Rebecca Darst
On Thursday, I noted evidence of well-capitalized option traders staking bullish claims on JPMorgan (JPM Quote - Cramer on JPM - Stock Picks), despite a blistering selloff in stocks that took most major financial issues leagues lower. Today's moderated downside for major bank stocks in an ultra-volatile trading session has emboldened even more option traders to vote confidently on stabilization for major bank shares.
This morning, I observed bullish bets staked in the Proshares Ultra Financials Fund (UYG Quote - Cramer on UYG - Stock Picks), a closed-end fund indexed to double the daily performance of Dow financials. Shares in the ETF are down 4.7% at $8 as I submit this report (...but would hasten to add that reversals and redoublings of volume in today's market are occurring at the drop of the proverbial fedora - expect this print to vary wildly). Block trades involving a total of 25,000 lots traded in the bullish October 10/14 spread combination, a position that carries with it a $1.18 debit -- thus requiring a recovery back above the $11.18 level (40%) by next Friday. Make no mistake, this trader thinks an upside reversal has the capacity to be just as violently volatile as the downside, but positioning volatility bullish without a directional upside bias via the October 8.0 straddle would have cost him or her more than twice that amount at $2.80. Block-sized bullish call spreads also prevailed in Nokia (NOK Quote - Cramer on NOK - Stock Picks), a stock that's been a component of our model portfolio for some days now. With shares down 4.4% at $15.48, a 23,000-lot bull call spread was entered by a confident investor in the October contract between strikes 17 and 19, with the trader paying a 60-cent debit and looking for a break above at least $17.60 (14% above current levels) by next Friday. With shares trading in the range of the breakeven and the upper strike, the trader in this case stands to gain as much as $1.40 per contract, a tidy risk/reward proposition. The Semiconductor HOLDRs Trust (SMH Quote - Cramer on SMH - Stock Picks) was also a magnet for jumbo-sized call-spreaders this morning, despite contrary share-price action. With shares down 2.6% at present at $20 (setting a fresh 52-week low), implied volatility at 78.6% compares to a historic volatility reading of 41.3%, suggesting a higher-than-normal risk premium on options to buy and sell the underlying stock, and enhancing the appeal of the cost-effective spread strategy. The 25,000-lot spread going through this morning traded between strikes 22.50 and 27.50 in the January contract at a $1.40 contract and paying out two and a half times that amount with a corresponding move higher by the first month of the year.
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