BLACKBERRY STOCK RALLY HAS SPARKED CRAZY OPTIONS VOLUME

BBRY short sellers are feeling the heat

The shares of smartphone and software maker BlackBerry Ltd (NASDAQ:BBRY) have been on a major tear lately, rallying more than 50% in just the past three months. BBRY stock notched a two-year high of $11.39 just yesterday, with analysts attributing the gains to optimism about BlackBerry's future in the cybersecurity and automotive markets. What's more, options traders -- particularly those bullish on BlackBerry -- are more riled up than ever, with BBRY calls flying off the shelves in recent weeks.
Options Volume Hits New High as BBRY Stock Rallies

BBRY call volume topped 110,000 contracts on Monday -- the highest point in at least two years. Total options volume also hit a new high, with more than 132,000 BBRY options traded that day, and the stock's 30-day at-the-money implied volatility peaked at 59.4%. BlackBerry put volume, on the other hand, peaked at a relatively paltry 24,500 contracts just last week, on May 16 -- just a couple of weeks after touching an annual low of 146 puts on May 2.

Are BBRY Shorts Buying Long-Term Calls?

During the past week, the January 2018 7-strike call was the most active, though open interest declined at the strike, suggesting many traders took profits and sold to close their in-the-money calls. The most added BlackBerry options were also in the January 2018 series, led by the 16-strike call, with roughly 10,400 new contracts. The January 2018 13- and 15-strike calls took the silver and bronze, respectively, with about 8,800 and 8,200 contracts added in the last week. It's difficult to tell whether the contracts were bought or sold to open, but assuming they were purchased by "vanilla" option bulls, the traders are expecting BBRY stock to extend its rally over the next several months.

However, it's entirely possible that the long-term calls were purchased by short sellers feeling the heat. Short interest on BlackBerry declined by nearly 23% in the most recent reporting period, but still accounts for a healthy 9% of the stock's total available float. At BBRY stock's average daily trading volume, it would take nearly six sessions to repurchase these pessimistic positions. Against this backdrop, shorts could be buying out-of-the-money calls as options insurance.
Short Squeeze, Upgrades Could Push BBRY Stock Higher

As alluded to earlier, BBRY shares have been unstoppable lately, soaring more than 66% since hitting $6.66 in March. The stock today was last seen 2.2% lower at $11.06, though that's not too surprising, considering BlackBerry's 14-day Relative Strength Index (RSI) sits well into overbought territory, at 85. From an Expectational Analysis® standpoint, BBRY could have more gas in the tank; a short squeeze or a flood of well-deserved upgrades could propel the shares even higher. Currently, BBRY boasts just three "buy" or better ratings, compared to nine "hold" or "sell" recommendations.

DOW JONES INDUSTRIAL AVERAGE TRADES HIGHER; FED ON TAP

The Dow, SPX, and COMP are all on track for a fifth straight win

The Dow Jones Industrial Average (DJIA) has traded in a slim 50-point range ahead of this afternoon's release of the Fed's meeting minutes, which Wall Street will dissect for hints of a possible June rate hike. Most recently, the Dow was trading higher -- on track to extend its winning streak to five sessions. A larger-than-expected drop in existing home sales, which echoes Tuesday's disappointing housing data, has done little to contain stocks, with the S&P 500 Index (SPX) and Nasdaq Composite (COMP) also taking aim at a fifth straight daily win.

Continue reading for more on today's market -- and don't miss:

Analyst: Tesla stock could hit $500.
The latest retail stocks to spiral after earnings.
Plus, call traders blast Foot Locker; HIV data sparks a fire under INO stock; and the energy stock down 33%.

Among the stocks with unusual options activity is athletic apparel retailer Foot Locker, Inc. (NYSE:FL), with nearly 10,350 calls traded -- 16 times the average intraday rate, and volume on track to settle in the 100th annual percentile. By comparison, just 550 puts have changed hands. Most of the action is due to the initiation of a possible calendar spread with long June 62.50 calls and short July 65 calls. At last check, FL stock was trading down 0.6% at $59.51, extending Friday's post-earnings downside.

