Brian Gorban's  Instablog

Brian Gorban
Send Message
Some of our most popular articles to give an idea on what we write about: More
My blog:
Financial blog/advice
  • Notable Stocks With Unusual Options Activity 0 comments
    Dec 14, 2011 6:50 PM | about stocks: BBRY, AAPL, GOOG, RAI, MO, LO, JNJ

    When buying a stock, I've found historically that looking at options volume is a great indicator for one simple reason: options provide fantastic leverage for investors, and the stronger the volume the stronger the conviction. Each contract allows an investor the right to buy (a call contract) or right to sell (a put contact) 100 shares-- meaning, if a stock currently costs $20/share but the call premium is only $1, this gives the investor 20-to-1 leverage. Therefore, if I'm an investor and extremely confident about an upcoming earnings report, related news event, etc. I'd look to the company's options rather than just buying the common stock outright as I described here. These companies below had options volume that caught my eye on December 12.

    Research In Motion Limited (RIMM) designs, manufactures, and markets wireless solutions for the worldwide mobile communications market. There was particularly strong volume in the Feb 19 calls with over 10,500 being bought aggressively against just only over 500 in open interest. Since these are being bought a few months out, this is most likely continued optimism towards a potential takeover. With RIMM trading at just a 3x trailing P/E, 4x forward P/E, .4x P/S and EV/S, .9x P/B, just 1.4x EV/EBITDA, and over $2/share in net cash with no debt, I think it makes for a nice speculative buy. I say speculative since RIMM's technology has clearly declined in value as Apple's (AAPL) iPhone and Google's (GOOG) Android phone keep gaining market share, but RIMM's existing patents and hopes of turning things around are plausible making this options purchase a decent move.

    Reynolds American Inc. (RAI), through its subsidiaries, manufactures and sells cigarette and other tobacco products in the United States. There was strong action recently described here and again now in the Feb 40 puts with over 2,700 changing hands against only 199 in open interest. However, it looks as though investors were selling this at the put price meaning they're are bullish on a $40 price floor. I'm not so sure longer-term on RAI, and for that matter Altria Group (MO), Lorillard (LO), and other tobacco stocks due to the declining revenue trends, ever increasing government taxes, and strong push to keep pushing down its use. Moreover, I must say I'm not a fan of smoking so I may have some bias against it.

    Johnson & Johnson (JNJ) engages in the research and development, manufacture, and sale of various products in the health care field worldwide and represent some attractive value as we brought up here. There was almost 3,500 Jan 65 calls changing hands, but didn't necessarily indicate bullishness as they weren't being bought aggressively. Either way at just a 15x trailing P/E, 12x forward P/E, 3.6% dividend yield, and massive $11B net cash position, JNJ makes for a nice holding. 

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: I didn't know how else to respond to the feedback, but I resubmitted as I made the suggested change to Feb. call and provided more analysis..what system to game are you talking about?Moreover, feedback for the beta-test, I think being able to respond to editor feedback more timely would be greatly helpful as is the case here. Also, corrections are moving much slower in case the team doesn't know. Lastly, articles that are premium sometimes don't get that classification . Overall a much nicer lay-out and nice tools added. Great job!Best, Brian

    Stocks: BBRY, AAPL, GOOG, RAI, MO, LO, JNJ
Back To Brian Gorban's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers


  • Is There Money Still To Be Made In 3D Printing In 2014?
    Jan 13, 2014
  • What's your top stock for 2014?
    Jan 7, 2014
  • Happy 2014 everyone!
    Jan 2, 2014
More »

Latest Comments

Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.