Options Activity for Apache Corp. (APA), Ciena Corp. (CIEN) and SanDisk (SNDK)
Friday, September 03, 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 examines a rise in put trading on Apache Corp. (APA) following the oil-rig fire in the Gulf on Thursday, and a jump in call trading on both Ciena Corp. (CIEN) and SanDisk (SNDK).

Apache (APA)

Apache Corp. (APA) announced Thursday that the fire aboard an oil platform in the Gulf of Mexico will not affect its planned acquisition of Mariner Energy Inc. (ME). The $2.7 billion purchase will close late this month or in the first two weeks of October, according to Apache spokesman Bob Dye. There were no serious injuries in the incident, but 13 workers had to be rescued from the Mariner platform, approximately 100 miles from the Louisiana coast. The fire was put out by early evening.

The news of the ME fire attracted some options trading to APA yesterday, as more than 50,300 contracts changed hands. This surge in volume was more than six times the stock's average daily trading volume of 7,647 contracts, according to data from WhatsTrading.com. In addition, roughly 67% of the volume crossed the tape on the put side.



Thursday's pessimism was in contrast to recent bullishness among options speculators. Options players on the International Securities Exchange (ISE) have reported an increase in call trading recently. During the past 10 trading sessions, 1.6 APA calls have been purchased to open for every one put purchased to open. This ratio of calls to puts is higher than 62% of all those taken during the past year, pointing to a growing optimism.

Furthermore, the put/call open interest ratio (SOIR) comes in at 0.57, as call open interest nearly doubles put open interest among options slated to expire in less than three months. This ratio of calls to puts is lower than 94% of all those taken during the past year. In other words, short-term options players have been more optimistically aligned toward the shares only 6% of the time during the past 12 months.

Meanwhile, Wall Street is extremely optimistic when it comes to APA. According to Zacks, the stock has earned 14 "buy" ratings and six "holds."

Technically speaking, the shares of APA are down more than 11% since the beginning of the year. The security has steadily declined under resistance at its 10-week and 20-week moving averages since reaching a near-term peak at the 110 level in April. The stock is now clinging to support in the 85 region as it battles its 20-week trendline.



Ciena (CIEN)

Options trading was brisk on Ciena Corp. (CIEN) on Thursday, as more than 57,900 contracts changed hands. This jump in volume was more than eight times the equity's average daily trading volume of 7,221 contracts, according to data from WhatsTrading.com. Furthermore, approximately 61% of the volume changed hands on the call side.



Meanwhile, this call activity runs counter to the growing affinity for puts seen on the ISE and Chicago Board Options Exchange (CBOE). During the past 10 trading sessions, one put has been purchased to open for every call purchased to open on both exchanges. This ratio of puts to calls is higher than 77% of all those taken during the past 12 months.

Furthermore, the SOIR for CIEN comes in at 1.04, 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 52% of all those taken during the past year, pointing to a slightly bearish outlook among short-term speculators.

Short sellers are also placing some heavy bets against the shares. During the past month, the number of CIEN shares sold short increased by nearly 5% to 22.8 million. This accumulation of bearish bets is more than six times the stock's average daily trading volume, and accounts for 25% of the company's total float. An unwinding of these bearish bets could fuel a significant rally in the shares.

Finally, Wall Street is giving the stock the cold shoulder. According to Zacks, the security has earned eight "buy" ratings, nine "holds," and three "sells."

From a technical perspective, the shares of CIEN are up more than 18% since the beginning of the year. The security has recently turned lower, however, following a rejection at the 20 level. The stock is now declining under resistance at its 10-week and 20-week moving averages as it tests support at the 12 level.



SanDisk (SNDK)

SanDisk Corp. (SNDK) was the center of some heavy options trading on Thursday, as more than 77,700 contracts changed hands. This surge in volume was more than double the equity's average daily trading volume of 32,508 contracts, according to data from WhatsTrading.com. What's more, traders showed a slight preference for calls, as 66% of the volume crossed the tape on the call side.



On the other hand, the ISE has seen an increase in put trading. During the past two trading weeks, 1.2 SNDK puts have been purchased to open for every one call purchased to open. This ratio of puts to calls is higher than 80% of all those taken during the past 12 months, pointing to a rising skepticism.

Meanwhile, the SOIR for SNDK comes in at 0.90, 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 86% 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 14% of the time during the past 52 weeks.

Short interest is also on the rise toward the security. During the past month, the number of SNDK shares sold short jumped by 31% to 10.7 million. This accumulation of bearish bets accounts for more than 4.6% of the company's total float.

Finally, Wall Street is optimistic toward the shares. Zacks reports that the security has earned 12 "buy" ratings, five "holds," and two "strong sells."

Technically speaking, the shares of SNDK are up more than 24% since the beginning of the year. While the equity has recently dipped below the support of its 10-week and 20-week moving averages, the security is currently testing the support of its rising 10-month trendline. SNDK has logged only one monthly close below this moving average since March 2009.





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