Ethan Allen (ETH): Put Volume Soars to 240X Avg. - A Seasonal Sell?

Ethan Allen (ETH) shares fell 6% as MasterCard Spending Pulse data showed weak spending in furniture and it traded 6,066 puts on the day, 240X daily average with most of the action on the offer as bearish buyers cause IV30 to jump 21.8% on the day. The August $20 puts were the target today as 4,286 traded against OI of 62, opening positions.

The $594M home furnishing Co. trades 24.3X forward earnings, 0.89X sales and 13.35X cash flow, and a massive 19.3% short float, 19.5 days to cover. There was also no signs of buyers in the underlying stock on the day, so it looks to be plenty of outright bearish bets, mainly from 3:44pm to the close.

Meanwhile, Pier 1 stayed positive on a day that was weak for retail after reporting strong same store sales growth, potentially stealing market share from Ethan Allen.

Looking at the chart we have a clear double top at $25 from April 2010 highs and April 2011 highs, a very similar seasonal pattern and history may repeat itself here. Shares broke $21.30 that was acting as support and now are sitting right on the 200 day EMA that looks unlikely to hold, and a break below the 38.2% Fibonacci would target a move to $19, and then possibly lower. Shares also closed below the lower Keltner Channel, which over the last two years has resulted in sharp sustained sell-offs.

The best approach here may be to wait on a weak volume bounce to around $21.50, and let the IV come down a bit, but longer term, the put options look to be a good choice.

Options Expiration Pins for May 20th

Options Expiration Strike Pegs:

AMZN Max Pain $190 - Looking for $200 Pin - $195/$200 1X2 Call Spread an Option

GOOG Max Pain $535 - Selling the $530 Straddle an Option

BIDU Max Pain is $135 - May $130/$135/$140 Butterfly Spread an Option

POT Max Pain at $55 - June $55 Calls at $1.50 Cheap

CAT Max Pain $105 - May $105 Straddle Sale an Option

PCLN Max Pain at $515 (Shares at $522) - May $525/$515 1X2 Ratio Put Spread an Option

AAPL Max Pain $340 - May $340 Straddle Sale an Option

NFLX Max Pain at $240 - May $245/$240/$235 Put Butterfly an Option at $1.75

FSLR Max Pain at $135

GS Max Pain at $150

OXY Max Pain at $100

BA Max Pain at $77.50

IBM Max Pain at $170

CRM: The Force is Strong with this One

Salesforce.com (CRM) is trading 7.9% higher after hours to $146.50 ahead of the CEO on Cramer, and the Company beat by a penny on EPS but beat big on revenues, and along with raising its guidance, it showed new customer adds, the real key to its report as it continues to show itself as the leader in cloud computing, which is still fairly early in the growth stage. In this case it is best to throw away traditional measures of valuation and use a more common sense approach, realizing that cloud computing is going to be the future for every Company and the transition is in the early stages.

I previewed the quarter for subscribers last Sunday:


Earnings Focus
Details: Salesforce.com (CRM), $134.91, Technology - Application Software, Earnings May 19th After Market Close

Earnings Expectations and Keys to the Report: Analysts are expecting $0.27 EPS and $482.45M in Revenues for the Quarter and $1.27 EPS and $2.11B for FY12 estimates. Estimates are factoring in 28% growth this year in revenues. Last quarter subscription revenues grew 31% Y/Y and 5,100 new customers were added in Q4 to a total of 92,300. Analysts and Traders will focus on subscription revenue growth and new customer adds. Also, the launch, and early read on the success of Chatter will be eyed on the Conference Call. Salesforce's $326M acquisition of Radian6 should be a positive moving forward for social media channels, and acquisition costs will cause a discrepancy in the headline Non GAAP and GAAP numbers.

Previous Reports and Reactions: Shares jumped on the report/outlook last quarter, but faded quickly, sinking that day and for a few weeks following the report. In 3 of the past 7 quarters, Salesforce has made a 15% or greater move, while the other 4 quarters the move only averaged 3.5%. The quarter before last resulted in a strong gap up, followed by strong buying to close the day at highs, and then continuation to all time highs.

