Options Activity for Thursday, June 10, 2010

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

Netflix, Inc. (NFLX), the stock snagged an unequivocally bullish note from JPMorgan this morning. The firm raised its rating to "overweight," and hiked its price target from $110 to $133. "We believe the company's unique technology and reach allow it to monetize content in ways competitors can't," enthused JPMorgan in a note to clients.

NFLX has bolted higher on the heels of this endorsement, with the shares up about 5.5% at last check. The security is now within striking distance of its all-time high near $120, trading well above the solid support of its 10-week moving average.

Meanwhile, in the options pits, one speculator is betting on continued upside for NFLX during the intermediate term. The bullish trader built a long call spread by buying to open several large blocks of the equity's September 115 calls, and simultaneously selling an equivalent number of September 125 calls.

Potash Corp. of Saskatchewan (POT) also scored a bullish note this morning, with UBS upgrading the equity from "neutral" to "buy." The brokerage firm also raised its price target on POT from $106 to $112, asserting that "a tighter market should... support price increases."

POT is 4% higher in the wake of this enthusiastic endorsement, but the equity's progress has thus far been capped by its 20-day moving average. This trend line has rejected the stock's rally attempts consistently since late March.

Traders have responded to POT's technical swoon by loading up on bearish bets. The stock's 10-day International Securities Exchange (ISE) put/call volume ratio stands at 1.03, in the 92nd annual percentile. This lofty rank reveals that traders on the ISE have snapped up puts over calls at a faster pace only 8% of the time during the past year.

Short sellers have also ramped up their bets against POT, with the number of shares sold short ballooning by 48.8% during the most recent reporting period.

Today's upgrade hasn't done much to change this trend toward pessimistic positions, with put volume rising to twice the expected level by midday. Earlier, one speculator initiated a long put spread by purchasing 475 contracts of the June 100 put, and simultaneously selling 475 contracts of POT's June 95 put.

LDK Solar Co., Ltd. (LDK) reiterated on Tuesday that it expects strong growth next year, despite planned cuts to solar subsidies in Germany, the world's top solar market. LDK's chief executive officer Xiaofeng Peng predicted "10-20 percent growth" in Germany in 2011, with the solar concern also looking into possible strategic acquisitions and alliances.

Shares of LDK have taken a beating lately, with the stock tumbling roughly 65% since peaking in April. Since then, LDK has been swept lower by its descending 10-day and 20-day trend lines, to its current perch around $5.15.

Analysts are certainly skeptical of the security, with nine of the 10 brokerage firms following LDK calling it a "hold" or worse, according to Zacks.

Put players have flocked to LDK today, with nearly 6,000 puts changing hands by midday -- more than double the energy issue's usual daily put volume.

The July 4 put has been most popular, with 2,000 contracts traded -- 67% at the bid price, suggesting they were sold. With just 180 contracts currently open at this strike, it seems these puts are fresh positions. By selling to open the July 4 put, traders are counting on LDK to remain above this level until July expiration.

Technically speaking, the $4 level provided a technical floor for the stock in March 2009. In fact, LDK has never closed beneath this single-digit strike.

CarMax, Inc. (KMX) on Tuesday announced that it will confess its first-quarter earnings on Wednesday, June 23. The announcement may have triggered a pop in back-month call activity, considering the used-car retailer's looming turn in the earnings spotlight occurs after June-dated options expire.

More specifically, KMX saw almost 850 calls change hands yesterday – more than four times its expected single-session volume of fewer than 200 contracts. The equity's out-of-the-money July 22.50 and 25 strikes were most popular, with roughly 560 and 140 calls exchanged, respectively. What's more, the majority of the calls traded at the ask price, and call open interest at both strikes advanced overnight, pointing to bullish buy-to-open activity.

However, taking a broader look at KMX's sentiment backdrop suggests that yesterday's optimistic options activity stands in stark contrast to the Street-wide skepticism plaguing the stock. According to Zacks, only two out of 13 ranking analysts consider the security a "buy" or better. Meanwhile, despite depleting by 10.7% during the past month, short interest still represents about 6.6% of KMX's total available float, and would take seven sessions to unwind, at the stock's average pace of trading.

Historically speaking, CarMax has bested the Street's per-share profit predictions in three of the past four quarters, according to Thomson Reuters. From a contrarian standpoint, another solid earnings report could shake loose some of the bears – which could translate into fresh buying pressure for the shares.


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