AOL Inc (AOL) is a global Web services company providing online content and other products to online consumers, businesses and advertisers. The company’s stock is currently trading around $34.70 in a 52 week range of $29.16-$43.93. The stock has been performed well this year, but is lagging the market some, rallying over 17% year to date.  Although the stock has been lagging the market this year options action on Friday suggests that there could be more upside in AOL this year. Half way through Friday’s trading session a trader sold 10,000 AOL Apr 28 puts for $1.40 when the stock was trading at $33.70. This is a very bullish trade that carries a high level of risk.  The high level of conviction this trader is showing indicates there is a high probability the stock will be above $28 on April expiration.  We will look to get long AOL through April as a long term trade set up. (more…)

NO MORE SHUTDOWNS

The last three weeks were very interesting for the markets.  Strong, strong upward movement with a couple of dips in the middle.  Clearly, the markets were pricing in the eventual resolution of the debt ceiling crisis: government reopening with no debt ceiling default.  FYI, Andrew Keene was predicting this all along.

Now the markets seem to be pricing in smooth sailing: either a grand bargain between D’s and R’s, or at least a mini-bargain.  This seems appropriate when very powerful people like Sen. Minority Leader Mitch McConnell (R, KY) state outright that there will NOT be another shutdown soon.  McConnell is up for re-election in 2014. Apparently, he believes it better to be seen as a compromiser in the general election, than as an ideological purist in his R primary.

However, the question remains whether the market’s rosy picture is justified.  Clearly, the market has strong upside momentum.  But, if the shutdown cost the country $24B and 0.5% to 0.6% in GDP, weaker economic numbers will have to be discounted as one time events, for the market to continue strong.

Follow me on Twitter @USKOTM.

Recent weeks have seen massively bullish options activity in oil and gas refiners. Tesaro Corporation (TSO), Valero Energy Corporation (VLO), and Phillips 66 (PSX) have seen the most option activity with traders placing large bets on further upside in all 3 companies.  On Wednesday a trader bought 11,750 TSO Feb 55 Calls for $1.31 and bought 7,340 Nov 49 calls for $1.12. These are both very bullish orders that indicate there could be more upside in TSO. Shares of TSO are higher this week by 6.51%. VLO has also seen aggressive call buys in recent weeks. On October 10^th a trader bought 14,251 VLO Dec 39 calls for $0.38. The position was then added to when on October 16^th a trader bought 14,298 more VLO Dec 39 calls for $1.00. Shares of VLO have rallied over 5% this week on the back of this bullish options activity. We saw even more activity in refiners yesterday when a trader bought nearly 20,000 PSX Jan 72.5 calls for $0.55. PSX stock was trading at $61.78 at the time of the trade so it is clear that this trader has an aggressive target. Shares of PSX are higher on the week by 4.72%. Options activity continues to suggest further upside in all of these names and reveal that institutional money is very bullish refiners through the end of the year.

iShares MSCI South Korea Capped ETF (EWY) is an exchanged traded fund seeking to track the performance and yield of the MSCI Korea 25/50 Index. EWY is currently trading around $65.50 in a 52 week range of $49.57-$65.57. EWY is higher on the year but has underperformed the broader market only adding 3.4% to its share price year to date.  Earlier this week we saw some very bullish order flows in EWY. On Wednesday a trader bought 20,000 EWY Nov 66 calls for $0.79 with stock at $64.76. EWY has rallied on the back of this very bullish trade. EWY is also trading in bullish territory according to the Ichimoku Cloud. The cloud is upward sloping and shares are trading well above all major support levels.  We believe that the technical strength in EWY confirms the signal given by the unusual option activity we saw in EWY. We will look at a long stock swing trade in EWY. (more…)

EMCORE Corporation (EMKR) offers semiconductor products for fiber optics, solar power, and broadband industries. The stock is currently trading around $5.55 in a 52 week range of $3.32-$6.75. The stock has been strong this year, outperforming the broader market, rallying over 29% year to date. . On Wednesday there was heavy trading in the EMKR Dec 5 calls. Open interest in that line has now swollen to over 8,600 contracts indicating there is a good chance EMKR continues higher. With stock trading in bullish technical territory as well we are looking for a covered call set up in EMKR. Using a covered call will allow a trader to profit if the stock moves higher, slightly lower or not at all. (more…)

A trader bought 51,000 CCE Jan 45 Calls for $0.50 (131 times usual volume) with stock at $41.84
A trader bought 2,600 DVA Nov 60 Calls for $1.15 (2.6 times usual volume) with stock at $58.43
A trader bought 2,500 WIFI Nov 7.5 Calls for $0.30 (149 times usual volume) with stock at $7.08
A trader bought 1,200 CPE Apr 5 Calls for $2.25 (2.7 times usual volume) with stock at $7.03
A trader bought 12,000 KKR Jan 2015 27 Calls for $0.85 (6.3 times usual volume) with stock at $22.19

A trader bought 10,600 HAL Oct 25^th 51 Puts for $0.47 (2.6 times usual volume) with stock at $52.38
A trader bought 1,000 RCII Nov 35 Puts for $1.10 (16.1 times usual volume) with stock at $36.00
A trader bought 1,500 FRX Nov 40 Puts for $0.30 (4.6 times usual volume) with stock at $44.76
A trader bought 5,000 OUTR Apr 55 Puts for $4.30 and sold 4,000 Apr 75 Calls for $2.60 with stock at $64.01

A trader bought 10,600 HAL Oct 25^th 51 Puts for $0.47 (2.6 times usual volume) with stock at $52.38
A trader bought 1,000 RCII Nov 35 Puts for $1.10 (16.1 times usual volume) with stock at $36.00
A trader bought 1,200 CPE Apr 5 Calls for $2.25 (2.7 times usual volume) with stock at $7.03
A trader bought 12,000 KKR Jan 2015 27 Calls for $0.85 (6.3 times usual volume) with stock at $22.19
A trader bought 51,000 CCE Jan 45 Calls for $0.50 (131 times usual volume) with stock at $41.84

EMCORE Corporation (EMKR) offers semiconductor products for fiber optics, solar power, and broadband industries. The stock is trending higher today up $0.40 (7.54%) on the day on the back of bullish order flows earlier this week. On Wednesday there was heavy trading in the EMKR Dec 5 calls. Open interest in that line has now swollen to over 8,600 contracts indicating there is a good chance EMKR continues higher.  The stock is also trading in bullish territory according to the Ichimoku Cloud. The cloud is upward sloping and trending higher, also indicating further upside in EMKR. We believe that EMKR sets up well for a long term trade. (more…)

McDonald’s Corporation (MCD) operates and franchises restaurants in 119 countries around the world with nearly 35,000 locations worldwide.  The company’s stock is currently trading around $95.00 in a 52 week range of $83.31-$103.70. MCD has performed well this year, but has lagged the broader market, rallying 7.56% year to date.  MCD is set to report their most recent quarterly earnings on Monday morning before the bell. The stock has been weak on earnings day having sold off 3 of the past 4 quarters. Over the past 8 quarters the stock has sold off 5 times with an average move of 2.4%. MCD is looking relatively weak on a chart. Shares are trading below the Ichimoku Cloud and the futures cloud is indicating there could be more downside in store for MCD. The options market is currently implying a move of $1.90 (1.99%) higher or lower by next Friday’s expiration.  With historically weak performance in MCD and the bearish chart set up we believe that MCD is a good candidate for a short into earnings. Using the implied move we can calculate a downside target of $93.60 and set up a trade at that target. (more…)