Technical Analysis: Salesforce shares are making a series of lower highs in a channel down pattern since reaching all time highs in December 2010, recent resistance at $140, and the channel bottom extends to $115, a potential target as it would also fill the November 2010 gap. If shares were to break $140 on earnings a move to $150 would likely be quite easy, and potentially as high as $165/$170. MACD and ADX are showing early signs of turning bullish and RSI is trending higher. Bollinger Bands are tight, and a big move looks imminent. Shares found the 200 day EMA as support in March, and that is currently at $122.50.

Fundamental Analysis: Salesforce shares are undoubtedly rich on valuation at 73X forward earnings, 10.9X sales, and 200X free cash flow, and although that has not mattered in the past, being priced for perfection is a dangerous game, and could result in sharp sell-offs on any negative outlooks concerning growth potential. However, smart acquisitions and customer adds, along with cloud computing still in the early stages leave Salesforce as a leader in the industry that is likely to remain at a valuation premium.

Analysts: Of the 31 Analysts covering Salesforce the average target price is $160, a high of $200. FBR raised shares to Outperform on April 7th with a $170 price target.

Sympathy Movers: VMW, FFIV, CTXS, ORCL

Options Activity, Open Interest Analysis and Volatility Analysis: Salesforce May IV at 65.9% compares to June at 45.27%, so front month volatility is definitely pricing in a move, the straddle pricing in a 7.5% move on earnings, although we have seen many of the high flying Tech names make much less than priced in moves on earnings in recent weeks. The IV Skew has a minor bullish smile for May options and is fairly flat going out to later dated months. Salesforce has not seen a lot of large option trades in recent weeks, notable buying of the May $130/$135 call spreads for 2,500 contracts on May 4th. I feel the straddle is fairly cheap here and expect more than a 7.5% move in shares on earnings considering the recent tight trading range, and historical movements.


Now, on May 17th, just 2 days ahead of earnings there was very bullish options action in Salesforce ahead of the quarter, and I put out the following note to subscribers:

OPTIONS RADAR: Salesforce Call Spreads Active Ahead of Earnings

Ticker/Price: CRM ($129.20)

"Salesforce (CRM) June $140/$155 call spreads with 2,000 bought at $2.50, earnings May 18th, and then another 6,000+ were bought as call volume jumps to 26,500, or 3X daily average with opening bullish buyers, and not seeing any short stock with the spreads. Also, similar bullish action seen yesterday with these spreads and plenty of May $130/$135 call spreads still sitting in open interest. Shares rebounded a bit off support today and are set to close in the green. The larger picture channel down has resistance at $140 and support at $115. Shares of the cloud computing leader trade 69.7X earnings, 9.3 PEG and 10.4X sales, and the recent launch of Chatter could get investors excited this quarter as the Company continues to win new clients. Morgan Stanley noted this morning that it expects a solid print, but remains Equal Weight. "

The action continued today right up until the report, including a buyer of 1,000 May $145/$150 call spreads at 3:28pm, and the 345/350 May ratio 1X2 call spreads also traded in size.

All of my signals were bullish into the quarter, so the spread I recommended late in the day was the May 140/150/155 unbalanced butterfly call spread at $1.75. If shares hold around where they are trading after hours, a big IF as anything can change, the spread should work out very well. For the more neutral traders looking for a safe trade I recommended the May/June $150/$120 Double Calendar Spread, which should also work out very well.



Looking at the chart, shares broke trend resistance late today after a great support bounce at $127.25 two days ago, and on the break of this pattern of lower highs at $140, shares should hit $150 easily, and be well on its way to $175.



Disclosure: Long Calls and Spread Noted Above

Sherwin Williams (SHW): Painting a Bullish Picture

Sherwin Williams is a name catching my eye, a great ascending triangle has setup above the prior resistance, now support at $79. If shares can push through $86.30 on volume it would measure a move to above $90. ADX is climbing after a bullish crossover and RSI is rising, although a bit overbought. Shares have topped out here previously and I do see a Red 13 on DeMark, but the 3rd attempt is usually the breakout move, so definitely one to watch in coming days.




