2015-01-13 Unusual Options Activity (COF) (CVS)

Posted on January 13th, by Mitchell Warren in Free Articles, Options Risk Management, Smart Money Report, Unusual Options Activity. Comments Off on 2015-01-13 Unusual Options Activity (COF) (CVS)

Unusual Options Activity

  1. AMD- Roughly 60,000 Feb 20 $2.50 puts were bought for $0.16-$0.17 each, against open interest of 680 contracts. Put activity was nearly 7x the average daily volume and the put to call ratio was 38:1. Advanced Micro Devices reports Q4 earnings on January 20th (the stock has fallen after the results on 5 out of the last 7 reports). EPS estimates for 2014 and 2015 are still on the decline ($0.15 to $0.09 in three months for 2015). Revenue is likely to shrink nearly 6% this year to under $5.2B. On December 30th, Citigroup initiated the stock with a sell rating.
  2. COF- The Feb $72.50/$77.50 bear put spread was put on 2,000 times for a $1.10 debit today. Volume was above the open interest in both options. Put activity was 4x the average daily volume and the put to call ratio was 9:1. Capital One Financial reports Q4 earnings on January 22nd (the stock has fallen after quarterly earnings on five straight reports). The stock is on pace to close below the 40-week simple moving average for the second consecutive week, something it hasn’t done since April 2013. Top line growth for 2015 is projected to be 4%, while only 1% for earnings to $7.69 per share. Shares trade at a reasonable P/E ratio of 10.25x (2015 estimates) and a price to book ratio of 1.01x, but a delayed hike in interest rates may make COF dead money at best in the near-term.
  3. CVS- 4,000 Feb 20 $95 puts were sold for $1.12 each, against open interest of 628 contracts. Put activity was 3x the average daily volume. He/she is making a mildly bullish bet that CVS Health shares will stay above $95 through February options expiration. Going back several months this has been the most popular strategy for the bigger traders/investors in CVS options. The long-term uptrend in the stock remains intact with near-term support around $94-$95. Q4 earnings are due out on in the second week of February (shares have gone up on 4 of the last 7 reports). The stock does actually trade at a discount to Walgreens Boots Alliance (WBA) when looking at 2015 numbers (consistent high single digit top line growth, low double digit bottom line growth). On January 8th, JPMorgan Chase raised their price target to $116 from $108.
  4. LNC- Lincoln National typically trades less than 800 total option contracts per day. However, that number is more than double today due to more than 1,200 Apr $55 calls being purchased for $2.40-$2.45 each, against open interest of 544 contracts. Shares are nearing a retest of the 40-week simple moving average, following a third straight week of declines. LNC trades at a forward P/E ratio under 9x and a price to book ratio under 1x with mid single digit EPS, revenue growth forecasted in 2015 (Q4 2014 quarterly results out on February 4th). On January 8th, Macquarie upgraded the stock to outperform from neutral.
  5. TAP- The Feb $77.50/$85 bull call spread was put on over 1,900 times for a $2.54 debit (part of a rollout from the Jan 2015 $75 calls). Volume was above the open interest in the Feb $77.50 and $85 calls. He/she wants to have exposure to Molson Coors Brewing going into the fourth quarter earnings release on February 10th (especially after a positive stock performance on the last six reports). Back on December 1st, someone rolled out 2,000 Jan 2015 $72.50 calls ($4.80-$4.90 credit) into 2,500 July $80/$95 bull call spreads ($3.80 debit). There also remains the possibility of a big M&A deal in the alcohol space for this year that could mean a partial asset purchase for TAP due to a buyout of SABMiller by Anheuser-Busch (BUD), which would leave SABMiller to divest their TAP stake on regulatory pressures.

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