| Forbes/Schaeffer's Options Report
WEEK OF Monday, October 19, 2009
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| Option Idea of the Week: MarkWest Energy Partners (MWE)
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MarkWest Energy Partners (MWE)
With cold winter weather waiting just around the corner, traders have started to take an interest in the natural gas sector. The NYSE ARCA Natural Gas Index has soared an impressive 81% since reaching a low in March. The index has skipped higher along the support of its ascending 10-week and 20-week moving averages, and tagged a fresh annual high of 532.66 on Wednesday. What's more, September marked the index's first monthly close above its 10-month and 20-month moving averages since June 2008.
Not surprisingly, options players are optimistic when it comes to the sector. The composite Schaeffer's put/call open interest ratio (SOIR) for the natural gas sector comes in at 0.77, which is lower than 91% of all those taken during the past year. In other words, short-term options players have been more optimistically aligned toward the shares only 9% of the time during the past 12 months.
However, not every stock in the sector is blanketed in optimism. In fact, MarkWest Energy Partners L.P. (MWE) has been the focus of growing skepticism among options players. MWE is a spinoff from oil and gas company MarkWest Hydrocarbon, according to Hoover's. It was created in 2002 to hold the natural gas gathering and processing assets of its parent. MarkWest Energy Partners has natural gas and natural gas liquids pipelines, storage terminals, gathering and processing pipelines, and fractionation plants in the Appalachian Basin, Michigan, and the Southwest.
The security has been in a strong uptrend along the support of its ascending 10-week and 20-week moving averages since late January. In fact, the equity has gained a whopping 229% since the beginning of 2009, and remains poised to climb higher.
Despite the stock's impressive technical uptrend, options players remain skeptical of the shares. The International Securities Exchange (ISE) has seen an uptick in put trading recently. During the past 10 trading sessions, 1.4 puts have been purchased to open for every one call purchased to open. This ratio of puts to calls is higher than 91% of all those taken during the past year, pointing to a growing skepticism.
What's more, the SOIR for MWE stands at a lofty 1.56, as put open interest outnumbers call open interest among options slated to expire in less than three months. This reading is higher than 92% of all those taken during the past year. In other words, short-term options speculators have been more skeptical of the shares only 8% of the time during the past 52 weeks.
Looking ahead, the company is slated to report earnings on Nov. 9, according to Thomson Reuters. Analysts are forecasting a profit of 14 cents per share, which is down from its year-ago profit of $3.26. Historically, the company has missed the consensus estimate twice and beaten twice during the past four quarters. A positive earnings report from the firm could shake loose the bevy of bears on this security, pushing the stock sharply higher.
To take advantage of an unwinding of this pessimism from options players and Wall Street, traders should consider an in-the-money (25-strike) short-term call option - the November call (premium is 7.6% of the stock price) or December call (premium is 9.1% of the stock price) - to take advantage of this opportunity that is attractive from our Expectational Analysis® methodology perspective.
SPECIAL OFFER
| Stocks with Notable Option Activity for the Week Ending October 19, 2009
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Williams Companies (WMB)
Williams Companies (WMB) is spread across the energy sector, Hoover's says, but its various units are all involved in the delivery of energy and profits. Gas marketing services is the company's largest revenue producer. Williams is also engaged in exploration and production, while its midstream unit gathers, stores, and processes natural gas and natural gas liquids and operates refineries, ethanol plants, and terminals. Williams has proved reserves of 4.3 trillion cubic feet of natural gas equivalent. The company's gas pipeline unit operates three pipeline companies (Transco, Northwest, and Gulfstream). Williams' operations are concentrated in the Pacific Northwest, Rocky Mountains, Gulf Coast, the Eastern Seaboard, and in Alberta.
Technically speaking, the security has gained 35% since the beginning of the year, as the stock has stair-stepped higher, creating a series of higher highs and higher lows with help from its ascending 10-week and 20-week moving averages. One concern, however, is that the shares must overcome round-number resistance at the 20 level.
Meanwhile, options players are confident that the stock has room to run higher, as they have flocked to the equity's calls. The SOIR comes in at 0.34, as call open interest nearly triples put open interest among options slated to expire in less than three months. This ratio is lower than 97% of the readings taken during the past 12 months.
The ISE and the Chicago Board Options Exchange (CBOE) have also seen a jump in call trading. During the past 10 trading sessions, more than six calls have been purchased to open for every one put purchased to open. This ratio of calls to puts is higher than 81% of all those taken during the past 12 months, pointing to a growing optimism.
