Wednesday Options Outlook: ORCL, IYR, CMCSK, ANF, ETN, MDCO, BAC, BA

Rebecca Engmann Darst co-authored this article.

Oracle (ORCL) – Oracle shares are 1% higher at $22.32 ahead of its after-the-bell earnings, and the sense of anticipation is evident from the elevated implied volatility reading (34.7%) versus the historic average (27.3%). While the front-month at-the-money straddle is pricing in a 7% move on back of the numbers, a surfeit of put volume at the July 21 strike, which traded at double the open interest and was mostly sold on the bid, suggesting a pull to the upside on back of the numbers. Earlier today, we did observe what appeared to be call-spreads in the August contract at the 22 and 23 strikes, where a trader may have sold the lower strike for $1.30 and bought the upper for 78 cents, taking a 52 cent credit on a bet on a pull back below $22 heading into August. Since that time, long interest has emerged at the August 19-strike put line and the 25-strike call.

iShares DJ US Real Estate (IYR) – In a week that has been characterized by no mean amount of spread trades, we noted interesting spread activity occurring this morning in the iShares DJ US Real Estate, a closed-end fund whose components include REIT’s including Simon Property Group, Vornado Realty Trust, and financiers such as Annaly Capital Management. Shares in the fund are 1.7% higher at $64.38 today with a series of put spreads in the July and August contracts. It looks like a 1,500-lot credit spread using puts in the July contract was entered, with a trader buying the lower strike for $3.00 and selling the higher strike for $6.75. The resulting $3.75 credit is the maximum profit this trader will receive on the trade, which breaks even at $66.25. The trader may have looked to redeploy this with more bearish positioning in the August contract between strikes 58 and 63. Here it looks like the trader sold the lower strike for $1.30 and bought the higher for $3.10, making this a debit spread with a clear idea of how low the strike price will go. Here the trader’s maximum potential profit is $3.20 per contract.

Comcast (CMCSK) – Options in Comcast piqued our scan of options moving on unusual volumes relative to their daily average with a near-8 fold increase in activity, characterized by selling in July 17.50 calls and buying at the same strike in August at 17.50. While it appears that a trader may have sold 5,000 lots at the July 17.50 strike for $1.65, twice as many of the same strike were bought in the August contract at $2.00 per contract.

Abercrombie and Fitch (ANF) – Calls in Abercrombie and Fitch are trading at their highest level since last November today as shares advanced 2.7% to $67.25. It looks here like a trader entered a diagonal time spread with calls, simultaneously buying 3,500 July 72.50 calls for 55 cents and selling a like number of greater time-value August calls at the 70 strike for $2.20.

Eaton Corp (ETN) – Options activity in diversified manufacturer Eaton Corp advanced to nearly 7 times the normal level as shares declined 1.5% to $89.64. Earlier today it was announced that Eaton was spearheading a trial run of hybrid power systems in 30 city buses in China as a gauge of the Chinese market’s receptiveness to green energy for automobiles. Today’s activity shows fresh positioning in July puts at the 85 and 90 strikes on similar volumes that may suggest long put spread activity occurring. Calls at the July 90 strike traded to the middle of the market for $3.30 within open interest.

Medicines Company (MDCO) – Implied volatility in Medicines Company options rose more than almost any other company on our platform this morning with a 34.5% spike to 51.0% on no apparent news catalyst. Option activity has followed in step with a 37-fold increase against the daily average, centered in heavy call activity at the July 20 strikes, extending to the 22.50 strike in the August contract, and in 22.50/25 call spreads in October. Shares are 3% higher at $19.56.

Bank of America (BAC) – A second day of heavyweight volume in Bank of America options is taking shape as shares trade 2.5% higher at $27.27, and the 90,500 options trading the first hour show a skew to bullish positioning. Heavy volume at the front-month 27.50 put strike appears to have sold mostly to the bid, while July calls at strikes 27.50 and 30 are active as well. Heavy buying interest is observed in August 27.50 calls on volume more than twice the open interest. Shares are 2.5% higher at $27.29, and implied volatility at 51.6% compares to a historic reading of 35.6%.

Boeing (BA) – Shares in Boeing, the country’s second-largest defense contractor plummeted 6.6% to $69.83, setting a new -52 week low after analysts at Goldman Sachs downgraded the stock to “sell,” on back of higher oil prices and weaker economic fundamentals. Almost immediately we registered a 13% spike in implied volatility as shares sold off and traders sought long exposure in July 65 puts for 75 cents apiece, predicting further near-term erosion below the existing low. Puts at the July 70 strike traded to buyers and sellers as the value of the position rose 200% from yesterday’s levels.

Comments

[johnthebear]

It is very hard to understand the point the writer is trying to make. So what direction does he assume each stock to take in Thursdays trading... IYR is my main interest as I invest in SRS at 2:1 ratio?

Please boil it down to your estimate of direction and magnitude for each of these positions for tomorrow's trading.

Thanks.

[Analyst's are worthless]

BAC and the financials are not done going down! Look at BAC today and the XLF. Bullish Calls are losing their shirts.