Sunpower Surges 38.65%: Were Option Traders Lucky, Good, or Cheating?

After the close it was announced that Total SA (TOT) has offered to buy 60% of Sunpower (SPWRA) for $1.38B, a $23.25 Tender Offer Price, and shares jumped 38.65% in one of the largest Solar deal to date, an industry that has yet to see much M&A.

I had recently posted a bullish "Options Radar" to clients, and here is what I posted on April 15th, just two weeks ago:

OPTIONS RADAR: High Delta Bullish Trades Surface in Sun Power


Ticker/Price: SPWRA ($15.80)

Analysis:

"Sun Power (SPWRA) is trading 6,700 calls, in line with daily average, but interesting action with the deep ITM June $13 calls trading 4,640 vs OI of 632, opening bullish buyers at $3.10. Shares have come down after a big earnings run and found support near $15.50 where the 100 day EMA is bullishly crossing the 200 day EMA. The $1.6B Solar Co. is turning into a major value name with a 15% short float, trading just 6.6X earnings, 0.37 PEG, 0.96X book and 2.49X cash value. US and German solar demand seems to be waning, so the Chinese solar stocks are favored currently, but traders are liking Sun Power on this pullback. Sun Power is working on a 250MW California Valley Solar Ranch, and is set to benefit from a Government push to solar components for power plants, recently receiving DoE backing."

As I noted, shares were a great value, and obviously Total SA (TOT) saw the same thing. The June $13 calls are likely to be worth at least $10 tomorrow on the open, a triple from when the near $1.5M worth of calls was bought less than 2 weeks ago.

Sunpower would have never been on my radar if the options action had not shown up in my scans, and this is why I think it is a must to follow options flow, as it often leads you to stocks that are going to move big, and in this case it happened rather quickly.

Sunpower has a great chart heading into this news with a strong volume bounce off support today, and this deal is sure to get Solar stocks heated again.

Amazon (AMZN): Reviewing Options Strategy for Earnings

I try and put together in depth earnings analysis reports in my chat ahead the major reports, and all signs were bullish heading into Amazon (AMZN) yesterday. Here is what I Posted:

OPTIONS RADAR: Amazon Action and Skew Looking for Move Higher on Earnings

Analysis:

Amazon (AMZN) is trading 1.65% lower into earnings and as of 2:15pm is trading 62,000 calls and 49,700 puts, 2X daily calls and 1.5X daily puts. There is mixed offer and bid side action with a positive overall net Delta, and net premium paid in Calls at $265K vs a -$1.64M in put premium played, a bullish bias. Amazon April IV is at 81.6%, May at 37.4% and June at 33%, the April options pricing in a 4.7% earnings move, basically the $175 to $190 range. IV Skew is also showing a bullish bend for April and May, so overall options looking to favor a bullish move. Shares bounced at $180 today, the 20 day EMA, and although the retail earnings are likely to be very strong, the focus will be on all the new growth initiatives with Cloud Music and other projects. Shares have clear resistance at $190, but would target $210 on a breakout. Amazon shares are trading 42.25X earnings, 2.44X sales and 33X cash flow, so a Beat and Raise is needed to trade higher. BofA reiterated a Buy and $198 target into the quarter, but did cite margins will remain under pressure. Deutsche Bank reiterated a Buy and $192 target, saying the Company will deliver despite Japan concerns. The largest trades today include a 1,012 contract May $185 synthetic long position at a $1.70 credit, the April $185/$195/$205 Butterfly Call Spread 430X860, and a few sizable May $180 and $175 put sales. The June $200 calls also trading a fresh 2,000 contracts, so all indications bullish into this report.


Previously that morning I highlighted the April/June $195/$175/$200/$170 Double Diagonal for $3 as a Neutral trade I liked with my targets at $195 and $175 depending on the report.

Later in the day we put that spread on for $3.40 and closed it today at $5.40, a solid 58.8% gain overnight.

