Posts Tagged ‘Synthetic Short Stock’
Monday, January 31st, 2011
No, that title’s not a misprint and you don’t have déjà vu. Japanese automaker Toyota Motor (NYSE:TM) is under fire again because of another recall, which this time impacts 1.7 million vehicles worldwide. The culprit this time is a fairly broad one – “defective parts” – including but not limited to leaky fuel systems.
In the U.S., the recall is expected to impact about a quarter-million Lexus vehicles. The majority of the impacted autos were sold in Japan. This latest recall brings the total number of Toyota vehicles recalled to more than 15 million globally since late 2009.
On the “plus” side, arguably, is the company’s transparency surrounding the latest defect. TM has been shouldered with fines of nearly $50 million due to its perceived hesitancy in reporting problems it discovers. As a result, the automaker has pledged to be more forthcoming with information. (more…)
Tags: Bull Call Spread, Risk Reversal, Synthetic Short Stock, TM, Toyota Motor
Posted in blog, Bulls Vs. Bears | No Comments »
Friday, January 21st, 2011
Today is monthly options expiration, and trading volumes tend to build in the days (and hours) leading up to the session’s close. Investors holding options have to decide whether to close their options, let them expire, or roll them to a later month.
Now is a good time to remind you of the inherent risks associated with automatic expiration. Long call options that are in-the-money at expiration – EVEN by JUST a penny or more – will automatically become that stock holding. This can be difficult for investors who a) didn’t really want to own the stock or who b) don’t have the money to buy the stock. And “difficult” can become “horrible” if the stock were, for example, to gap lower out of the gate on Monday. For a more in-depth look at this concept, check out George’s article, Automatic Exercise, After-Hours Risk, and Other Options Expiration Issues. (more…)
Tags: J.C. Penney, JCP, Options Expiration, Risk Reversal, rolling, Synthetic Short Stock
Posted in blog, What's Hot | No Comments »
Tuesday, January 18th, 2011
With a week-and-a-half to go before its earnings report, Yahoo! (NASDAQ:YHOO) saw what appeared to be a large risk-reversal trade cross the tape last Thursday. In early activity, a block of 30,000 April 19 calls traded for the bid price of 44 cents while a block of 30,000 April 15 puts changed hands for 40 cents (the ask price at the time). It looks like the calls were sold while the puts were bought, for a net credit of four cents per share.
This strategy is known as a risk reversal or a synthetic short stock, as the short call and long put together have a similar profit/loss profile as a short stock. Generally, risk reversals will appreciate in value if the stock declines and lose value if the underlying stock rallies. (more…)
Tags: Risk Reversal, Synthetic Short Stock, Yahoo, YHOO
Posted in blog, What's Hot | No Comments »
Tuesday, December 14th, 2010
Bank of America (NYSE:BAC) has seen mixed reports of late, including rumors of a WikiLeaks exposure. The shares have gained more than 5.5% from Wednesday’s close but are still off more than 15% year to date. Has the stock truly begun to recover or will this be a mere hiccup as part of a longer-term downtrend? And if stock traders want to explore strategic alternatives using options, what can they consider?
For BAC bulls and bears, we have outlined two option strategies below. These write-ups are educational in nature and should not be regarded as buy or sell recommendations. All prices are as of Tuesday morning, when BAC shares were trading at $12.62, up eight cents on the day. (more…)
Tags: BAC, Bank of America, Long Call, Risk Reversal, Synthetic Short Stock
Posted in blog, Bulls Vs. Bears | No Comments »
Thursday, November 11th, 2010
Research in Motion (NASDAQ:RIMM) showed pronounced strength on Wednesday amid reports that the BlackBerry company’s PlayBook tablet (designed to compete with the iPad) would be out early next year. What’s more, its price point is rumored to be below $500, which potentially makes it more attractive than the Apple (NASDAQ: AAPL) device.
The shares rallied more than 6% by yesterday’s close and are up close to 20% during the past month. RIMM is on a run toward the 60 level, but it appears that some option traders seem to be expecting a relatively sharp pullback in the intermediate term. These traders took advantage of Wednesday’s pop higher to trade a risk reversal (also known as a synthetic short stock position). (more…)
Tags: Research in Motion, RIMM, Risk Reversal, Synthetic Short Stock
Posted in blog, What's Hot | No Comments »
Wednesday, May 26th, 2010
Tuesday morning, Argus upgraded Nike (NYSE: NKE) shares to a “buy” from a “hold” rating, setting a 12-month price target of $82. The firm believes the athletic apparel giant is well positioned to outperform its competitors and deliver solid earnings growth. Speaking of outperformance, the stock showed notable relative strength in Tuesday’s session, moving higher in a broader market that was sinking across the board.
For bullish investors who don’t want to simply buy shares, there are many alternatives from the world of options trading. The same holds true for those who don’t agree with Argus’ sunny disposition. Two hypothetical options trades on the stock – one bullish, one bearish – are outlined below. Remember these are merely examples, not recommendations. Consider your own risk/reward parameters and personal trading goals before executing any new trades. (more…)
Tags: Bull Put Spread, Nike, NKE, Options Strategies, options trading, Synthetic Short Stock
Posted in blog, Bulls Vs. Bears | No Comments »
Last week in an episode of Mad Money, Jim Cramer said that while he likes Freeport-McMoRan Copper & Gold (NYSE: FCX) as a company, he would put it on his “sell” list for now. He cited concerns such as exposure to China’s slowing economy or the stock’s recent run. From December 2008 through mid-January this year (14 months’ of activity), the stock gained more than 400%; since another visit to its January peak six weeks ago, the shares have given back roughly one quarter of their value and are below potential resistance at the 200-day moving average.
Investors who agree with Cramer’s bearish remarks but who don’t want to engage in a short sale could consider option trading strategies. Bullish investors, who believe FCX might break out of its recent downtrend, could also look at various option strategies as an alternative to buying the stock outright. Two hypothetical options trades on the stock – one bullish, one bearish – are outlined below. Remember these are merely examples, not recommendations. Consider your own risk/reward parameters and personal trading goals before executing any new trades. (more…)
Tags: FCX, Freeport McMoran, Jim Cramer, Long Call Butterfly, Option Strategies, options trading, Synthetic Short Stock
Posted in blog, Bulls Vs. Bears | No Comments »
Tuesday, April 27th, 2010
Communications equipment company Polycom (NASDAQ: PLCM) is fresh from a positive earnings surprise; last Wednesday, the company beat per-share earnings estimates by four cents and topped revenue expectations. This report piqued the interest of Fast Money panelist Karen Finerman, who had some bullish things to say about the shares.
Ms. Finerman believes that complications from the volcanic explosion in Iceland could spark renewed interest in video conferencing technology, which could benefit PLCM’s bottom line. She also thinks PLCM delivered good earnings and has the attractive quality of “cheap valuation.” The equity’s forward price-to-earnings (P/E) ratio comes in at 18.21 and the stock closed Monday at $32.78.
For investors who want to explore option trading strategies in Polycom, here are two hypothetical trades. These are not recommendations, but examples of how two different strategies (one bullish, one bearish) might play out if the stock rallies or declines. (more…)
Tags: Bull Call Spread, Options Strategies, options trading, PLCM, Polycom, Synthetic Short Stock
Posted in Bulls Vs. Bears | No Comments »
