Protective Life Corp (PL) has seen huge gains since Friday’s close, up more than $17.00 on the week. The stock jumped on the news that Japanese life insurance company Dai-Ichi Life Insurance would pay a pretty penny for the American financial services provider, around $5.7 billion. Dai-Ichi announced it would pay $70.00 a share for PL, a hefty premium of Fridays close.
The deal made traders long PL on Friday a fortune. For example, a trader bought 1000 PL June 60 Calls for 1.25 for a total cash outlay of $125,000. The next day, the same call options were worth $9.30, netting the trader $805,000, otherwise known as 650% returns overnight.
Whole Foods Market (WFM) is bouncing back after an abysmal May selloff prompted by a disappointing earnings report. The higher-end health food grocer admits it may have set its targets too high after posting huge numbers last year and peaking around $65. The May drawback, in which the stock traded almost inversely with broader bull market, featured the biggest losing day since the years leading up to the financial crisis when consumers had to curtail spending.
This is a cheap long for investors that believe in the business model as WFM is likely to see big gains. With the health craze ever expanding in the US and the recent, and perhaps disproportionate, selloff, Whole Foods stands to rally hard if it can hit its earnings projections, which it is hoping to do by implementing new cost cutting programs to streamline its supply chain.
The chart is looking great for WFM as it’s flying high above the cloud and projected to continue. The stock has found solid support levels and has broken resistance consistently today, up $1.71. Regardless, I don’t see the company, with its extremely passionate customer base, going anywhere.
The Trade: Buying the WFM July 42 Calls for $.33
Targets: Sell 25% at $.50, Sell 25% at $.65, Sell 25% at $.80, Sell 25% at $1.00
It might be time to get long Quest Diagnostics (DGX) as the healthcare company is breaking major resistance levels. The positive trends have been ongoing for a couple weeks and after hitting a low on May 23rd at $57 dollars, DGX rallied up to a high of $62.42 before selling off slightly to its current level of $61.40.
The long-term trend also suggests a continued rise in price as it has come close to its all time high, usually a positive signal for further gains. DGX is trading well above the cloud and is forecast to continue its rise. YTD the stock has outperformed the raging bull market, up 15.29%.
The Trade: Buying the DGX July 65 Calls for $.60
Risk: $160 per 1 lot
Targets: Sell 25% at $.75, Sell 25% at $.90, Sell 25% at $1.10, Sell 25% at $1.30,
Protective Life Corporation (PL) is the holding company behind Protective Life Insurance as well as other familiar insurance and financial subsidiaries. Today a trader made bullish play on the company betting almost $125,000 in premium that the stock would close above $60 by June expiration. Buying a 1000-lot of these call options represents nearly twelve times usual option volume. The chart confirms a bullish trend as PL is currently trading just above the cloud and the positive trend looks to continue.
The financial services provider jumped more than 10% in Monday’s trading session seeing abnormally high volume. It’s currently trading at $58.52, and hit its 52-week high of $60.38 Monday. The unusual activity in the stock could stem from the fact that analysts haven’t been able to put their finger on a price target for the company, leading to much higher volatility and luring a lot of options traders into playing this stock, with most of the smart ones going long PL.
Apple Inc. (AAPL) Silicon Valley tech giant that creates every “I” related tech product. The popular creator and distributor of computers, tablets, phones, and media has been boring the past two years without a new product launch. The tech company and its CEO Tim Cook, have been criticized for not continuing with the innovation and creativity found in the Steve Jobs era. Over the weekend Apple made the announcement that they had big news to announce Monday at WWDC. The hype and excitement around the potential for a new and innovative product has implied volatility juiced up.
Implied volatility surrounding announcements makes options pop in price value. We see implied volatility get inflated whenever bio tech companies report drug announcements, earnings announcements, and new product announcements. Implied volatility is inflated due to the uncertainty surrounding the news of the announcement. However after the news is announced implied volatility gets crushed as investors have processed the information and how it will affect the company and the stock price.
Awaiting Apple’s announcement, the stock is trading at $633.00 and was up about $1.27 pre-market. Apple has been trading in a fifty two week range between $388.87-644.17. Apple is trading above a very bullish cloud, with a slanted bullish future cloud. I believe Apple’s bullish chart is setting up for a long position. Remember getting in ahead of the announcement will mean that an options buyer will pay more in premium because of the pending announcement. After the announcement implied volatility will get crushed, lowering the value of the option.
Krispy Kreme (KKD) is set to release earnings next Monday, June 2nd. After falling short of analyst expectation’s for Q4 2014 in March by a penny, the stock sold off about 67 cents. But when the company release fiscal 2015 guidance with high expectations it rallied again. KKD estimated EPS of $0.73-$0.79 on net income of $48 million–. It raised estimates based on its strong growth and ability to cut overhead costs increasing its profit margin.