Inovio Pharmaceuticals Inc (NASDAQ:INO) is near the top of the Nasdaq leader board, after the drugmaker reported upbeat preliminary data for its HIV vaccine. INO stock has jumped 28.6% to trade at $9.17 -- breaking out above recent congestion at its 200-day moving average.

Aegean Marine Petroleum Network Inc. (NYSE:ANW) is the biggest decliner on the New York Stock Exchange (NYSE), after the fuel logistics firm's dismal earnings report was met with a downgrade at Stifel. At last check, ANW stock was trading down 33.3% at $7.00, levels not seen since last August.

Trade Lowe’s Companies, Inc. (LOW) Stock After Its Earnings Miss

Join the LOW stock bears with this short options spread

Lowe’s Companies, Inc. (NYSE:LOW) shares are down heavy in early morning trading after reporting underwhelming earnings for the first quarter. The home improvement chain scored earnings per share of $1.03, which fell a few pennies short of analyst estimates. LOW stock’s forward guidance for full-year earnings also came in well below expectations.

Investors’ displeasure is on full display this morning as a flurry of “sell” orders are taking LOW down more than 4%. The plunge is shattering critical support levels, throwing a wrench into what was a decent uptrend.

Today’s smacking is carrying Lowe’s Companies shares into the heart of its previous earnings gap. From a charting perspective, we’re in the middle of no-man’s-land here. Potential support sits lower at $77.50 and $74.50. The former was an old resistance level. The latter would constitute a gap fill.

Both serve as logical downside targets if bears continue to press their advantage here. On the resistance side of the equation, $81 and $82 loom large. If Lowe’s Companies can claw its way back from today’s misstep, both levels make sense for upside targets.

Interestingly, today’s gap created a rare island reversal pattern. It’s as if anyone who purchased LOW stock over the past quarter just got marooned on an island. They’re all losing money, and due to the large down gap, they were robbed of any opportunity to exit at breakeven or a small loss.

Together, these losing longs create what’s known as overhead supply. This is the fundamental reason why the $81 and $82 levels have a good chance of becoming resistance when (or if) we rally back up there.

The LOW Trade

If you think LOW stock remains heavy over the coming weeks, sell the July $82.50/$85 bear call spread for 50 cents. The max gain is limited to the initial 50 cents credit and will be captured if the stock sits below $82.50 at expiration.

The max loss is limited to the spread width minus the 50-cent credit, or $2, and will be forfeited if the stock sits above $85 at expiration.

WHY SKYWORKS STOCK IS A CALL BUYER'S DREAM

SWKS just closed below its 20-day moving average, creating an ideal entry point for a bullish call trade

As a designer and developer of semiconductor products, Skyworks Solutions Inc (NASDAQ:SWKS) was considered until recently to be a member of a vast cadre of technology operations known collectively as "Apple suppliers." But the company has begun to reap the rewards of a concerted effort to broaden its customer base. So while it is common knowledge that iPhone sales have started to plateau, SWKS has reported solid results from its partnerships with the likes of Samsung and Huawei, which provide a sizable foothold in the growing Chinese smartphone market.

While it surprised us that the resounding earnings beat reported by SWKS in late April was met with some selling (in marked contrast with the earnings-based surge in January), our view is that this represents another opportunity to accumulate positions in SWKS call options based on the ongoing technical and sentiment picture as discussed below.

It's no coincidence that we've highlighted the 20-day and 50-day moving averages on the accompanying six-month SWKS chart. The performance of SWKS this year relative to these shorter-term moving averages has been remarkable -- and enormously conducive to the establishment of bullish positions through the purchase of call options. Since Jan. 9, SWKS has not once closed below its rising 50-day moving average, and has closed on just a half-dozen occasions below its 20-day. So call option buyers have been assured this year -- to a much greater extent than is typical in this market -- that SWKS shares will trade predominantly to the upside over the relatively short time frames demanded in order for option trades to be successful.

