Traders Calling The Bottom in DHR

Danaher Corporation (DHR) manufactures medical products and provides services to support its customers worldwide. The company reported subpar earnings for the second quarter and cut its forward guidance causing the stock to sell off. But DHR is fighting back and some traders seem to think that it will continue its short rally with decidedly bullish trades coming across the tape today. One trader swept every exchange and laid out $2 million in premium against tiny open interest to get long DHR through December expiration.

DHR is actually a loser, down 1% YTD but recovering from a harsh selloff from its last earnings call. Technically, the chart is showing a rounding top but that too was also likely exacerbated by the 5.5% selloff earlier this month. DHR is up on the day and looking to continue, as the order flow today is extremely bullish. The chart looks to be breaking to the upside of the Ichimoku cloud. If this gains some momentum, we would be able to say that this is not a hedge against a short position but rather a speculative bet that the stock will indeed fly high with a price target around $80. Let’s look at a trade:

The Trade:

Buy the Dec 80 Calls for $1.95

Risk: $195 per 1 lot

Breakeven: $81.95

 

The Greeks:

Delta: Long

Gamma: Long

Theta: Short

Vega: Long

Traders Bet MA Will Continue Surge

MasterCard (MA) ripped higher off the open today again. The stock is up over $3.00 since yesterday’s open. Traders are getting behind the move bidding the stock up $0.66 overnight and placing bigger bets in the options market in this morning’s session. One trade came across the tape for $81,000 worth of options expiring next Friday. This is not an earnings play because MasterCard is scheduled to announce earnings at the end of the month. Buying this kind of short-term premium is a very bullish sign because time will eat away at the value of these calls unless MasterCard trades above $80.63 by next Friday’s close.

The trader is predicting the stock will get bid up to $80.00 in little over a week which is very possible given the recent volatility in the name which is only making the options more valuable. This move was the beginning of a trend reversal in which MA finally broke through the top of the cloud.  The forward looking portion of the Ichimoku cloud chart is providing support around $76 but the stock is trading well above all support levels right now and wants to push higher. MasterCard is down over 7% YTD, but based on this activity, investors who get long now could see big gains in the second half.

 

The Trade

Buy 7/25 Weekly 80 Calls for $0.57

Breakeven: $80.57

 

The Greeks

Delta: Long

Gamma: Long

Theta: Short

Vega: Long

ALLT Poised to Breakout

Allot Communications (ALLT) is trading around $13.00 and could be looking to break to the upside soon. We’re seeing big bets come across the tape today with traders getting long ALLT. The stock has strong support just below the $13.00 level and continued consolidation on volume would be indicative of a potential breakout. Look for that to happen over the next month or so, possibly sooner.

The stock is down 14% on the year so far but has found buyers recently. It has been trading in a 52-week range of $11.52-$18.09. Though it is trading below the cloud currently, we use the unusual activity and volume to determine that this might be a good time to get long ALLT.

The Trade:

Buy ALLT Dec 12.5 Calls for $1.95

Breakeven: $13.45

Risk: $195 per lot

 

Greeks

Delta: Long

Gamma: Long

Theta: Short

Vega: Long

Puts Are Not Always Bearish, Popular, Inc. (BPOP)

Popular, Inc. (BPOP) is a bank holding company with operations in Puerto Rico and the United States. The company’s stock is currently trading around $32.25 in a 52 week range of $23.97-$34.80. The stock has been doing very well this year with shares gaining 19% year to date. The stock has been in a tight trading range since making new 52 week highs on July 1st. As the stock continues to consolidate we have seen some interesting options activity in the name. Earlier this morning a trader bought 7,500 of the BPOP Jan 32 puts for $1.80. This is the largest order to hit the tape today in BPOP and overall option volume in the name is nearly 11 times average daily option volume. While a large put buy like this can seem very bearish in this case it does not necessarily mean this trader is taking a speculative short position. Puts are bought either to get short or protect a long stock position. In this case, with BPOP just off of 52 week highs it is more likely this trader is buying these puts against long stock after a strong run higher. A large percentage of equity options market participants are hedgers and most market participants are long stocks. Traders need to keep this in mind as they watch the tape. Orders cannot always be taken at face value and often times a trader must consider other factors to determine if an order is speculative. This is a key skill to develop for anyone trying to trade using unusual options activity.

Unusual Option Activity:

We define unusual option activity as large block trades that represent a large percentage of daily option volume. The block trade is considered “unusual” if the option volume is above the average daily volume over the past 22 days. At KeeneOnTheMarket.com we scan and analyze order flow from all of the major options exchanges in order to identify any unusual option activity.