The other thing was that I had such a bullish read on Amazon that when I saw it trade down to near $170 after hours I had a strong opinion that shares would bounce back, as you know if you follow my twitter feed. Before the open this morning I was telling clients I was extremely impressed with the earnings and see it as a $200+ stock, and when it broke $186.20 this morning it was go time. Amazon's performance was impressive, and on the open the April weekly calls lost a ton of value with shares opening near flat, and many of my clients grabbed some weekly calls and accumulated 300% profits intraday.The April $185 weekly calls were available at $1.50 this morning, and closed today at $11.95, and the further OTM calls even gained more on a % basis.

The addition of weekly options has allowed for awesome flexibility to trade earnings, both before and after the results are announced. It pays to know what the options market was betting ahead of the quarter, because you can avoid the risk of being involved into the report, and instead play the action the following day.

Definitely an exciting and fun day with Amazon options...expect much of the same in Baidu tomorrow.

Mastec (MTZ): Construction Co. with Great Fundamentals Attracts Bullish Options Action

MasTec (MTZ) traded 5,556 calls on the day, more than 30X daily average call volume as IV30 jumped 19.8%, yet shares were down 1.9% on the day. The action was in June, and mainly $22.50/$25 call spreads bought at $1.15 throughout the session, shares at $22.56 to $23. Earnings come after market on May 4th and shares have been in a strong trend higher, near all time highs, while a longer term measured move to $26 is still in play from the breakout at $15. Shares have been climbing since reporting results last quarter.

Shares of the heavy construction firm trade 14.94X earnings, 0.77X sales and 9.46X cash flow, which makes it cheap compared to larger peers like Fluor (FLR), Foster Wheeler (FWLT), McDermott (MDR) and Shaw Group (SHAW), and also with better growth forecasted and shown consistently. MasTec is involved with upgrading Utility and Communication infrastructures, which will obviously be in high demand moving forward. It also builds wind farms, solar farms, wireless communication systems, and delivers natural gas, oil and gasoline.

The most interesting business may be the emergency services for accidents and storm damages, considering the recent storms that have hit the South and Midwest, and done a lot of destruction.

The action came today as the Company announced the acquisition of Fabcor, a Canadian Energy Infrastructure Company, for $21.2M. On April 20th Wunderlich reiterated a Buy rating and raised its target to $26 from $21.

So, we have a momentum Company at cheap valuation and strengthening earnings seeing unusually bullish options activity, making MasTec look like a great Buy at these levels. The spreads are only looking for a bit over a 100% return as most of them were bought at $1.15 for a potential $2.50 return, and need at least a 5% move higher from here to start making money.



Disclosure: No Position at Time of Writing, but Considering as Long Term Investment

Woodward (WWD): Potential Undiscovered Gem

It must be the stock-junkie in me, but I get excited when I come across a new Company in my weekend scans that I have never heard of previously.

Such is the case with Woodward (WWD), an Industrial with a $2.34B market cap that trades nearly 300,000 shares a day, so it was surprising to me that I had never come across the Company before. Apparently I am not the only one, as the StockTwits Stream has zero posts on the Company in its history.

Woodward designs and manufactures energy control and optimization solutions for commercial and military aircraft, as well as for ground vehicles and electrical power equipment. Eaton (ETN), Rockwell Automation (ROK), and Parker Hannifin (PH) are considered competitors. Woodward's markets encompass Aerospace and Energy, with applications for alternative fuel vehicles, electrical power generation, engines, turbines, and wind power.

Woodward shares trade 15.8X earnings, 1.58X sales, 2.84X book and 27.8X free cash flow, also a 0.82% dividend yield. Sales grew 7.6% Q/Q and on valuation is most comparable to Parker Hannifin (PH), although with better margins and growth outlook.

Woodward will report earnings Monday April 25th after the close, and it actually does trade options, but very illiquid with wide bid-ask spreads. Analysts expect EPS of $0.41 and Revenues of $392.75M for the Quarter and $1.81 and $1.61B for FY11. The estimates are comprised of 5 Analysts, although I do not see any recent analyst coverage on the under the radar Company. RW Baird, CJS Securities, CL King, DA Davidson, Dougherty & Co, Maxim and Sidoti cover the Company.

Shares are 64.57% Institutionally owned, room for expansion, so new buyers could come into the name, especially with a strong report, and based off the industry for engines and power equipment, I expect a strong outlook. Royce & Associates are the largest owner with 6.83% of shares outstanding, while T. Rowe Price, Vanguard, Blackrock, and Alger Mgmt. are also top owners.