For Q1 analyst consensus estimates are at $0.23 per share on $126 MM in revenue, expecting an EPS of $0.71 on the year. Krispy Kreme management ratifies its heightened estimates citing the harsh winter as a catalyst behind a weak Q4. The stock’s down almost 3% YTD trading at about the midpoint of its 52-week range of $13.55-$26.63.
Personally, I’m long Krispy Kreme because it’s delicious. But let’s take a look at the historical earnings movements and the trade setup.
Quicksilver (ZQK) surf and beach wear appeal maker and distributor, is setting up for a short on earnings for next week. (ZQK) is currently trading at $6.04 and has been trading in a fifty two week range between $4.81-9.29. The stock has underperformed the broad market plunging -31.24% year to date, down about -$2.74. Quicksilver’s historical earnings performance has been mixed with the stock rallying 4 times on earnings and selling off 4 times on earnings over the last 8 quarters. Quicksilver’s average move on earnings has been 11.7%, although we have seen moves as large as 31.7%. Technically the stock is trading very bearishly below a downward sloping bearish cloud. The stock is currently sitting in a stagnant range that matches where it was at 9, 26, and 52 weeks ago. Currently the June options market is implying the stock could move .88 cents. Unfortunately there aren’t any weekly ZQK options that could provide a cheaper way to play ZQK. I believe the cloud is showing a very bearish pattern that is setting up for a short into earnings.
With the implied move a trader can calculate his measure move targets:
Upside Target: 6.83
Downside: 5.17
Trade: June 6 Puts for .35
Risk: $35 per one lot
Max Reward: $5.65
PBF Energy Inc (PBF) is a petroleum product supply and refining company headquartered in New Jersey. PBF just closed at $32.01 and has traded in a 52-week range of $20.17-$32.41. Today, a trader bought 10,000 PBF Jan 2015 35-40 Bull Call Spreads for $1.80 debit. This is extremely bullish activity for the stock. Of the ten analysts covering PBF five have issued a “Hold” rating and four issued a “Buy” rating making the company a consensus “Hold”. PBF Energy beat earnings last quarter and is looking to improve for the rest of the year. Furthermore, it issued its quarterly dividend today, giving shareholders 30 cents per share.
My Trade: I bought the PBF Jan 2015 35 Calls for $2.00 debit
The Pantry Inc. (PTRY) a convenience store operator, is up on news of an upgrade today. The stock was previously rated neutral by analyst. The Pantry Inc. (PTRY) is up about 3.5% on news of an upgrade to “outperform” today. The Pantry Inc. is currently trading at $16.70, and has been trading in a range between $10.99-17.62. Year to date Pantry Inc. has underperformed the market as shares have fallen 1.01% year to date. Options traders seem to have a bullish perspective on The Pantry Inc, today as we saw a trader buy 1147 December 20 Calls for .95 cents. Traders are continuing to jump on board with this trade as volume has continued to increase throughout the day. The original order showed volume of 1,501 and volume has increased to 2,815. Looking at The Pantry on the Ichimoku cloud, it is currently trading above cloud. With the bullish order flow and the stock trading above the cloud, I believe The Pantry is setting up for long.
Trade: Buying the December 2014 20 Calls for .95
Risk: $95 for one lot
Reward: Unlimited
RadioShack (RSH) surged Thursday after an options trader bet big on the distressed consumer electronics retailer, buying around 20,000 Oct 14 calls at a strike of 1.5. The stock reached a high, up more than 30% on the day, of $1.75 before leveling off to $1.52 as of this writing. RSH has traded in a 52-week range of $1.12-$4.36.
RadioShack has recently fallen on hard times down almost 42 percent on the year and the word bankruptcy isn’t far from mind. Perhaps this is making it more difficult for the retail chain to turn things around; its creditors vetoed a cost cutting plan that would have closed as many as 1,100 store locations, possibly bracing for default.
However, depending on your risk profile, this sets up nicely for a short-term long position in the company as CEO Joe Magnacca fights to bring it back. While the downside of this trade setup is very real, the reward is potentially very handsome and can be bought at a discount.
The Trade: Buy the RSH Jan 2015 1.5 Calls for $.42
Risk: $42 per 1 lot
Targets: $.50, $.60, $.75 and $.90
Greeks of this Trade:
Delta: Long
Gamma: Long
Theta: Short
Vega: Long
This article was written by Kyle Sheahan, an Associate at Keeneonthemarket.com.
e: Kyle@Keeneonthemarket.com
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