Here was some (apparently) untied directional options trades that caught my eye in today’s trading:
BABA: the Chinese eCommerce giant Alibaba apparently has a date with its prior all time high near $120 (from late 2014, a couple months after its IPO, which was the largest single offering in history). BABA is up 33% one the year, and up 90% from its 52 week and all time lows made in Sept 2015. At least one trader likes the prospects for more gains in the coming weeks, buying to open 7,000 of the Oct 112 / 117 call spreads for $1.19 when the stock was $108.62. This trade breaks-even at $113.19, up about 4% from the trading level, offering a maximum potential gain of $3.81 up to $117, or about $2.7 million. What’s odd about this spread is that it will not catch Q3 results due in late Oct, or Singles Day on Nov 11th. $100 looks like decent near term support, while $120 is the obvious upside target:
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GLD: gold caught a bid yesterday following the FOMC’s decision to hold pat on rate hikes, sending the dollar lower. The etf that tracks the shiny metal is seeing fairly heavy call activity today 2x average daily volume, with a good bit of the activity looking like selling. When the etf was $128.14 shortly after noon it appears that 46,000 March 140 calls were sold to open at $2.14, at the same time 13,000 of the March 145 calls look sold to close and 27,000 of the March 160 calls are also sold to close.
For what its worth, GLD seems to have just bounced off of key technical support at $125, which happens to be the bounce level from July and August, but also the uptrend from the Dec 2015 lows:
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HYG: the etf that tracks the high yield index saw heavy options volume today, more than 2x average daily volume with most coming in one bullish trade. When the HYG was $86.80 shortly before noon, a trader sold to open 33,000 Dec 82 puts at 60 cents, and bought 33,000 of the Dec 88 / 90 call spread for 38 cents, resulting in a credit of 22 cents (or $726,000 in premium). If the HYG is between 82 and 88 on Dec expiration the trader will receive the 22 cents. If the HYG is between 88 and 90 the trade can make up to $2.22 (the width of the call spread plus the original credit). Profits are capped at $2.22 at $90 or above. The worst case scenario is that the trader would be put 3.3 million shares of HYG at 82 and suffer loses one for one below (less the 22 cents in premium). The choice of strikes are instructive though, on the downside the etf has good support at $82 as it was the late June Brexit low, and just below the etf’s 200 day moving average:
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TSLA: Earlier I had some thoughts on what appears to be a bubble in the financial and technology press in autonomous and electric cars (Tesla (TSLA) – Car Tune Network). What got me thinking about all this was some unusual call activity in TSLA. It appears to be bullish, but you can never really tell, because it could be a buy stop on a short position. When TSLA was trading $203.85 just before 11am a trader sold to close 10,000 Oct 235 calls at 56 cents and bought to open 10,000 of the Oct 220 calls for $2.01. These calls break-even at $222.01, or up 9% from the trading level in one month.
Given the negative news of late about TSLA’s autopilot (despite today’s software update), the skepticism about their proposed acquisition of SolarCity (SCTY), their continued need to raise capital to fund Model 3 development and competitive news from GM (& potentially Apple) I am shocked the stock is still above $200. It is at a really precarious technical spot:
$220 looks like technical resistance and would be an ideal level to take profits or lay-out a short. Sentiment is poor, the news-flow has been bad. But there’s also the possibility of one headline, like them calling off their proposed takeover of SCTY, that could cause a short squeeze higher. Much of the negative news is known for the time being. Their Q3 earnings call in early Nov is worth keeping on the radar.