So here we are 2012 and the markets are off to the races. An investor may be sitting back wondering where should I put my money next? In my opinion sometimes the best thing to do is follow the "Smart Money" by looking at options and option order flow. This article is dedicated to those equities which could see some serious moves.
1. NII Holdings (NIHD) provides wireless communications services under the Nextel brand. NIHD has been taken to the cleaners since June trading down more than 50% from its 52 week high of 45.64. Now it appears at least one bull is stepping in thinking this stock is ready for a return to glory. Tuesday out of the money June 30 calls were purchased on the ISE exchange more than 2,000 times. Recently companies like Leap Wireless (LEAP) and MetroPCS (PCS) have seen some serious runs on possible takeover speculation and it appears NIHD could benefit as well. Combine this with the insider buying shown here and this stock could be in for a reversal of fortune and at least one trader agrees.
2. O'Reilly Automotive (ORLY) is a specialty retailer of automotive aftermarket parts. ORLY has been ripping higher and but option paper is foreshadowing a possible pullback in stock price. Although from a technical perspective if ORLY closes below 78 the upward channel would be broken. Tuesday ORLY saw a large rejection candle in a very strong tape which is very negative. Although options in this name are not heavily traded puts have outnumbered calls in significant fashion. Both puts and calls have been sold approximately 46% thus possibly range bound to slightly down tell in the options market. Watch to see if this is confirmed in upcoming trading sessions.
3. Research in Motion (RIMM) is the exclusive provider of Blackberries and Blackberry service. RIMM has seen some crazy price swings of late and Tuesday was no different. After climbing almost 7% in a single trading session RIMM saw options paper with calls outnumbering puts more than 2:1. Many analysts have been making bullish calls and it appears some traders agree this could be a takeover target in 2012. I believe this company is a broken and the stock is destined to drop the way of former enterprise service cell software provider PALM. My personal views aside as I am synthetic short RIMM at this point and am short term bearish the overall options paper is pointing up.
4. Intel (INTC) is a semiconductor giant that has been blasting higher since mid September. Now INTC is running against long term resistance of 25 and it appears some bears think the run could be coming to an end. Of course I report this when Tuesday's largest trade was a 10K January 25 call purchase showing bullish sentiment. However, recently the calls have been trending up and have been sold at the bid almost 48% of the time. In comparison the puts over the last few weeks have been purchased 46% at the ask showing a possible reversal in the future for INTC. This is somewhat expected as the tech giant warned the upcoming quarter could fall short.
5. Citigroup (C) is a global mega bank which offers a wide range of financial services to consumers, businesses, and governments. I want to make it very clear I am not bullish what so ever on financial stocks. I believe the business models have been broken and loan growth is anemic at this point. Companies such as Bank of America (BAC), Morgan Stanley (MS), and JP Morgan (JPM) have seen a great run in past weeks. C has seen some bullish bets in recent weeks with 1:2 call ratio spreads and call butterflies have both been very active. The interesting paper here is not way out of whack call to put ratios but ISE sentiment. December 21st more than 36K calls traded on ISE showing opening bullish positions. This was followed up with December 29th having an additional 10K calls. More than 60K ISE calls have traded to around 9K puts. This is more than a 6:1 call to put ratio which indicates traders continuing to bet C will climb into the future.
As always happy trading and stay hedged.
Remember equity insurance always looks expensive until you need it.
Disclosure: I am long AGNC, NLY, SDS, APC. I am short: VXX, SIAL, RAX, LNKD, FINL, DHI, AMZN, INTC, GOOG, ACOM, TMO
Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. I do not recommend that anyone act upon any investment information without first consulting an investment professional as to the suitability of such investments for his or her specific situation.