improving the functionality of its online and mobile offerings - two strategies that would diversify its subscriber base - Sirius XM leaves its sales, marketing and promotional efforts in the hands of used and new car salespeople.

From June 30th - Dissecting the Sirius XM and Pandora Audiences and the Implications:

Does Sirius XM intend to stick to a model that generates revenue almost solely from subscriptions, which tend toward an older audience? Or will it do the types of things it needs to do - subsidized receivers, more aggressive promotional trials, focus on the quality of its online stream, and emphasize online, mobile and social as listening platforms and marketing tools - to draw in that younger audience? I don't think it's necessarily a matter of cost. Instead, I think it's about how you draw in a demographic that knows how to get and expects to receive "premium content" for free or cheap. As somebody who is long the stock, I sincerely hope so.

And there are plenty more examples where those two came from.

Not for a second do I contend that no disagreement with the above sentiment should exist. But, the fact is, while I was bullish (and wrong) short-term, I was clearly quite skeptical about what the mid- and long-term future holds for Sirius XM.

I hoped and expected CEO Mel Karmazin to give us more about how he intends to compete with Pandora (NYSE:P), a resurgent set of terrestrial radio competitors and Apple. What I heard did not inspire confidence. I wanted to find out that SatRad 2.0 will be more than a Pandora-knock off with plenty of Spanish language programming. I wanted more than a passive gradual roll-out. I wanted something that would put the company right up there with its biggest competitors and counterparts in terms of aggressive innovation. Instead, I got more terrestrial radio-like passiveness, with Karmazin touting Sirius XM's in-dash position in two-thirds of the nation's new cars.

Again, disagree with my take all you want, but attempting to characterize my sentiment as inconsistent is simply not accurate. When I contradict myself, I am secure enough in myself to go public and write about it.

Going forward, I think SIRI struggles to cross $2.00. If it does, I do not see it sustaining much above that level. If I were to play SIRI again via options I would be a seller of September $2.00 calls and September, December and January 2012 $2.50 and $3.00 calls when and where appropriate. If no pre-earnings run develops around mid- to late-October, I would be a buyer of ATM and slightly OTM puts and a short seller of the stock.

Disclosure: I am long F, TSLA.