Options Hawk End of Day Market Report

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William Jordan
5 years ago
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1 Options Hawk End of Day Market Report Markets had a positive day closing near highs as crude oil rallied sharply, although participation was slim as volume was very light on the first day of the shortened week. In the options pits we saw very slow activity with minimal institutional sized trades. Options activity was highlighted by bullish activity in McAfee (MFE), which was later followed by takeover chatter. Another interesting play was bullish activity in Agrium (AGU) as the proposed acquisition of CF is expected to either go through or fall apart. Agriculture, Insurers, Homebuilders, and select Financial stocks helped the rally, while Solar, Healthcare, and Semiconductors were laggards, a change from recent strength. Tomorrow, an abundance of economic reports should lead to a much more active day, and Education stocks will be a group in focus after tonight s earnings report from Apollo, which at first glance is being received well with shares up 3% after hours. Below is a summary of the main Options Radar stories for the day: Ticker/Price: MFE ($41.30) OPTIONS RADAR: McAfee (MFE) Traders Feeling Secure Breakout Prospects Analysis: McAfee (MFE) set off my alert at $41 for a major technical breakout of resistance, and also a large cup and handle pattern. Call activity abruptly got active as shares continued to climb higher, with 2,500+ July $45 calls trading against OI of 1,260. Implied volatility is also moving a bit higher of near record low levels after trading range bound. Valuation appears very rich at a PEG of 2.4 and 18.7X free cash flow, but online security software has been a major focus area, and also would work as integration for a larger software firm. Earnings are not scheduled until July 30th, after expiration, so traders are betting on some other catalyst, as 3.5X average call volume trades early on.

With no clear catalyst obvious for a 12%+ move in shares near term to justify the call buying at the $45 strike, it is better to buy the July $40 calls on the cheap for $1.

2 With no clear catalyst obvious for a 12%+ move in shares near term to justify the call buying at the $45 strike, it is better to buy the July $40 calls on the cheap for $1.95 or better, and look for continuation on this breakout. Ticker/Price: AGU ($40.85) OPTIONS RADAR: Agrium Bulls Looking Past M&A Saga, See Value Analysis: Agrium (AGU), still on the prowl to acquire CF, is seeing some traders step in betting on limited downside, and possible big upside in shares for August, A 6,000 contract lot of August $40 puts was sold at the bid, with shares at $40.85, and more than 8,700 of those contracts have traded all in all. There is also scattered upside purchasing in August $45 calls, where 1,430 have traded against OI of 731. AGU shares have been unable to participate in much of the market rally due to the M&A overhang. Shares are extremely cheap at 6.5X forward earnings and 0.6X sales. Earnings are scheduled for August 5th. Technical: Shares are trading near channel support, leaving room to the upside as shares come out of oversold conditions.

Sell an August $35 put for $1.25 to finance the purchase of an August $45 call for $1.80, net debit of $0.55. Keeping a close eye on shares with tight stop at $38.90.

3 Sell an August $35 put for $1.25 to finance the purchase of an August $45 call for $1.80, net debit of $0.55. Keeping a close eye on shares with tight stop at $ OPTIONS RADAR: MICROS Systems (MCRS) has Option Traders Selling Today s Pop Ticker/Price: MCRS ($25.57) Analysis: MICROS Systems (MCRS) seeing some bearish action as shares are strong today, with a trade involving the sale of 1,100 September $25 calls, and purchase of 1,100 September $25 puts, for a $0.60 credit in the bearish risk reversal trade. MCRS is now trading at 2.1X sales and 17.7X forward earnings for a company that provides hotels and restaurants with information system software. The company showed slowing sales last quarter, and will report Q4 earnings for the September options expiration. Technical Analysis: Shares are re-testing a break of its 20 day EMA, after failing to take out last September's highs. Money is also purging out of the name, although it bounced back above its 50 day EMA today.

MCRS looks to be in trouble fundamentally and technically, and although thinly traded in the options market, the puts are cheap in the name with implied volatility trailing far behind historic

4 MCRS looks to be in trouble fundamentally and technically, and although thinly traded in the options market, the puts are cheap in the name with implied volatility trailing far behind historic volatility, making the purchase of puts cheap with the added benefit from a volatility jump if shares begin to sell off. Following the action for the earnings season with the purchase of September $25 puts for $2 or better seems to be the most prudent play. Ticker/Price: EQT ($35.50) OPTIONS RADAR: EQT Corp. Trader Utilizing a Married Put Position Analysis: EQT Corp (EQT) just traded a block of 4,700 August $35 puts at the offer of $2.15 on wide spreads, but the position is protective, as a large block traded at the same time in a delta hedged position. The gas utility trades 17.5X forward earnings and 2.06X book value, which is quite rich for its industry, but it also is involved in Gas exploration and production, which explains the rich valuation. Stifel initiated shares with a Buy and $52 target this morning, and it currently trades at $ It appears a trader is bullish on shares but is buying protection, likely for July 29th earnings and accounts for nearly 25X the average call volume for EQT. Technical: Shares are rallying off trend support but still lie below all major EMAs, although momentum appears to be turning bullish.

5 Although the purchase appears to be bullish on shares long term, it is not a directional bet. With that said, if I was running a conservative portfolio, EQT would definitely be a Utility name I would look to add here. Ticker/Price: PXP ($27.23) OPTIONS RADAR: Plains Exploration seeing fairly bullish bets in the pipe Analysis: Plains Exploration (PXP), a possible sympathy play off the M&A with TEPPCO from this morning, had a trader buy a Strap, buying 3,000 January 2010 $30 calls and buying 1,500 Jan 2010 $20 puts, betting on a volatile move, but favoring a move ot the upside. Shares are expensive on valuation and the company could have some liquidity issues. There are also indications that PXP is losing support from some of the Street's smart money, with funds selling shares. Technical: Shares are re-testing a breakdown of its 10/200 day EMAs and it looks like momentum is fading and shares could turn lower.

6 Sitting this one out as January 2010 is quite awhile away and the fundamentals do not justify the bullish skew to the trade. OPTIONS RADAR: Energy Conversion Devices has Traders Bearish on Volatility Near Term and Shares Longer Term Ticker/Price: ENER ($14.25) Analysis: Energy Conversion Devices (ENER) had a 2,000 contract diagonal calendar put spread trade, with the trader selling the front month July $14 puts to purchase the August $13 puts. The strategy is bearish on volatility and neutral to bearish on shares. The trader is likely betting on volatility to trend lower through July, but begin to pop ahead of Q4 earnings scheduled for just after August options expiration. The $0.25 debit will yield profits as long as shares stay above $13.15 for July expiration and then look for a move below $12.75 for unlimited profits from there if shares head lower. ENER trades only 2X cash and has a 29% short float, but has relatively underperformed solar plays lately. Shares broke near term support on the charts today.

7 The trader likely knows what he/she is doing with this strategy and it adds up, but management of the diagonal time spread can get messy so I am going to leave this one alone.

Options Hawk End of Day Market Report

Options Hawk End of Day Market Report It was an ugly day for the markets that began an early morning sell off on higher than expected jobless claims and could not spark any bounce throughout the day, even