Options Activity for BP (BP), Dell (DELL) and Qualcomm (QCOM)
Friday, October 01, 2010



I hope that your trading is going well, as I know that members of S.O.M.E. are making the most of the market movements and their returns.



Today's newsletter includes a look at a rise in put trading on Dell (DELL) and Qualcomm (QCOM), while call trading has risen on BP (BP). The purpose of this newsletter is to focus on stocks seeing heavy options trading and gives you a unique insight into each stock's sentiment backdrop.

BP (BP)

BP plc (BP) announced Thursday that it has agreed to pay $15 million to resolve environmental violations at its beleaguered Texas City refinery, marking the largest penalty ever recovered under the Clean Air Act at a single facility. The settlement covers violations from two fires that occurred at the refinery in March 2004 and July 2005, as well as a leak in August 2005. During those incidents, thousands of pounds of flammable and toxic air pollutants were released, forcing nearby residents to take refuge indoors.

Meanwhile, BP announced this morning that it has pledged certain Gulf of Mexico oil assets as collateral for the $20 billion trust it set up to pay claims linked to the Gulf oil spill.

Options players flocked to BP on Thursday, as more than 103,400 contracts crossed the tape. This surge in volume was more than double the equity's average daily trading volume of 44,073 contracts, according to data from WhatsTrading.com. In addition, traders were feeling optimistic, as 73% of the volume changed hands on the call side.



Call trading has been on the rise toward BP recently. The International Securities Exchange (ISE) reports that 2.7 calls have been purchased to open for every one put purchased to open during the past 10 trading sessions. This ratio of calls to puts is higher than 81% of all those taken during the past 12 months, pointing to an increase in optimism.

What's more, the put/call open interest ratio (SOIR) for BP comes in at 0.68, as call open interest easily outnumbers put open interest among options slated to expire in less than three months. This ratio of puts to calls is lower than 88% of all those taken during the past year. In other words, short-term options players have been more optimistically aligned toward the shares only 12% of the time during the past 12 months.

Short sellers have also abandoned their bearish bets. During the past month, the number of BP shares sold short dropped by 22% to 11.7 million. This accumulation of pessimistic positions accounts for only 0.37% of the company's total float. A continued unwinding of these positions would not supply the stock with much buying pressure.

Technically speaking, the shares of BP are down more than 28% since the beginning of the year, with nearly all of that drop coming after the oil spill. However, the security is attempting to crawl out of its hole, as it has bounced back from its June low and climbed above resistance at its 10-day and 20-day moving averages. The security is facing short-term resistance at the 42 level.



Dell (DELL)

Dell Inc. (DELL) was the center of some heavy options trading on Thursday, as more than 96,300 contracts changed hands. This jump in volume was more than four times the stock's average daily trading volume of 23,161 contracts, according to data from WhatsTrading.com. Furthermore, approximately 56% of the volume crossed the tape on the put side.



Optimism has been on the rise toward the shares of ADM recently. Options players are extremely skeptical of DELL at the moment. The ISE has reported 1.7 puts purchased to open for every one call purchased to open during the past 10 trading sessions. This ratio of puts to calls is higher than 91.8% of all those taken during the past year, indicating that puts have rarely been purchased at a faster pace than calls during the past 52 weeks.

In addition, the SOIR for DELL comes in at 1.27, as put open interest outnumbers call open interest among options slated to expire in less than three months. This ratio of puts to calls is higher than 99% of all those taken during the past year. In other words, short-term options players have been more pessimistically aligned toward the shares only 1% of the time during the past 12 months.

Wall Street also has its doubts about the security. According to Zacks, the stock has earned 15 "buy" ratings, 14 "holds," and three "sell" ratings. This configuration still leaves ample room for downgrades should the stock continue to underperform.

Technically speaking, the shares of DELL are down more than 9% since the beginning of the year. The security has been in a steep downtrend since reaching a near-term peak at 17.50 in April, declining under its 10-week and 20-week moving averages. However, DELL has rebounded along with the broad market recently, and the stock is poised to finish its first week above both of these trendlines since early May. A solid breach of these trendlines could shake loose some of the bears, creating a fresh wave of buying pressure.



Qualcomm (QCOM)

Options trading picked up on Qualcomm Inc. (QCOM) on Thursday following reports out of Taiwan that Apple Inc. (AAPL) has selected QCOM as one of its suppliers for the iPhone 5.

More than 144,200 contracts changed hands on QCOM Thursday. This was more than twice the security's average daily trading volume of 56,460 contracts, according to data from WhatsTrading.com. What's more, roughly 57% of the volume changed hands on the put side.



Pessimism is on the rise toward the security. The ISE reports a 10-day put/call volume ratio of 0.82, which is higher than 76.6% of all those taken during the past year. In addition, the ISE and Chicago Board Options Exchange (CBOE) report a 10-day put/call volume ratio of 0.55, which is higher than 70% of all those taken during the past year, indicating a growing skepticism.

Meanwhile, the SOIR for QCOM comes in at 0.98, as put open interest nearly equals call open interest among options slated to expire in less than three months. This ratio of puts to calls is higher than 93% of all those taken during the past 12 months. In other words, short-term options players have been more pessimistically aligned toward the shares only 7% of the time during the past 12 months.

Furthermore, short interest is on the rise toward QCOM. During the past month, the number of QCOM shares sold short increased by 38% to 41.5 million. However, this accumulation of bearish bets accounts for only 2.6% of the company's total float, leaving ample room for pessimism to continue to grow.

From a technical perspective, the shares of QCOM are down only 2% since the start of 2010. The security recently bounced back nicely from its July low near the 32 level, rallying along the support of its ascending 10-day and 20-day moving averages. If the stock can maintain its winning ways, it could cause the bears to shift to the bulls' camp, creating a fresh wave of buying pressure.





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