As for the fundamentals, Sherwin Williams has a $9.1B market cap and trades 14.65X earnings, 1.13X sales and 23.6X cash flow, fairly valued for a Company with modest sales growth. The Company would benefit from the recent action in commodity prices, lowering raw material costs, and increasing margins and profits, the Raw Material Cost Index currently at 10 year highs. Home Depot and Lowe's both recently reported earnings, and the results were not spectacular as the housing cycle remains near the bottom, and no clear signs of a recovery, but as we enter the Summer, projects should pick-up and homeowners looking to increase the value/attractiveness of their homes could go for a new paint job. Home Depot noted on it's Conference Call that it expects more maintenance and repair than major renovations and is beefing up its paint offerings.

BofA-Merrill recently reiterated a Neutral rating and $92 price target after the Company's Annual Meeting. The Company is now targeting a younger demographic via HGTV and Digital Media and is also set to raised prices on coating by 7 to 9% on June 6th.

One trade to consider is the June $85/$90 1X2 Ratio Call Spread for a $1.40 Debit


A simple June $85 Call at $2 or Better Looks Fine As Well

S&P 500: Current Technical Outlook

The S&P traded in a choppy narrow range last week and closed the week slightly lower than where it opened, and is flirting with a technical breakdown. Shares have formed a descending triangle above the 50 day EMA and prior support at 1,330, along with a 50% Fibonacci Retracement of the 1,290 to 1,370 range.. A break past 1,350 is needed to break the short term trend lower and make a push to new highs around 1,375 in a bigger picture rising wedge. If we can break to 1,375/1,380, the 1,400 target may not be achieved initially, and we could see a push back towards 1,300/1,250 in seasonally weak months of trading, possibly with resistance at 1,400, the next Fibonacci extension. In the near term of a break of 1,330 we would lose a long term trend from last August, and 1,300 is the initial target with the April lows and 100 day EMA, while 1,280 is a Fibonacci support level, and the 200 day EMA at 1,250 is major support, also the March lows. I also see 1,312 as a minor support level as a gap fill from April 20th, and a Fibonacci level. A buy signal near term would confirm with a break past 1,350 and the RSI breaking above 50. The 50,100 and 200 day EMAs are all rising with a bullish slope, while the 20 day EMA is flattening and a potential bearish cross of the 20 day EMA with the 10 day EMA from above is worth watching as a bearish signal.

Conclusion: Buy Above 1,350 with RSI > 50 with 1,380 Target; Fade a 1,400 Target with Stop at 1,410 and Target to 1,350/1,325/1,300/1,250; Sell Below 1,330 with 1,300 Target; If 1,250 is Seen, Load Up Aggressively!

Apple (AAPL): Prepping for Explosive Move - Traders Get Long Volatility into Developers Conf.

Apple (AAPL) traded a large spread on the PHLX May 12th that I am trying to drill down on, between 3:15 and 3:25pm. All in all it appears that at 3:17pm a trader bought 4,000 May $350/$355 call spreads at $1.29 and 4,000 May $335/$330 put spreads at $0.36. After that the trader looked to June and bought 4,000 June $370/$375 call spreads at $0.60 and 4,000 June $335/$330 put spreads at $1.20. I am going to operate under the assumption the trader is closing a May short Iron Condor that worked nicely, and now going long a June Iron Condor.

Apple has been in a tight range and is due to breakout or breakdown, which is what these trades are looking for, and comes after Goldman recommended earlier this week to be long Apple volatility into the June 6th Developers Conference where the Company is expected to discuss its cloud initiative. The event averages a 5.4% move in shares and Implied Volatility is at all-time lows. Goldman recommended the June $350 straddles at $19.40.

Apple Bollinger Bands are not really squeezed too tight, but shares have traded in the $340 to $355 range for 3 weeks. Shares are basically consolidating along the trend line that it broke out past, and that was a descending triangle breakout with a measured move to around $385, all time highs. If shares were to breakdown below $340 there is not much support and another test of $325 would be likely, and I doubt it would hold again, so the 200 day EMA at $315 would be a downside target. The last time Apple's ATR Wilder was this low was in February, where shares topped, and made an explosive move lower. This is not to say that the next move for Apple is lower, but more a sign that an explosive move is nearing. Either way, the $19.50 straddle seems like a smart play, but let's take a look at today's trade. The trader paid $1.80 for the June Condor and a potential return of $5, $3.20 in profits, or nearly 180% gains, if shares were to close June expiration either above $375 or below $330.




