Options Activity for Ambac Financial Group (ABK), Coca-Cola (KO), and NVIDIA Corp. (NVDA)
Tuesday, October 19, 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 call trading on Ambac Financial Group (ABK), Coca-Cola (KO), and NVIDIA Corp. (NVDA). 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.

Ambac Financial Group (ABK)

Options players jumped on Ambac Financial Group Inc. (ABK) on Monday, as more than 51,700 contracts crossed the tape. This surge in volume was more than four times the stock's average daily trading volume of 11,576 contracts, according to data from WhatsTrading.com. In addition, traders were feeling bullish, as 71% of the volume changed hands on the call side.



The International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE) have seen an increase in call trading recently. The exchanges have seen nearly six calls purchased to open for every one put purchased to open during the past 50 trading sessions. This ratio of calls to puts is higher than 73% of all those taken during the past year, pointing to rising optimism.

In fact, the ISE has reported 25 calls 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 80% of all those taken during the past year.

Meanwhile, there is still some lingering skepticism. The put/call open interest ratio (SOIR) for ABK comes in at 0.69, which is higher than 69% of all those taken during the past year. In other words, short-term options players have been more pessimistically aligned toward the shares only 31% of the time during the past year.

Furthermore, short sellers have built up sizable positions, as more than 54 million shares have been sold short. This accumulation of bearish bets is 13.7 times the stock's average daily trading volume and accounts for 18% of the company's total float.

Technically speaking, the shares of ABK are up more than 26% since the beginning of the year. The equity has rallied off support at the 50-cent level and climbed with help from its 10-day and 20-day moving averages. However, the stock is currently having trouble overcoming resistance at the 1.10 level.



Coca-Cola (KO)

Options players placed some heavy bets on The Coca-Cola Co. (KO) ahead of this morning's earnings report. The stock saw more than 57,500 contracts cross the tape, which is more than double the equity's average daily trading volume of 21,557 contracts, according to data from WhatsTrading.com. What's more, roughly 59% of the volume was on the call side.



Call buyers should be pleased this morning, with KO earnings topping estimates. Coke shares already hit a 52-week high of $60 on Monday, and they were up to $60.50 in premarket trading.

Call trading has been on the rise recently toward the beverage giant. The ISE has reported 1.6 calls purchased to open for every one put purchased to open during the past two trading weeks. This ratio of calls to puts is higher than 77% of all those taken during the past 52 weeks, pointing to a rising optimism.

What's more, the ISE and CBOE have reported 5.6 calls 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 97% of all those taken during the past year, indicating that calls have rarely been purchased at a faster pace than puts during the past 52 weeks.

However, the SOIR for KO signals that there is still room for optimism to grow toward the shares. The ratio currently sits at 1.02, 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 also higher than 86% of all those taken during the past year. In other words, short-term options players have been more pessimistically aligned toward the shares only 14% of the time.

On the other hand, Wall Street is thoroughly smitten. According to Zacks, the stock has earned 11 "strong buys" and three "buys," with not a "hold" or "sell" rating in sight.

From a technical perspective, the shares of KO have rallied more than 5% since the beginning of the year. The equity has staged an impressive rally from its June lows near 50, rallying along the support of its 10-day and 20-day moving averages. As noted earlier, the equity will try to stay atop the round-number 60 level today.



NVIDIA Corp. (NVDA)

NVIDIA Corp. (NVDA) was the center of some heavy options trading on Tuesday, as more than 81,300 contracts changed hands. This surge in volume was nearly triple the stock's average daily trading volume of 29,532 contracts, according to data from WhatsTrading.com. Furthermore, roughly 74% of the volume changed hands on the call side.



Yesterday's preference for calls runs counter to the recent trend seen on the ISE and CBOE. The 10-day put/call volume ratio comes in at 0.47, which is higher than 63% of all those taken during the past 52 weeks.

In addition, the SOIR for NVDA comes in at 0.85, which is higher than 67% of all those taken during the past year. In other words, short-term options players have been more pessimistically aligned toward the shares only 33% of the time during the past 12 months.

Wall Street also has some doubts about the security. According to Zacks, the stock has earned 10 "buy" ratings, 15 "holds," and three "strong sell" ratings.

Finally, short sellers are adding to their bearish bets. During the past month, the number of NVDA shares sold short increased by 6% to 38 million. This accumulation of bearish bets accounts for nearly 7% of the company total float. An unwinding of these bearish bets could propel the stock sharply higher.

Technically speaking, the shares of NVDA are down more than 39% since the beginning of the year. Following a lengthy decline under resistance at the stock's 10-week and 20-week moving averages, the stock has recently found support at the 9 level and bounced back, climbing above these intermediate-term resistance levels.





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