It is tough to find a lot of in depth research on the Co., but with a good valuation and a small enough market cap, I would say it could make for a nice acquisition for one of the larger players it competes against.

Last, we look at the chart, and Woodward is holding a nice uptrend since July of 2009, making a series of higher lows, and recently topping out at $39 resistance in late 2010 and early 2011, with 5 year highs up around $47, shares currently at $33.97. The daily chart shows shares making a bullish MACD and ADX crossover and RSI breaking back above 50, so momentum is picking up.

Polycom (PLCM): Previewing the Quarter - Potential Options Strategy

Polycom (PLCM) will report earnings Thursday, April 21st after the close and the Street is looking for EPS of $0.42 and Revenues of $337.8M. For FY11 EPS estimates are at $2.05 and Revenues at $1.45B. Due to the Holiday, shares will not open for trade until next Monday.

Polycom is not exactly your every day popular Tech stock, but the options are fairly liquid, and its history of big earnings moves makes it attractive for options trading.

The last 3 quarters Polycom has moved +15.45%, +10.87%, and -10.18% the day after reporting earnings.

Polycom's weekly chart is most interesting to me, as shares broke out at a key $40 level, and out of an ascending triangle, measuring a move to $72.50, which happens to be the exact highs from the Tech bubble for shares in 2000. The ADX of 47 on the weekly charts shows that this stock is in a super strong trend. Shares have near term support at $45 and resistance at $52 highs. Shares could easily push past $55 on strong numbers, or sink below $45 on a weak forecast.



The Company is a play on workforce communications and collaboration with its telepresence, video and voice solutions allowing people to connect around the World. Polycom has a market cap of $4.4B, shares trading 19.6X forward earnings, 3.63X sales and 9X cash value with around $425M in cash on the books, and zero debt. There is a minimal short float of 3.15%, 2.34 days to cover. April has been the second strongest seasonal month for shares with an average 5.67% return the past 5 years. Polycom recorded 26.7% sales growth Q/Q and 151.32% EPS growth.

Polycom has not seen a great deal of options activity into the quarter, a few buyers of the May $52.50 calls at the $1.40 offer today which traded more than 600 contracts. May IV of 46.4% compares to June at 39.73%. The May $50 straddle trades for $5.35, expecting roughly a 10% move, although not just on earnings with 4 weeks until expiration, so the IV may actually be cheap here considering its history. The May $50 puts have seen some accumulation this week with 1,119 in open interest, but really not much action in May options, so I will be watching tomorrow leading up until the report.

What is interesting is the amount of open interest in July options, with the $45 calls housing 5,344 contracts, and the $55 calls with 3,372 contracts. Also, the July $40 and $37.50 puts each with open interest above 3,500. I can trace these trades back to January for the most part when a trader sold a chunk of July $40 puts to open, and also bought 3,120 July $50 calls at $2.25, while another bullish risk reversal remains in the $45/$37.50 strikes also. Then, on February 14th, a trader bought 3,120 July $50/$55 call spreads at $2.30.

The July option positions open have a major bullish bias, so that helps gauge sentiment in this name, where the "smart money" is betting, and also makes Polycom a buy if it were to get hit on results.

This leaves us with a growth stock at a fairly good value, bullish options sentiment, and a strong chart, so I would be overall bullish the name, although a risky own considering the magnitude of earnings moves. I also like the recent acquisition of video content company Accordent for $50M, and the recent announcement of a Cloud-Based Media Service, so the Company seems headed into new growth markets.

Looking over some recent Analyst coverage in the name from April I see that Bank of America-Merrill reiterated a Buy on 4-19 with a price target boost to $56 from $50, expecting an in-line quarter and on track for 20% operating margins, benefiting from video conferencing and UCC adoption.

The way the IV Skew is the June $55 calls look relatively cheap, and one bullish trade with a low risk is the May/June $55 calendar call spread at $0.35, targeting a 10% move higher, and basically In-Line with Street target prices for shares.



