Options Hawk End of Day Market Report

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Roland Watkins
5 years ago
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1 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 with some positive factory order numbers. The weakness was across the board, except for fertilizer stocks that rallied due to news out of Russia that pricing was improving. A select number of chip stocks also showed strength such as NVLS, LRCX, and FORM. Volume was dismal, as expected, and heading into the close we are very close to the mark on the S&P which is the 50 day EMA that we have only dipped below once during the last few months, and quickly recovered the next day, putting Monday into focus. Next week will kick off earnings season with Alcoa slated to report on Tuesday and estimates should be easy to beat for most industries due to prior forecasts, but traders will look for positive outlooks and signs of the consumer returning. Oil is finishing the week very soft and is near the bottom of its recent trading range, but it looks as if actual fundamentals are catching up to the crowded trade and it could be due for some further weakness. The S&P range of 880 to 950 puts us closer to the bottom of that range now, so value players may look to put money to work early next week, and high Beta stocks like Wynn Resorts and First Solar look to be at solid support areas here, and appear due for a bounce. There is hardly anything of note on tap for Monday, as some take an extra day to get ready for the Summer trade, so it should give us an opportunity to position for the earnings season. I wish everyone an exciting and safe 4 th of July, and look forward to trading next week. Below is a summary of the main Options Radar stories for the day: Ticker/Price: IMA ($34.16) OPTIONS RADAR: Inverness Medical May Feel Wrath of the Bears Analysis: Inverness Medical (IMA) trading around 4X average put volume early on, with bearish buying of August $30 puts at the offer as shares trade around $34. 1,000 of the puts were bought in a multi exchange sweep accounting for most of the volume. The company provides medical diagnostic tests, and with recent reports from firms such as Myriad (MYGN) and Illumina (ILMN) the amount of people uninsured is resulting in less tests in the medical field, as less people visit doctors. I do not see IMA pulling back too hard, but it can offer a quick scalp trade, or can be held for an earnings report that could be much weaker than anticipated.

2 Technical Analysis: Shares are breaking down below its 20 day EMA today after hitting major resistance on its V bottom run higher to 2008 highs. Trading Strategy: There is not enough action to warrant an investment here, although the opportunity is appealing. I will continue to monitor to see if there is any follow up activity in coming days. Ticker/Price: AZO ($151.77) OPTIONS RADAR: AutoZone Shares Staying In the Zone Analysis: Autozone (AZO) has a trader betting shares stay relatively range bound selling the August $160/$140 strangle for $5.50. This strategy is profitable as long as AZO shares stay between $ and $ come August option expiration. The trade has a 65% chance of profitability. Implied volatility in AZO is at 29%, seriously depressed levels. Shares are at a fair valuation and in a constricted $147 to $167 range, and with its Q4 earnings not scheduled until September there does not appear to be a catalyst to have shares leave this range, making this a smart play to piggy-back, noting that selling a strangle has substantial risks.

Trading Strategy: Everything about this strategy makes sense and even though volatility is quite depressed, you can still collect a nice premium with a large range of profitability, and high

3 Trading Strategy: Everything about this strategy makes sense and even though volatility is quite depressed, you can still collect a nice premium with a large range of profitability, and high probability. Ticker/Price: CPTS ($16.91) OPTIONS RADAR: Conceptus Sees Unusual Bullish Bet Come In Analysis: Conceptus (CPTS) with an unusual large block of 1,000 Aug. $15 calls bought for the offer of $2.40 as shares hold positive in a very weak tape. At 36X forward earnings, a PEG of 14, 13X book, and 155X FCF the stock is trading on hype at this valuation, and has a short float of 19%, nearly 20 days of volume to cover the short float. The company makes minimally invasive medical devices for reproductive applications, and has earnings scheduled for July 23. Shares soared more than 15% on earnings last quarter, and there was some bullish activity in CPTS ahead of earnings last quarter as well that I wrote about at: Another possible catalyst is a patent infringement suit against Holgix (HOLX) filed in late May. Shares have a strong trend higher here despite the valuation conflict.