Perhaps of even greater interest, as it relates to the timing for our recommendation of this SWKS call, is that the brief periods this year over which SWKS has traded below its 20-day moving average have represented outstanding "points of entry" on the long side. For example, SWKS closed below its 20-day (at $95.52) on March 21, and 13 trading days later the shares had rallied by 7.5% (to $102.64). SWKS next closed below its 20-day (at $95.59) on April 12 -- just ahead of a rally that peaked at $103.91 (for a gain of 6.5%) over the subsequent six trading days. To which we'd now add that the most recent close by SWKS below its 20-day (at $100.55) occurred just this past Wednesday. And while there is no guarantee of another such quick 6-7% gain, we consider this SWKS call position entry to be potentially quite timely.

Overlaid on this short-term consistency to the upside is some equally remarkable longer-term consistency. For a period encompassing 2016's fourth quarter (plus the first part of January 2017), the year-over-year gains in SWKS share prices deviated very little from the 20% level. But after the much-heralded January 2017 earnings report, year-over-year gains have steadily increased from about 40% to the current level of 60%. Furthermore, this feat has been accomplished under conditions of steadily declining share volatility. In fact, realized volatility for SWKS has been cut in half over the past 15 months, from the 40% annual rate that prevailed for most of the first quarter of 2016 to the current level of about 20%.

Those who sell "naked put options" are generally very pleased when share volatility is slashed by 50% over a period of flat to slightly higher stock prices. But when such a volatility implosion accompanies annualized share price gains in excess of 50%, call option buyers can benefit from enormous gains -- as their cost (in terms of option premium level) steadily declines, even as share price appreciation is accelerating.

Based on this impressive combination of strong price action and ever-cheapening option premium levels, one would think open interest in SWKS call options would now be at runaway high levels as more players become "woke" to the ongoing attractiveness of the "buy SWKS calls" strategy -- but one would be very wrong. In fact (per Trade-Alert), current SWKS call open interest of 49,442 contracts is lower than 85% of such readings over the past year, and is less than a third of the 12-month peak in call open interest of 160,791 contacts (reached in October 2016). And as full-throated contrarians, we greatly approve of this evidence of option speculator skepticism as carrying demonstrably bullish implications for further upside in the shares (at some point to be fueled by additional call accumulation).

Our recommended SWKS call option would achieve its target profit of 200% on a rally by SWKS into the low-120s -- the upper end of the potential overhead resistance levels as listed on our chart. And we view the chances for such a robust rally (over the recommended holding period) as significantly more elevated than are the collective opinions as expressed by the actions of "the trading crowd."

Trade Facebook Inc (FB) Stock for 900% Profits

Bulls have to like this unique trade in FB stock right now

Some investors have unfriended Facebook Inc (NASDAQ:FB) since its first-quarter earnings report, but the trend is starting to look more friendly toward the bulls. Traders willing to forgo a bit of instant gratification could be rewarded with a big pot of gold, though. I have a smarter, safer way to participate in a rebound in FB stock that can also deliver big profits.

Let’s take a look.

Earlier this month, Facebook stock received the “sell the news” treatment from investors after it reported Q1 results. The good news? FB easily topped sales and profit forecasts. Even better, Facebook’s monthly average users (MAUs) grew by a stronger-than-expected 4.3%, and should reach a staggering 2 billion users by Q2.

And what about the competition?

While the days of easy mobile growth may be over, Facebook’s WhatsApp product launched only a couple months back has already surpassed Snap Inc.’s (NYSE:SNAP) popular Snapchat app with 175 million daily users.

Facebook isn’t stopping there, either. The social media platform continues to dominate with apps such as Facebook Lite aimed at developing countries, as well as Instagram. New features such as Messenger Day and Facebook Stories are showing early strength, too, and Facebook is on track to continue distancing itself from the competition.

