Weekend Review – 3/30/2014

Options Action –

The guys started out talking about Apple (AAPL – 536.86) and the bigger iPhone that we are expecting in September.  After discussing what is expected from the next iPhone the thought was that it probably will not be a game changer for the fundamentals of the company.  The first trade of the day was based on AAPL, but focused on the near term.

Looking to have long exposure into AAPL’s next earnings release in May the idea was to sell the AAPL Apr 11th 550 Call for 2.20 and buy the May 16th 550 Call for 11.20 and a net cost of 9.00.  The hope is for AAPL to be under 550.00 on April 11th and then move higher into May.

The second trade looked at the solar energy sector and specifically Solarcity (SCTY – 61.38).  Looking at charts it was pointed out that SCTY has had three 35% sell offs over the last year and then rebounded to new highs.  We just happen to be at the bottom of the third 35% correction and the idea is to “take advantage of the weakness”.  The trade involves selling options based on SCTY implied volatility being pretty high (high IV = expensive options).  Looking to May the trade sells a SCTY May 60.00 Put for 5.00 and then buys a SCTY May 57.50 Put for 4.00 and a net credit of 1.00.  If SCTY does not repeat the trend of rebounding and heads lower the worst case scenario is a loss of 1.50.  As long as SCTY is over 60.00 at May expiration the result is a profit equal to the credit of 1.00.

Barron’s –

The Striking Price column focuses in on the global economy and notes that there are some bears on the iShares China Large Cap ETF (FXI – 35.83) which is already down 6.6% this year.  The open interest on puts exceeds 250,000 contracts.  I’ve also noticed periodically we have been seeing bearish oriented block trades in FXI options.  This past week there was a seller of over 10,000 FXI Jul 40 Calls at a cost of around 0.37.  The other market observation in the article involved using options on the iShares Russell 2000 ETF (IWM – 114.29) if you have a bearish market view since Russell 2000 companies may be a bit more economically sensitive.  There was one big trade that caught my eye last week in the IWM space as well as a trader bought 20,000 of the IWM Apr 111 Puts at 0.86 on Wednesday.  Those puts closed on Friday with a bid of 1.03 – so far so good on that trade.