Option’s Action –
Nice quote to start the show (these guys are great with quotes), “they are peeling out of financials right now”. The point was that in the options market they have seen mostly bullish trades for financials up to this past week, but the tide has turned and turned quickly with the majority of trades on the bearish or hedging side of things this past week. If you ever consider a long or short trade on the overall sector, but don’t want to figure out the best stock there is always the XLF exchange traded fund.
The first trade goes along with the negative theme on financials and is a bearish trade on Goldman Sachs (GS – 120.20). The trade is a put calendar selling a GS Oct 115 Put at 0.50 and buying a GS Oct 115 Put at 1.90 for a net cost of 0.40. The idea is GS will drop below 115 and then some, but not make this move until after this coming Friday (October expiration). The maximum risk here is the 1.40 paid for the spread. This is sort of a way to pay for the Nov 115 puts with an option that will decay a little more than the option that is being purchased.
The second trade thrown out there was on Ebay (EBAY – 47.85). EBAY reports earnings next week and the option market is pricing in a 6% move which is in line with recent earnings reports. The trade is bullish on the stock into earnings and beyond so the suggestion is a bull call spread before earnings. This one buys an EBAY Jan 50 Call for 2.25 and sells an EBAY Jan 55 Call at 0.85 for a net cost of 1.60. Also, something I found interesting and had not considered was a chart comparison that was shown between EBAY and Visa (V – 139.12). It was noted that payment systems are a growth driver for EBAY which puts them in the same business as Visa.
First, I just can’t help myself, the cover of Barron’s notes we are 6% from all times highs on the Dow Jones Industrial Average. Isn’t that some sort of contrary indicator?
The Striking Price column talks about Wal-Mart (WMT – 75.81) which made new highs in the middle of last week. The idea on WMT is that the move to the upside is not over and selling a put to take on the obligation to buy shares is discussed. Based on prices last week the WMT Nov 75 Put could be sold for 1.25 with the result being the obligation to buy 100 shares of WMT at 75.00 if assigned. I am a big proponent of the cash secured put and CBOE has an index that displays the performance of a consistent program of selling puts on the S&P 500. More on that can be found at www.cboe.com/put