Weekend Review

Barron’s –

The Striking Price column starts out mentioning QE3, which seems to be fading fast as far as the memory of traders goes. An interesting comment was that going into September expiration this past Friday eight of the ten SPY September contracts with the biggest open interest appear to be bearish positions. That is large SPY option traders were looking for a drop in September, not a continuation of the bull move we have had in 2012. 

There was also mention of a previous trade recommendation on Corning (GLW – 13.22) discussed in the Striking Price column a few weeks ago. GLW stock was (and now is again) around 13.00 and the previous trade involved selling put options to improve a long term entry point into GLW. This would have worked fairly well and now Goldman Sachs is recommending shares with a target price of 16.00. Beyond that, the biggest open interest is in the Jan 2013 17.50 Calls which may indicate the option market is more bullish on GLW than Goldman.

Options Action –

The show started out with Melissa Lee showing us her new iPhone and a discussion of Apple (AAPL – 700.09). One thought was that maybe the run up into the iPhone 5 might be a bit overdone. Some numbers that were thrown around were 8 million units should be sold this weekend and 49 million through the holiday season. Another thought was that in order to continue strong growth, AAPL will need to strongly expand into the Chinese market. Finally, there was some discussion of a brewing battle between Google (GOOG – 733.99) and AAPL. Apparently GOOG’s map application has been shut out of the iPhone 5, but the AAPL replacement map may not be working as well as AAPL assumed it would. 

The first trade was actually on GOOG in the form of a bearish put butterfly. The trade uses October options and part of the idea here is to benefit from GOOG’s next earnings release. The trade buys a GOOG Oct 645 Put for 2.00, sells 2 GOOG Oct 680 Puts at 5.70 each, and then buys 1 GOOG Oct 715 Put for 14.40. The net result is a debit or cost of 5.00. The goal here is a stock price of 680, but the trade can profit with GOOG between 650.00 and 710.00 at expiration. The best case scenario is for GOOG to close right at 680.00 at expiration which would result in a profit of 30.00 while risking 5.00. Finally, the stock over 715.00 or below 645.00 at expiration would result in the maximum loss of 5.00. 

The second trade was on Nike (NKE – 96.52) which reports earnings this coming week. A 5% move is being priced in by the option market right now going into earnings. The trade is a bearish one as well in the form of a calendar spread with put options. They are selling the weekly NKE 92.50 Put that expires this coming Friday for 1.05 and buying the NKE Oct 92.50 Put for 1.80. The perfect storm for this trade involves the stock going down to 92.50 on Friday. A second suggestion was to consider a bearish vertical spread as well.