I also like to look at valuation and Analyst estimates to get a feel for the range shares of a certain stock can trade. OpCo recently started shares Outperform with a $450 target, Argus raised its target to $415, ISI group raised its target to $425, Wedbush raised its target to $445, Citi raised its target to $435, UBS raised its target to $495, Jefferies raised its target to $500, Goldman raised its target to $470, and Barclay's raised its target to $465. Basically, it's a safe assumption that Apple shares can easily trade North of $400. As for the downside potential I do not see any way shares can trade less than 10X forward earnings, so $285 is the maximum downside.

In my view, Apple has greater upside than it does downside, so a bullish strategy, the risk reversal trade, would involve selling the June $315 puts and buying the June $365 calls for a $0.25 Net Credit.

Your worst case scenario is that Apple shares fall and you are put shares at a $314.75 cost basis, which is much better than just buying shares now and hoping for the best, and is why option strategies are almost always better than being long stock.

Polaris (PII) - Ratio Put Spread Looks for Slow Slide, Gap Fill

Polaris (PII) recently reported a blowout quarter, and now shares have consolidated in a tight range. The growth story is intact here, and on any significant fall I would be a buyer of this stock, but one trader is looking for a slide in shares:

Polaris (PII) traded 4,675 puts on the day, more than 20X the daily put volume. The action was in September where the September $95/$85 ratio put spread traded 1,500X3,000 contracts at $0.17, a small debit for a bet on a slide in shares, and also a bearish bet on volatility as the spread will become profitable if shares fail to make new highs and trend sideways the next few months, a positive Theta and negative Vega trade structure. The trade is profitable in the $75.15 to $94.85 range, shares currently at $103.43. Maximum Profits are made if shares end at $85 on September expiration, where each $17 spread would be worth $983, a massive percentage gain.



Looking at the chart you can see shares gapped up last quarter on earnings from $92.50 resistance all the way to $105, and clear gap support at $102.50. A slow gap fill move back towards $92.50 would make this spread work perfectly over time.

Shares of the $3.5B maker of recreational vehicles trade 15.4X forward earnings, 1.63X sales and 19.9X cash flow, fairly valued, but sales are elastic to oil prices and consumer discretionary spending. There is a 10.1% short float, 7.2 days to cover.

Wells Fargo recently raised 2012 earnings estimates to $7, and a P/E of 15, its historical average would put shares at $95, so one could argue shares are over-valued. Shares are trading at 5 year highs on Price/Sales and Price/Earnings. However, earnings growth and margins are also making 5 year highs. RW Baird cut shares to Neutral from Outperform, but raised its target to $125 from $90 recently, which seems unusual as a stock with 20% upside is generally at least an Outperform.

Disclosure: No Current Position, Set Alerts for $102.50 Breakdown

PSS World Medical (PSSI): Stealth Options Action of the Day

PSS World Medical (PSSI) traded 50X daily call volume as 1,000 June $30 calls were bought on the CBOE at $0.625, with the bid-ask at $0.55/$0.80, so not an aggressive purchase, but appears to have been a buyer based on the IV movement. Earnings are May 12th before the open and shares are at all time highs, and have jumped on earnings the last 2 quarters. The $1.6B Medical Equipment Co. trades 19.5X earnings, 0.8X sales, and 17.5X cash flow. There is a 14.95% short float, 16.35 days to cover, so a short squeeze is a real possibility. If earnings turn out not to be the catalyst there is also the Jefferies, Goldman and William Blair Conferences in June where the Company will be presenting. Last quarter the Company guided FY11 above the Street. PSS World Medical is a supplier that is a direct play on the aging baby boomers as it supplies to alternate site physician practices and elder care businesses. Credit Suisse has an Outperform rating on shares.

