Here is some generally directional, untied options activity that caught my eye during Thursday’s trading:
1. CSCO – shares closed up nearly 9.5%, after reporting strong fiscal Q2 earnings and giving forward guidance that was more upbeat than expected. Total options volume ran almost 5x average daily with calls outnumbering puts nearly 3 to 1. The two most active strikes on the day were the March 28 and 30 calls, with close to 50,000 trading of each. The largest trade of the day was a bullish roll shortly after the open when the stock was $29.
For those looking to play for a beat and raise, and a breakout above the prior highs, the Feb13th weekly 28 calls at .32 seem dollar cheap (stock ref $27.25).
With the stock closing yesterday at $29.46, with one day to weekly expiration, those calls closed at $1.46, a great example of the benefits of defined risk leverage when it works out. The stock has rallied $2.20 since Monday, and this weekly call is now worth 4.5x what it was on Monday. Obviously long stock would have been more profitable (100 shares vs 1 call), but here is the thing, the break-even was at $28.32, up 4%, and if you were to have bought those calls you needed to get a lot of things right to just be in the game, most importantly direction, then magnitude of the move, and timing of the move is always imperative when dealing with weeklies. So I don’t bring this up to demonstrate any particular skill, the options looked dollar cheap for those who had conviction that the stock would outperform the implied move to the upside, this week. There are a lot of scenarios where owning the stock was more attractive than owning weekly calls, but none of them played out this week, so difference between the gains of owning stock vs out of the money calls can be chalked up to risk management.
I will add one more point, the stock which trades below a market multiple and for the first time in 2 years posted double digit earnings growth in a quarter, is approaching what could be an epic breakout level at $30:
2. XLU – The utilities etf had its lowest close in almost two months, now down 2.4% on the year, and down 8% from the all time highs in late December. The sector went from best performing, to the worst in the S&P 500 in one fell swoop. There was a large bearish roll in the XLU yesterday when it was $45.
3. SMH – saw bearish flow, when the Semiconductor etf was $55.
4. JNJ – a trader rolled an overwrite (short call against long stock for yield enhancement) out and down,
5. JPM – saw a large roll of an overwrite (short call against long stock for yield enhancement),
6. PMCS – the networking semiconductor stock saw some very unusual call volume yesterday, equalling more than the existing open interest. There were a couple bullish rolls up and out, first right before 1pm when stock was $9.18, a trader sold to close 10,