For a more Neutral strategy, you can add the May/June $45 Calendar Put Spread at $0.30 for a Double Calendar $55/$45 May/June at $0.65. This trade has a wide range of profitability from around $42 to $60.



Disclaimer: This is Not a Trade Recommendation (No Position at Time of Writing)

Amarin (AMRN) - Option Traders Nail It, Strike Gold

Amarin (AMRN) announced very positive Phase 3 ANCHOR Trial Results this Morning for AMR101 and is setting up to open more than 60% higher.

Amarin is a name that has been coming up on my option scans for a couple months now. Traders were mostly active in June with the Q2 data release expected and traders not wanting to be in May and have the data released after May expiration. However, recently it became clear that the data would come in May as May IV jumped to 196% and June is at 168.58%.

If you take a look at the June call open interest the numbers are astounding, 26,912 June $7.50 calls, 24,886 June $9 calls, 34,896 June $10 calls, 16,016 June $12.50 calls, and 23,886 June $15 calls. Almost all of this open interest has built in bullish trades, most notably was the sales of the June $5 puts, 30,365 in open interest, to purchase the June $10/$15 call spreads, and quite a few institutional sized trades in recent months. On March 10th more than 5,000 June $9/$15 call spreads, and more than 5,000 June $10/$15 call spreads were bought to open. On March 21st a trader sold 3,000 June $5 puts to buy 3,000 June $9/$11 call spreads.

I also recently updated on my website on the Option Radar Freebies that on April 12th a trader bought 4,500 May $9/$13 bull call spreads at $1.30.

I put out a Options Radar note to clients on 2/23 when there was hot action, noting:

"Amarin (AMRN) options were busy on the day with shares in an 8 week consolidation, finding support at the 50 day EMA, and ready to make a run higher it appears. IV30 was up 6.6% on the day as 11,549 calls traded and 3,882 puts, 5X daily call volume and continued bullish activity in June, this time the June $9/$12.50 bull call spread bought a total of 3,000X in two trades at $0.90 on the CBOE. There was some smaller action in June $9 puts that amounted to 2,545 trading, already heavy open interest in June from a bullish 3 way trade where the $5 puts were sold to buy the $10/$15 call spreads back on 2-3. The $961M drug maker was started a Buy with a $12 target at Jefferies on 2-2 and a break above $9 would likely target that move to $12. Amarin will present at the Citi Healthcare Conf. on March 2nd and the RBC Healthcare Conf. on 2-2 as well. On January 11th Bloomberg reported that Amarin had a dozen parties interested in acquiring the Company. On February 2nd the Company hired Paul Huff, who will be key in evaluating strategic partnerships and commercialization of AMR101. Investors are awaiting ANCHOR Phase 3 study results in Q2, expected to be a big mover as seen with the 127.34% June IV."

It will be interesting to see where shares close today, as many will see these news as encouraging for a potential buyout bid. I picked up on unusual call action back in November before the big gap higher and made some clients a bunch of money, and now once again, option traders were right on point with Amarin, flooding into bullish positions the past few months.

Disclosure: Long May $9 Calls (Likely Close Partial Today)

F-5 Networks (FFIV): Trading Earnings with Options in the Quarter After the Disaster

F-5 (FFIV) is set to report earnings on April 20th after the close, and it will be the first real news out of the Company since it crumbled 21.35% last quarter on earnings that brought the entire Technology sector down with it.

F-5 shares have continued to trend lower, although initially rebounding a week after the gap lower, and are now at $94.69. Shares have found some support at $90, similar to the October lows, and would need to break above $105 to move past downward trend resistance. The bearish momentum does appear to be waning with the ADX peaking at 43 in late March and now at 37, and MACD and RSI also showing signs of bullish divergence. Using Fibonacci Levels from the February 2010 lows, the $85 level is support and $107 is resistance. Bollinger Bands are very narrow, so a large reaction seems likely this time around as well. The volume on the moves lower has far outweighed the weak bounces in recent weeks, signs of Institutional selling. There is an unfilled gap from a July 2010 earnings gap higher from $79.40 to $77.75. April and May are two of the three best seasonal months for F-5 with 12.34% and 8.15% average returns the past 5 years.