Thus, the post-earnings reaction in FB stock has been curious at best. But that price action has made the stock look more likable for new positions.

FB Stock Chart
A look at Facebook’s weekly chart leaves little doubt that the trend is up. In fact, a series of higher highs and higher lows extends for roughly three years.

However, everything isn’t perfectly positive.

Heading into the early May earnings report, Facebook shares were pressing against a longstanding channel line that had done a fair job of alerting traders to counter-trend pullbacks and corrections.

Personally, I was wary of the price action in FB stock and expected lower prices to prevail in the short-term. In fact, I wrote as much back on April 26, along with a creative way to buy shares $138 at no cost if they pulled back as anticipated.

Technically, I was wrong. Facebook proceeded to rally through the channel line over the next few sessions in front of the earnings report.

The earnings beat itself, as mentioned above, resulted in a “sell the news” reaction. But now, the stock has consolidated over the past couple weeks and established a 6% correction. The current pullback pattern could be the pause that refreshes.

The price contraction looks more compelling with last week’s test and bullish reversal of the 50-day simple moving average. But considering that stochastics look less than friendly with an overbought crossover signaling, I would prefer to approach FB stock with a limited-risk spread rather than buying shares outright.

Here’s how.
How to Trade FB Stock
Last time, the proffered modified long put butterfly spread ended up as a wash as Facebook remained above $138 through expiration of the shorter-term options position.

Right now, given Facebook’s solid earnings report and decent correction pattern, I’d like to suggest a bullish modified fence. We’ll package a bull put spread and long bull call vertical. This strategy allows the investor to potentially buy Facebook on additional price weakness with limited risk. At the same time, the position can also participate and profit in a rally in FB stock.

Reviewing Facebook’s options, I suggest selling the weekly 23 June $144/$143 put spread and simultaneously buying the 23 June $152.50/$155 call vertical for a combined debit of 25 cents is interesting.

What’s this packaged combination do?

On the downside, risk is limited to $1.25 below $143 in FB stock. The flip side is that the bull put spread allows flexibility to buy pullbacks with completely risk control.

Between the $144 put strike and $152.50 call strike, at expiration, both spreads are worthless and the trader would be out the 25-cent debit. However, as this combination is long deltas during the life of the position, if FB stock starts to rally, paper profits could potentially build inside this range.

Lastly, and most lucratively, if Facebook does find a bit, this position holds the $152.50/$155 bull call spread for a below-market price of 25 cents. If investors take FB to fresh highs by expiration, above $155, you can pocket $2.25 in profits.

That’s 900% for a move of less than 5%.

Don’t Yield to the General Electric Company (GE) Stock Bears

Fears of General Electric (GE) cutting its dividend are overblown

It has been a rough year for General Electric Company (NYSE:GE). After surging into the end of 2016 on the wings of the Trump bump, GE stock has shed nearly 11% so far in 2017, pushed lower by a pair of back-to-back earnings misses.

Once a paragon of the buy-and-hold era due to its stable dividend yield, GE stock now finds itself in a state of flux, attempting to innovate and lead the industrial Internet of Things revolution.

But, according to recent analyst concerns, that yield and stability may now be at risk.

Last week, Deutsche Bank downgraded GE stock from “hold” to “sell.” It was just the latest in a string of downgrades from the analyst community. Deutsche Bank’s downgrade was different, however, as the brokerage firm called into question GE’s dividend. According to Deutsche Bank, GE would have to cut its dividend of 24 cents per share and lower its earnings guidance for the next few years.

Fallout from the move sent GE stock plunging to a fresh 52-week low near $27, as traders, already battered by earnings disappointments, fled the shares. It was at this point that technical buyers stepped in. GE stock was heavily oversold, and the shares proceed to recover just as quickly as they had declined.