Archer Daniels (ADM): Option Trader Sees Further Downside with Ratio Put Spread

Archer Daniels (ADM) shares continue to slide post-earnings, and one bearish trader sees more downside potential for the grains Company. The trader traded the June $34/$32 ratio put spread for 2,500X5,000 contracts at $0.27 debit, looking for a fall to $32, and seeing limited upside despite the valuation. The trader's profit zone is from $30.27 to $33.73 (See Below), and with the trade also Vega Negative, the trader can close this trade for a profit if shares stay below $35 in coming weeks.



Put volume was 3X daily average.


Shares could see further downside as farm subsidies are argued in Government. The $32 level is a major support level, and shares recently lost $34.50 support, now with a gap fill to $33, and a measured move to $31.50 on the most recent breakdown. The chart below highlights this trades' profit zone in orange.

6 Speculative Option Trades on Small Caps Reporting Earnings this Week

Every week I look to the week ahead and screen for small caps that report earnings and then filter them out by looking at fundamentals and the charts using FinViz to find some names that others are likely not watching, but could trade strong post-earnings. Although the options tend to be illiquid, I will provide a few speculative ideas here, although I often just buy the stock in front of earnings.

1) ION Geophysical (IO): Shares of the $2B Seismic Technology Co. with strong ties to Oil & Gas CAPEX, which is strong in FY11, trade 18.3X earnings and 4.4X sales with 30.8% quarterly sales growth. Shares have been consolidating since the last earnings jump and are in a tight triangle, ready to break higher.

Trade: Long the IO May $13 Calls at $0.50 or Better (May 5th Earnings AMC)



2) TTM Tech (TTMI) is a $1.55B maker of printed circuit boards, similar to Jabil (JBL) which posted strong results recently. Shares trade 9.4X forward earnings, PEG of 1, 1.3X sales and 2.1X book with a 7.9% short float. Shares are trading in an ascending triangle with $19.50 the breakout level for a measured move to $23.50.

Trade: Long the TTMI June $20 Calls at $0.90 or Better (May 5th Earnings AMC)



3) CSG Systems (CSGS) is a $734.35M provider of customer care and billing solutions for the cable industry, which has seen strong results. Shares of the software Co. trade 8.5X forward earnings, 1.34X sales and 7.2X cash flow, a good value. There is also a 5.85% short float, 7 days to cover. Shares are trading in an ascending triangle pattern with $21.30 the breakout level for a measured move to $25.

The Trade: Long CSGS June $22.50 Calls at $0.30 or Better (Earnings May 3rd AMC)



4) Ares Capital (ARCC) is a $3.6B Diversified Investments Co. trading 11X earnings, 0.54 PEG, and 1.2X book value. Shares recently broke out at $17.60 to new highs.

The Trade: Long ARCC June $18 Calls at $0.30 or Better (Earnings May 3rd BMO)



5) Atlas Air (AAWW) is a $1.8B provider of air cargo solutions and trades 10.15X earnings, 1.34X sales and 7.1X cash flow. Shares just broke out of a symmetrical triangle after consolidating from a strong move on last quarter's results.

The Trade: Liquidity is a Problem Here, but Long the AAWW June $70 Calls at $3 or Better (Earnings May 4th BMO)



6) PolyOne (POL) is a $1.37B maker of specialty chemicals that trades 12.8X earnings, 0.8 PEG, 0.5X sales and 13.5X cash flow. Shares are in a $12.50 to $14.80 channel, and a breakout past $15 could target a move towards $17.50.

The Trade: Long POL September $15 Calls at $1.05 or Better (Earnings May 4th BMO)



Bonus: Silicon Graphics (SGI) is a $557M provider of high performance computing and storage with high growth rates, 88.6% sales growth Q/Q and coming off a big move on earnings. Shares have consolidated tightly and look ready for another surge.

The Trade: Long SGI June $20 Calls at $0.95 or Better (Earnings May 3rd AMC)



Disclosure: No Position in Above Mentioned as I Just Came Up with these Ideas. These are for speculation only, so only trade what you can afford to lose.

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)