I like looking at the options market to, at the very least, inform my thoughts on the trajectory of stocks. I gather my information from various sources, but much of it comes from the fantastic daily options columns Seeking Alpha publishes. On Tuesday, Frederic Ruffy relayed interesting bits of activity on Intel (INTC) and Sirius XM (SIRI):
... one investor apparently sells 18220 Apr 29 calls on the chipmaker (Intel) for 17 cents to buy 40,000 July 31 calls for 29 cents. A separate block of 35,000 Apr 30 calls traded on the 6-cent bid and might be rolling out of Apr 29/30 calls and to the July 31s, which saw an increase in open interest this morning after 35000 were bought for 27 cents per contract on the ISE yesterday. Today's 40000-lot will likely add to yesterday's activity. Bullish trading in Intel comes ahead of an Apr 17 earnings release. Caris analysts are out with bullish commentary today, saying they expect strong Q1 results.
SIRI sees serious call volume today, as one player rolled a position in 2013 calls to the 2014s. The Jan13 - Jan14 $2 call spread was sold at 15 cents, 43800X and 19 cents, 25000X. The Jan13 - Jan14 2.5 call spread was sold at 24 cents, 25000X. Another 25000 Jan 2.5 calls were sold at 43 cents. Looks like a roll of a position in Jan13 calls accumulated over many months to a new position in Jan14s, possibly part of an overwrite strategy. 222,000 calls and 1400 puts now traded on the stock ... Today's call writers might be looking for the stock to remain in a range around these levels through early-2014.
Whenever I review this type of options activity, I issue two standard disclaimers:
- The trades Ruffy highlights are generally the work of one or just a few traders, possibly with large firms. While these moves can help inform your due diligence process, they do not necessarily reflect broad sentiment. They represent a slice of life from the options market.
- The trades Ruffy highlights tend to be big money trades. In some cases, it makes sense to follow the big money. In others, it makes no sense because if you're not big money, you likely have circumstances that make big money moves impossible or inappropriate.
That said, I'm not surprised to see bullish activity for two days in a row on INTC. I've written a bit about Intel dictating the terms to the PC market. The company made a push for the ultrabook as not only a Macbook alternative, but a way to breathe new life into the dying PC space. As ultrabooks start hitting the shelves, I expect Intel's initiative and investment in the area to start paying off. We'll catch, at the very least, a glimpse of this success when Intel reports later this month.
The trading in SIRI is a bit more complicated than the straight call buying we saw in INTC. As Ruffy points out, the continuation and construction of these call spreads indicates that at least some of the big money expects SIRI to stagnate for some time. This is an example of why Ruffy's columns are so valuable.
If you simply looked at the volume on SIRI options today, you would have seen a massive number of calls traded. That often leads a person to automatically assume bullishness. If Ruffy's interpretation of the data is correct, and it usually is, that's hardly the case. In fact, it portends more frustration on the horizon for SIRI shareholders after the stock's latest head fake.
Disclosure: I am long INTC.