The major indexes have all completed inverse, head-and-shoulders (H&S) patterns, in our view, so we believe that the long awaited market low is finally in. However, the indexes still have to deal with a fair amount of overhead resistance, which could cause continued volatile trading, but we think prices will maintain their upward bias off the lows set in mid-August. The S&P 500 broke nicely above the neckline of the H&S pattern on Tuesday, Sep. 4, completing a bullish, intermediate-term...
Options In Focus: Foreign Interest
April 13, 2008 on 2:45 am | In Finance |
In Monday’s session, while stateside barometers took the day off in listless conditions, many Chinese-listed shares continued to forge percentage gains and show unusual options activity. A combination of news ranging from lifted restrictions on Hong Kong “H” shares for foreign investors, as well as some strong results of late from leading Chinese growth stocks helped fuel the gains. In the following, I’d like to update investors with a couple of those optionable leaders also finding some unusual action in their derivatives.
Former IBD 100 stock China Life Insurance () spearheaded today’s “unusual activity” efforts as the ADR saw nearly 28,000 contracts change hands. That volume represents more than 635% over its daily average of 3,800. While the company currently maintains an EPS Rating of 75, LFC continues to dominate the Insurance-Life Group with its Overall, Technical and Fundamental Ranking of 1st out of 28 stocks.
As for some of the aggressive option activity, Call contracts outstripped Put trading by more than three-to-one. At the same time, while the stock was forging fresh all-time-highs Monday, the gains of nearly 11 points to 78.08, inspired something other than typical Buy Write and less-protected optionable strategies. We can sense that demand for limited risk positioning as implied volatilities shot higher by more than 15% in maturities across-the-board. Further that type of pricing was last seen back near the beginning of the year when similar and aggressive highs were scored in the stock. Additionally, with the implieds also getting bumped up above the longer-term statistical volatility of the underlying, the buying of the day suggests traders are preparing once more, for a potentially bumpy ride, rather than less volatile and unobstructed gains in the weeks and months ahead.
A second issue finding some unusual pin action in its options is current IBD 100 stock Shanda Interactive Entertainment (). The company reported after the bell, beating Street views by 6 cents with earnings of 42 cents a share. As the conference call isn’t for a few more hours, the after-hours session, while volatile, isn’t making any headway on top of the regular close of 30.84 and gains of 1.50, with shares of SNDA near 30.60 as of 5:00 ET.
Looking at the options board, should the conference call fall short of expectations or merely match, there will be some upset options strategists. On a whole and once more, we find that today’s activity in the derivatives was geared towards the bullish bet. That’s confirmed by the six-to-one margin in favor of Calls. At the same time the fact that implieds jumped an additional several points to roughly 73% in the front month hints of the bulls looking for further upside on top of the roughly 33% witnessed in the last eight sessions.
Are the bulls acting a bit too excited for their own good? Depending on whom one asks there’s likely evidence that suggests at least a bit of excessive want. It’s likely true that more than a few of the 5,600 contracts in the September ATM Calls would beg to differ. And ultimately, that tenacity despite being somewhat aggressive in certain respects, theoretically speaking, could always pay off. However, another truth is the broader averages and leading stocks like SNDA, could both be labeled technically extended in the short-term, the market still defined as being under correction and those premiums, still in need of a decent move on top of already heady gains.
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