Analysts are looking for $0.86 in EPS and $277.75M in Revenues for the Quarter and $3.60 in EPS and $1.15B in Revenues for FY11. For Q2 the expectation if for $0.89 in EPS and $290.59M in Revenues, a 26% growth year over year.

F-5 shares are now trading 43.25X trailing earnings, 21.9X forward earnings, 1.89 PEG, 7.97X sales and 23.3X cash flow, actually cheap compared to many of the other cloud computing stocks. Riverbed (RVBD) recently gave positive guidance that may be an indication that F-5 could deliver this time around.

JP Morgan recently lower estimates ahead of the quarter due to the impact from Japan. SunTrust recently initiated shares a Buy with a $126 target. Most firms have been lowering estimates into the quarter, so F-5 has a lower bar this time around, which could allow for some upside surprise.

F-5 has always been a big mover on earnings, before the 21.35% move lower, shares put in 14.67%, 14.07%, and 15.58% moves higher in 3 of the prior 5 quarters. F-5 trades weekly options, and the April IV of 97.33% compares to May at 54.3% and July at 48.7%. Options are implying a 10% move on earnings and the IV Skew is fairly flat which shows that OTM puts are not in high demand for protection into results. The options market has under-priced volatility the last 2 quarters, with being long the straddle paying off each time.

On April 5th a trader sold 1,000 October $95/$135 call spreads for a $10.70 net credit, bear call spreads. On April 13th a trader close 4,000 July $95/$90 put spreads, but sold to open 4,000 July $87.50 puts at $5.46.

UBS was out last week with its derivatives team recommending to sell F-5 puts into the quarter, seeing limited downside potential for shares.

With the April options "juiced" into earnings, one trade to look at would be the April/May $105/$85 Double Calendar Spread at $2.60, a profit range from roughly $80 to $115. This gives some wiggle room if the options market is once again under-pricing volatility, and also takes into account key technical support and resistance levels, also noting that upside potential is likely capped due to valuation.



A bearish biased trade with a great reward/risk profile would be the April $80/$85/$95 Butterfly Put Spread at $0.63.

Disclaimer: This is Not a Trade Recommendation, Just Kicking Around Some Ideas

Infosys (INFY): Sneaky Option Traders Play Earnings with Cognizant (CTSH) Puts

With earnings season here, it is not only important to pay attention to the stocks that will be reporting, but also to the closest competitors/peers. Some of these are obvious like Deere/Caterpillar, At&T/Verizon, Salesforce/VMware, while others take more digging, but there is almost almost a read-through from an earnings report that will impact a related stock. Sometimes the initial reaction may not be of a large magnitude, but it is worth keeping in mind for when that company reports, as seen recently with being able to predict a blowout quarter from Bed Bath and Beyond (BBBY) after William Sonoma (WSM) posted blowout numbers a few weeks prior.

Often, with options trading, especially close to expiration, if a Company is set to report earnings the front month volatility is juicy, and likely has been bid up in the weeks leading up to earnings, but the sympathy plays often have cheap volatility that allow for some great overnight trades.

Such was the case with Cognizant Tech (CTSH), which was down more than 3% intraday, after Infosys (INFY) reported results and gave poor guidance. Infosys shares tanked more than 15% at a point, weighing on Cognizant (CTSH), considered a close related peer.

In my live chat room I put out a note yesterday on Cognizant (CTSH), because there was very unusual opening buys in April $80 puts with these contracts expiring the next day. Traders were paying $0.30 and pushing up front month volatility 20% to own these puts, more than 4,100 traded on the day in a strike that only held 1,443 puts in open interest, and put volume for the day was 4X daily average. I picked up on the action very early, and then a bit later realized the motive behind this trade....the Infosys (INFY) results.

I already had a bearish outlook for Infosys (INFY) into results because I picked up on some unusual options action recently. On March 25th I put out the following note to clients:

"Infosys (INFY) at day lows on earlier note mentioned and trading 14X daily put volume, with 4,000 May $65/$60 put spreads just bought on the CBOE at $1, reports the Company is under investigation by US Federal Authorities in a tax fraud case. Shares gapped higher this morning after strong earnings from Accenture but have faded sharply now, and IV continues to rise. Recent price action has turned most indicators bullish, but anytime fraud is noted there is potential for major downside. The $39B provider of outsourcing trades fairly rich at 22.3X earnings, 6.8X sales and 103X cash flow, also coming off of a major disappointment last quarter in its report. The Company is also exposed to Japan with staff there, and could see results impacted in the coming quarter. Shares also have a head and shoulders top pattern forming if they fail here."