It was a buying moment for GE stock, and that moment is not over quite yet, as the shares have reclaimed support at $28 and their 20-day moving average

Sentiment remains somewhat shaky, but not as bad as Deutsche Bank is making things out to be. Currently, Thomson/First Call reports that 10 of the 16 analysts following GE stock rate the shares a “buy” or better. Furthermore, the 12-month price target of $32.29 represents a healthy premium of about 14.2% for GE stock.

GE options traders, meanwhile, remain largely on the fence when it comes to the stock’s prospects. Currently, the June put/call open interest ratio rests at 0.82, with calls only just outnumbering puts among options set to expire within the next month. That said, most of this OI rests north of $30, indicating that many of these contracts were likely opened before Deutsche Bank send GE stock reeling.

Overall, June implieds are pricing in a potential move of about 2.5% for GE stock ahead of expiration. This places the upper bound at $29, with the lower bound coming in near $27.50. This may seem like a tight trading range for GE stock, but implieds are well above historicals, indicating that volatility is elevated at the moment for the shares.

2 Trades for GE Stock

Put Sell: The safest route for profit from GE stock options is to sell out-of-the-money puts — especially with General Electric recovering from a heavily oversold position. Those looking to take advantage of near-term technical support might want to consider a June $27 put sell position. At last check, this put was bid at 17 cents, or $17 per contract. On the upside, traders will keep the initial premium received as long as GE stock closes above $27 when June options expire. The downside is that should General Electric trade below $27 ahead of expiration, traders could be assigned 100 shares for each sold put at a cost of $27 per share.

Call Spread: Those looking to bet on a continued oversold rebound for GE stock might want to consider a June $28.50/$29 bull call spread. At last check, this spread was offered at 13 cents, or $13 per pair of contracts. Breakeven lies at $28.63, while a maximum profit of 37 cents, or $37 per pair of contracts, is possible if GE stock closes at or above $29 when June options expire.

NVIDIA, LOWE'S, TIFFANY NEWS TODAY

NVDA stock is higher on reports of a massive Softbank stake

U.S. stocks are posting modest gains ahead of the release of the Fed's meeting minutes this afternoon. Among specific stocks on the move are semiconductor stock NVIDIA Corporation (NASDAQ:NVDA), home improvement retailer Lowe's Companies, Inc. (NYSE:LOW), and luxury retailer Tiffany & Co. (NYSE:TIF). Here's a quick look at what's moving shares of NVDA, LOW, and TIF.

NVDA Stock Explores Record Highs on Softbank Reports

Nvidia stock is up 2.5% to trade at $140.50, and earlier notched a record high of $141.07, amid reports Japan's Softbank sports a $4 billion stake in the chipmaker. This brings NVDA's month-to-date gain to 34.7%, with the company crushing earnings expectations earlier in May. Even with the stock's monster gains, 12 of 26 brokerage firms maintain "hold" or "sell" ratings, leaving the door open for upgrades to lure more buyers to the table. NVDA stock is trading well its average 12-month price target, too, which sits at $125.59.

Earnings Sink LOW Stock

Lowe's stock is getting hammered this morning after the company's disappointing quarterly results, with the shares giving back 4.2% to trade at $78.90. This puts the retail giant on pace for its lowest close since late February, before a notable earnings bull gap, but LOW stock still maintains a 10.9% year-to-date gain. This pullback may be catching options traders by surprise, though. Lowe's has a Schaeffer's put/call open interest ratio (SOIR) of 0.24, which is an annual low. In other words, near-term options traders are the most call-skewed they've been in at least a year.
TIF Stock Drops on Sales Surprise

Tiffany & Co. reported weaker-than-expected quarterly sales, and a surprise dip in comparable store sales, sending TIF shares down 8.9% to $84.89. The stock seems to have found support just above $84, however, an area that represents its highs from late 2015 and late 2016, and a 50% Fibonacci retracement of its drop from late 2014 to mid-2016. A number of short sellers seemingly missed out on today's bear gap, too, with short interest on Tiffany falling by almost 21% over the last two reporting periods.
Article by MagnusYard.