Here is some untied, generally directional options activity that caught my eye during Tuesday’s trading:
1. MSFT – in front of this week’s Windows 10 product event there looks to be a decent size seller of long dated calls, likely an overwrite of a long stock position. When the stock was $46.35 a trader sold to open 15,000 Jan16 52.50 calls at 1.50 to open and bought 420,000 shares of stock. This trade was done delta neutral (likely to secure better pricing for the options) and probably was an overwrite of 1.5 million shares of stock. What’s interesting about this call sale is that the premium received (if in fact an overwrite) would yield more than the stock’s dividend, and additionally would create a total yield of almost 6% when you add to the call premium the stock’s 2.7% dividend yield. Worst case scenario on an overwrite is that the stock would be called away at 52.50 on Jan16 expiration if the stock at the strike or higher, But effectively the investor would be selling stock at $54 (the strike plus the premium received) which would be up about 16% from current levels. I detailed this trade last night on CNBC’s Fast Money:
2. PEP – sticking with the overwriting theme, there was an opening seller of 6,
This is a stock that makes little sense to me on a valuation basis. It’s trading at 20x expected eps growth of 5% on expected sales growth of only 1% (after no growth in 2014). This is a clear example of the company’s nearly $5 billion in share buybacks manufacturing earnings growth.
3. EBAY – saw a bullish roll down when stock was $53.
4. CAT – despite the stock being a hair above the 52 week lows, there was a bullish roll in the options market when stock was $84. A trader sold to close 10,
5. XHB – the homebuilder etf has had a bad week since breaking out to new 52 week highs last week and promptly failing. The XHB has fared better than its more pure-play cousin the ITB which is down 11% since the failed breakout vs the XHB’s 8% decline. Yesterday, when the etf was $33.
6. PG – saw a large bullish roll when the stock was 91.