Option’s Action –
The discussion began with a focus on tech stocks and whether buying the recent weakness makes sense. The stock stocks that were discussed were Apple (AAPL – 423.20) and Google (GOOG – 781.05). A question thrown out there was about GOOG and whether it is going to follow AAPL’s path downward. The feeling is near term downside could be upon us for GOOG although the long term path is still higher. On the other side of the equation some longer term bulls appear to be selling puts to get long shares of GOOG. Specifically the 750, 760, and 800 strike puts have been sold in order to get long shares. In fact GOOG option volume was two times the normal average on Friday. A concern of one panelist is if GOOG experience an AAPL like drop that those put sellers are going to be in for a difficult time.
The first trade discussed stuck with the technology theme. Yahoo (YHOO – 23.30) has been pretty strong since new leadership has taken over and this rally has been on anticipation of things getting better there. The market may be overpricing a recovery in the fundamentals. The trade is a bearish one using the May options and buys the YHOO May 23 Put at 0.75 and sold a YHOO May 21 Put at 0.20 for a net cost of 0.55. The goal – the stock at 21.00 (or lower) at May expiration which would result in a profit of 1.45.
The next trade was on the homebuilding sector. This sector has been on fire and dramatically outperformed the overall stock market. It was noted that the uptrend of some home building stocks has been broken. The stock recommendation was on PulteGroup (PHM – 19.13) which has a valuation level that is the highest in the group. Taking a bearish view it was recommended to sell a call spread. The PHM May 19 Call was sold for 1.00 and the PHM May 20 Call was purchased for 0.60 which results in a net credit of 0.40. This trade ends up with a profit of 0.40 if the stock is below 19.00 at May expiration. One of the interesting things here is if the stock closes at Friday’s close upon May expiration (highly unlikely, but interesting) the trade would still be profitable as breakeven is 19.40 on this one.
The Striking Price column discussed the SPDR Gold Trust (GLD – 152.81) exchange traded fund and noted that there is a bit of a tug of war going on related to the price of gold. Although GLD rallied on Friday, it was noted that there seems to be a lot of bearish interest in the option market related to the GLD. When GLD traded up, there was big buying of the GLD April 12th 147 Put which was offered on the close Friday at 0.13.