Trading Strategy: The fact that I have seen sneaky insider positioning in this name before makes it worth adding some ITM calls, following the action, with earnings and a patent suit as possible

4 Trading Strategy: The fact that I have seen sneaky insider positioning in this name before makes it worth adding some ITM calls, following the action, with earnings and a patent suit as possible catalysts, and a very large short ratio. Ticker/Price: ASBC ($11.82) OPTIONS RADAR: Associated Bancorp Traders Betting on All Time Lows Analysis: Associated Bancorp (ASBC) recently had multiple 200 contract lots of September $10 puts bought at the offer on wide spreads, and 30 August $10 puts also traded at $0.65 with a $0.15 bid. Shares are completely breaking down and nearing all time lows. The Mid-West Regional Bank has been expanding its loan loss provisions, and Q2 earnings on July 16th are expected to be poor, as the company is apparently behind the curve of realizing large losses. Implied volatility has also risen to 77% from 69% a few sessions ago.

5 Trading Strategy: ASBC looks weak and the action on wide spreads is very telling. However, the thin liquidity in options can result in trouble getting orders filled, but shorting the stock could be an option. OPTIONS RADAR: Schering Plough Traders Betting on Bullish Outcome to Merck Deal Ticker/Price: SGP ($24.67) Analysis: Schering Plough (SGP) with a bullish trade as a trader sell 2,500 of the November $22.50 puts for $0.90, to help finance the purchase of 2,500 November $25/$27.50 call spreads costing $1.05, for a net debit of $0.15. Schering is in the midst of an acquisition offer from Merck, a $41.1B deal. The FTC has requested additional information about the merger. Schering announced Phase 2 and 3 data for Corifollitrpin Alfa yesterday, a hormone stimulator. Schering is currently trading under $25 so this trade is betting on a bullish outcome.

6 Trading Strategy: This is not the type of trade that offers the kind of upside I look for, although a safe way to play the outcome of the Merck deal. OPTIONS RADAR: Great Plains Energy Earnings Could Suffer on Cap and Trade Bill Ticker/Price: GXP ($15.46) Analysis: Great Plains Energy (GXP) recently traded a few large lots of December $15 puts amounting to 4,182 puts against OI of 230, with the trades at the offer of $1.10. This is huge activity as GXP usually trades around 20 puts a day. Shares have been steadily moving higher the last few months but may have run out of energy as it approaches a huge gap from an earnings sell-off. The company generates energy as a utility in the Mid-West. Earnings are scheduled for August 5th. GXP could be impacted by the Cap and Trade bill that recently passed the US House.

Trading Strategy: December activity does not make for enough of a compelling argument to buy puts on the name although it does look like shares are headed lower from here. Ticker/Price: POT ($96.

7 Trading Strategy: December activity does not make for enough of a compelling argument to buy puts on the name although it does look like shares are headed lower from here. Ticker/Price: POT ($96.40) OPTIONS RADAR: Potash Pricing Recovery Hopes has Bulls Optimistic Analysis: Potash (POT), rebounding in a weak tape today on reports from Russia regarding better than anticipated Potash pricing, is trading at $96.60, but a large trade is betting shares head even higher in the next 2 weeks. A large institution bough the $110/$120/$130 Butterfly call spread, buying the wings and selling the $120's for 10,000X20,000X10,000 contracts. Max profits on this strategy is for a move to $120, more than 20% from here. POT is also bouncing off trend support and is well oversold. The net debit of the trade was $0.55, but is a large trade value for 10,000 of the spreads.

Trading Strategy: This is a very bullish view on shares, backed by a lot of dollars, but the portfolio already has long exposure to Agrium (AGU), so I want to stay diversified and hope the bullish

8 Trading Strategy: This is a very bullish view on shares, backed by a lot of dollars, but the portfolio already has long exposure to Agrium (AGU), so I want to stay diversified and hope the bullish move props the entire group. Ticker/Price: MTB ($53.50) OPTIONS RADAR: M&T Bank has Traders Jumping on a Rising Ship Analysis: MT Bank (MTB) is very strong, up 4%, in a weak tape and among the other banks today, and at 10:40am 3,000 August $45 puts and August $55 calls traded, with puts going for $1.92 and calls for $2.22 on the ISE. Both trades hit the mid-point, but I am thinking that with today's strength that this is a bullish risk reversal for a $0.30 debit. Earnings are scheduled for July 14th and shares are near a breakout of its 200 day EMA and has broken an upper trend line off the highs.

9 Trading Strategy: M&T Bank is acting oddly strong today but I do not have enough confidence in the actual action to consider jumping on board, although if I am looking to add a Financial this will be the first name I look at.

Options Hawk End of Day Market Report

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