Shares climbed the two weeks after that into earnings, but lost all that and more with today's move closing at $63.20 but touching near $61. I figured the report would be bad with wages rising in India, and shares were already trading at a pricey valuation.

The Cognizant (CTSH) puts that were bought for $0.30 traded up to around $1.50, a 400% gain for an overnight trade, and quite a clever one.

Always pay attention to events that will not only impact a certain stock, but the stocks that trade in a high correlation.

I like this website to find correlations, although you can also use FinViz to find related Companies, http://www.market-topology.com/index.php?option=com_impactopia&view=friend&Itemid=&symbol=infy&discr=100&above=20&below=1&etf=0&timeFrame=1y

Hopefully this provided some insight and can make you some money one day looking for these type of opportunities. These are exactly the kind of scenarios with unusual options action that I provide daily to subscribers.

Qihoo 360 Tech Jumps 13.45% Day After Call Volume Sets Record

Qihoo 360 Tech (QIHU) shares jumped 13.45% today, and even more considering the turnaround in yesterday's session after I put the following note out to clients in the morning:

"Qihoo 360 Tech (QIHU) the next potential China Tech name to run seeing 2,075 calls trade, bullish buying of 1,520 September $35 calls with shares at $24.60, sizable buys right off the open this morning. Qihoo 360 provides Internet and Mobile security products in China, and has a $1.4B market cap. That sector has seen active M&A in the US with cyber security a major focus moving forward, and in China it will be in huge demand due to the amount of the population moving online. It is the number 3 Internet company in China based on user base for its browser. Shares are near post-IPO lows but have found support at $24 recently, and option traders look to be positioning for an upside move once Analysts start coverage and we begin to hear more from this China growth Company."

Call volume is building each and every day in this name, so hopefully we get to a point where it is as liquid as BIDU, SINA, SOHU, NTES, YOKU, and DANG because it looks like it will be a fun one to trade going forward....

Kellogg Co (K) Calls....They're Gr-r-r-eat!!

Although the Dow Jones actually finished up a point today the market sure felt much weaker. I did, however, notice strength in the consumer staples, a name that has held up fairly well considering the rising commodity prices weighing on margins. As we enter earnings season I feel that the sentiment is so bearish in these names, that we could see some surprise reactions, as the names trade at fair valuations with high dividend yields, and can pass many of the costs on to the consumer, so the fears may be overblown.



One such name is Kellogg (K), a $20B maker of cereal and convenience foods, with shares trading 14.5X earnings and 1.6X sales with a 2.96% dividend yield. Shares were reiterated a Buy with a $60 target at Deutsche Bank in February and UBS recently reiterated it as a top pick in consumer goods, seeing Q3 as a turnaround inflection point for the group.

The chart is looking very bullish. As you can see on the weekly chart below shares carved out a rounded bottom around the $48 level and broke past a triple top around $53, now consolidating above that breakout level. The measured move of the breakout targets a move to $58.



Furthermore, Kellogg (K) has seen quite a bit of bullish options activity in recent months. Today the call volume traded 3X daily average, including a buyer of 1,000 May $55 calls at $0.95 on the PHLX (although tied to 48,000 shares short as a Delta Neutral strategy). The June $55 calls also saw more than 1,080 bought on the day. With IV30 at 17%, options are very cheap in the name, near 1 year lows. On February 7th, 2,500 of the June $55/$50 bull risk reversals were opened, and the January 2013 $60 calls are holding 6,915 in open interest from some large buyers a few months ago, so the sentiment is very bullish, and some even thinking an eventual buyout target, although it would take a sizable deal.

The simplest way to play a move higher here is with the May $55 calls at $1 or better, and look for an exit price of about $2.50.

(No Position: This is Not a Trade Recommendation)