Analyzing unusual order flow gives traders a window into what the positions that large institutional players have. The majority of unusual option activity can be traced back to hedge funds, mutual funds, and other large institutions. Knowing where these institutions are placing their bets can be hugely advantageous for any trader. These institutions have informational and technological advantages that the average trader doesn’t have, and the amount of time and analysis that goes into every one of their trades is substantial.  We offer this service through our 7 hour daily LIVE trading room http://bit.ly/135QWt8 or through Premium Twitter feed with all entries, exits, and unusual options activity tweeted all day long: http://bit.ly/11f0L9u .

Order flow can however at times be deceiving. One might logically thing that a large block buyer of calls is bullish on the underlying. This is not always the case. Remember that a large number of participants in the equity options market are hedgers. Long calls are a hedge against short stock, and long puts are a hedge against long stock. With this in mind we have developed a 7 step trading plan that helps filter out unusual option activity that will not provide actionable trade setups. It is by using this plan that we are able to identify the most significant unusual options activity trades every day.

The “Institutional Trade”: A trader bought 7,500 BPOP Jan 32 Puts for $1.80
Risk: $180 per 1 lot
Breakeven: $30.20

GRMN Trying to Find Place In the World

Garmin (GRMN) shares are down over $3.50 today on a downgrade from Pacific Crest and are currently trading at $57.10. We’ve seen some bullish activity coming across the tape today. Traders are buying Aug 60 calls. This is a good example of how difficult it can be to determine whether order flow is speculative or for hedging purposes. Pacific Crest gave a price target in the mid $40’s for Garmin, citing an inability to remain relevant and competitive with giants such as Samsung and Apple in its personal navigation devices and other products. If this order flow is indeed speculative, it would likely be a short-term bet.

Garmin is trading off its 52-week high of $62.05 but has performed very well on the year despite the recent bad press, up over 30% YTD. The charts are ugly for bulls as the stock is trading below all significant levels on the Ichimoku cloud. This could be seen as a buying opportunity as the stock has found some buyers around the $57.00 level. Coupled with the activity in the Aug 60 calls we have seen, the charts could be indicating a nice spot to get long Garmin for a short period.

The Trade:

Buy the Aug 60 calls for $1.30

Risk: $130 per 1 lot

Breakeven: $61.30

 

The Greeks

Delta: Long

Gamma: Long

Theta: Short

Vega: Long

 

TS Riding Momentum Off Last Week’s Highs

TS

Tenaris SA (TS) is fresh off of an upgrade at Goldman Sachs, from “sell” to “neutral” and Guggenheim applied a price target of $55.00. The pipe manufacturing company based out of Luxembourg is trading $48.03 today, up 11.79% on the year. A lot of activity came across the tape last week and the stock gapped up Thursday before the holiday weekend after news of its winning a contract with Brazilian energy giant, Petrobras. Tenaris has been able to sustain last week’s gainsand is trending higher.
Currently, TS is trading above the cloud looks to increase its cushion. The stock reached its 52-week high overnight Thursday and will be looking to test that level again this week as it creeps higher after a slight selloff. On the daily chart, TS is in what looks to be the middle of a big move to the upside that began in mid-May and has seen almost $6.00 in gains. If the broader market trends continue, we can definitely look for TS to see some more upside. Let’s take a look at a trade:

 

The Trade

Buy Aug 50 Call for $0.95

Risk: $95 per 1 lot

Breakeven: $50.95

 

Greeks:

Delta Long

Gamma Long

Theta Short

Vega Long

AAPL Set to Rage Thru September!

Apple (AAPLE) is the hot stock of the day as traders and investors alike pile on board the train that is up over 30% since its last pullback that rebounded in February.  There’s a myriad of reasons why everyone seems to be getting long the Silicon Valley tech giant. Among them is the general sentiment that Apple has overcome the loss of its late innovator, Steve Jobs, and has found itself once again as a well-oiled machine aimed at creating a complete life experience for its expanding user base.

Apple’s born again innovative mindset is exciting consumers who are waiting patiently for the new iPhone 6, said to have a much larger screen and increased battery capacity. But these features are for the simple-minded compared to the big picture Apple is focused on. They appear to be setting up to create one continuous life experience through their devices, connecting users’ mobile devices not only to each other, but to seemingly anything with some sort of connectivity capacity such as a kitchen appliance or car. These goals are obviously a little farther down the line than the iPhone 6, which is expected to arrive sometime this year, likely September. Apple’s tendency to make the next leap in technology throughout its history is almost weighing the stock down relative to its competitors as they scramble to shrink the time gap between Apple’s innovation and the deployment of their own similar technologies.

Tim Cook is proving to be a very savvy CEO as well. Not only has he been able to refocus the company on integration and mass adoption, but he is also expanding the target consumer base, pledging to double Apple’s presence in China (in terms of the number of stores). The exact timing of this move is uncertain but stores are being built at six new Chinese locations and the search for management is on, according to Apple’s website. This would essentially be the opening of the Bombay doors as Apple was already able to attract 130 million new customers over the last twelve months with the most populous nation in the world still somewhat out of reach. Presumably, these new users are coming from rivals such as Android and Windows, giving reason for Cook to even publicly make fun of Android, calling them a “mistake.”

He certainly has the numbers on his side in this matter, amongst other things. The biggest threat to Apple’s momentum is coming in the form of a no-nonsense smart phone from Chinese-based OnePlus that has an exclusive device that seems to trim the fat in terms of unnecessary software often found on iOS and Android devices. However, Apple appears to be hedging any competition by expanding horizontally, providing the most lucrative app store for developers and apparently making plans to more fully integrate Apple products into the education environment. Both of these undertakings should spell great news for Apple bulls.

This brings me to the technical analysis. The intraday chart is decidedly bullish, with APPL trading well above the Ichimoku cloud and there’s no resistance in sight. I expect the stock to keep climbing through September and the release of the iPhone 6. Institutional order flow is agreeing as major September call activity is coming across the tape today. The first major activity had Sep 105 calls trading for $0.85 and they are $0.97 bid now representing a $120 gain per 1 lot in the time it took to write this article. Keep in mind that the vast majority of open September positions were opened this morning. Let’s take a look at how to get long AAPL:

 

The Trade

Buy AAPL Sep 105 calls for $0.97

Risk: $97 per 1 lot

Reward: Unlimited

 

The Greeks

Delta: Long

Gamma: Long

Theta: Short

Vega: Long

Traders Bet On More COP Upside

Major bullish activity is coming across the tape today in Conoco Phillips (COP) despite coming off the highs from yesterday. Traders are betting that the generally bullish trend will continue and that this is just a pull back as they take profits and roll positions farther up. Today, we saw a trader close out of Jul 85 calls and open new long positions in Jul 90 calls. In addition to the bullish nature of rolling same-month options up to a higher strike, this trades volume far exceeded the open interest in the contract. That is, this trader opened a position that had very few previously written contracts. This coupled with the roll strategy is very bullish unusual options activity.

Moving on to the technical, we can see that the long term-trend is very bullish with the stock hitting all time highs on heavy volume and trading above the cloud. The daily chart projects this trend to continue as COP is finding strong support well above the cloud. As we analyze a shorter time interval on the chart, we can see that Conoco is definitely going through a small pullback and even showing bearish signals, but this is when we refer back to paper’s big bet on the stock rebounding and this begins to look more like a buying opportunity than a trend reversal.

The Trade

Buy COP Jul 90 Call for $0.21

Risk: $21.00 per lot

Reward: Unlimited

 

The Greeks

Delta: Long

Gamma: Long

Theta: Short

Vega: Long

Trader Takes Bullish-Neutral Stance In WSM

Williams-Sonoma (WSM) investors have seen nice gains this year, as the stock is up more than 18% and continuing to make new highs. Paper is showing bullish activity as well. The stock has really taken off since beating earnings in May by four cents a share. The premium home goods maker is performing well as the economy improves and is trading well above the Ichimoku cloud on the daily chart.

This bullish activity comes as one if its biggest competitors, Pier 1 Imports (PIR), heads lower after an earnings disappointment and forward guidance projection cuts. Investors see Williams Sonoma as a safe bet in the space and look for it to continue its upward run.

Today a trader sold 2000 WSM Jul 70 puts for $0.95. Going short put options could be either speculation to the upside or a hedge against a long stock position. If the trader doesn’t have a stock position against these options, then this would be considered bullish activity in WSM. The trader collected $190,000 but took on considerable downside risk if the stock goes to zero. This risk-reward setup would be considered unfavorable by itself.

Bullish Activity in HCA Holdings

HCA Holdings (HCA) is on the highs today and big investors are getting behind it as well. The Nashville-based owner and operator of for-profit hospitals is up 20.6% YTD trading at $57.83. The stock has been performing well over the past year and the bullish trend looks to continue with HCA trading well above the cloud.

The healthcare services provider is looking to benefit from increased volume due to newly insured individuals from the Affordable Care Act. The company’s CFO said last week that they are open to the idea of expanding through M&A activity as well so that could be a reason for the recent spike in the stock. The option activity in the name is strong with traders agreeing with analyst consensus and getting long against small open interest with high volume.

Higher highs and lower lows recently suggest a continuing bull run so we will be keeping our eye on HCA. Let’s look at a trade.

The Trade:

Buy Jul 60 Call for $0.75

Risk: $75 per 1 lot

Reward: Unlimited

Breakeven on expiration: $60.75

 

The Greeks:

Delta: Long

Gamma: Long

Theta: Short

Vega: Long