What's more, four of the five analysts following WMB rate it a "buy" or better, leaving the shares vulnerable to downgrades if the company falls short of expectations when it reports earnings on Oct. 29. Analysts are anticipating a profit of 19 cents per share, which is lower than its year-ago profit of 57 cents per share. Historically, the firm has surpassed the consensus estimate in three of the past four quarters.
Toll Brothers (TOL)
Toll Brothers Inc. (TOL) was the center of some brisk November options trading on Friday, as investors prepared for the expiration of October options. The November 21 call was the most active, with more than 6,800 contracts changing hands. However, determining the intention of these trades wasn't that easy. Several large blocks totaling 3,000 contracts changed hands at prices ranging from $0.45 to $0.50. However, all of the trades were marked "late," making it impossible to tell if the contracts were purchased or sold. This volume crossed on open interest of only 1,425 contracts.
Meanwhile, the put side saw some action as well. The November 20 put has traded 2,010 contracts on open interest of 1,745 contracts. At 9:46 a.m. Eastern time, a block of 2,000 contracts changed hands at a bid price of $1.20, indicating that the position was likely sold to open. As a result, the trader would have pocketed a credit of $240,000. In addition, the November 22 put traded 2,000 contracts on open interest of 111 contracts. At 9:46 a.m. Eastern time, a block of 2,000 contracts traded at a bid price of $2.60, indicating that these contracts were also likely sold to open. The trader would have earned a credit of $520,000.
Overall, options players have been rather optimistic when it comes to TOL. The International Securities Exchange (ISE) has seen an increase in call trading recently, as 1.94 calls have been purchased to open for every one put purchased to open during the last two weeks. This ratio of calls to puts is higher than 94% of all those taken during the past year. In addition, the ISE and Chicago Board Options Exchange (CBOE) 10-day call/put volume ratio comes in at 2.42, which is higher than 98% of all those taken during the past 12 months.
What's more, the Schaeffer's put/call open interest ratio for TOL stands near an annual low of 0.88. This low reading indicates that short-term options players have rarely been more optimistically aligned toward the shares any other time during the past 12 months.
On the other hand, Wall Street continues to give the home builder the cold shoulder. According to Zacks, the stock has earned three "strong buy" ratings, seven "holds," and one "strong sell." Any upgrades from this group could help to add some buying pressure to the shares.
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Can Creative Content Bolster Sirius XM Radio (SIRI) Past the Buck?
Posted: 10/15/2009 2:48:25 PM
Motley Fool
"Always Look on the Bright Side of Sirius XM"
Published: 10/14/2009
Brief Summary:
Sirius XM Radio (SIRI:  sentiment, chart, options) is expected to launch a Monty Python tribute station on Friday, in order to celebrate the 40th anniversary of the British comedy clan. Though the channel will be on the air for only 10 days, the satellite sultan's ulterior motive is to flex its nimbleness. Similar to this summer's Michael Jackson Tribute Channel - launched only a day after the pop icon passed away - the Motley Fool claims Sirius' aim is to let subscribers know "that it can respond quickly to timely events by carving out 24/7 content until the relevance fades."
In fact, says the Fool, Sirius "is paddling through plenty of revenue streams to drum up new accounts." For starters, the company has a streaming application through Apple Inc.'s (AAPL) App Store, and is offering used-car dealers incentives to promote deactivated receivers. And, though the firm's subscriber retention rate has been less than impressive lately, the author argues that Sirius' "initiatives may be more bunt singles than home runs, but the end result is incremental growth."
The article concludes by cheering the firm's ability to generate some amazing content (and publicity) at the drop of a hat - a feat that free streamers like Time Warner (TWX) and Yahoo! (YHOO) haven't yet accomplished. As a result, claims the Fool, "Sirius XM isn't as mangled as its stock price suggests."
Contrarian Takeaway:
At first glance, SIRI's year-to-date gain of 379% is impressive - until you realize the stock has been lingering beneath a buck for more than a year. In fact, the music mogul has underperformed the S&P 500 Index (SPX) by 19% during the past 20 trading sessions, highlighting its status as a broad-market laggard. And, while the security recently defeated resistance at 10-month moving average, its 20-month trendline has descended into the $1 neighborhood - potentially making the 100-penny marker that much more difficult to topple.
However, despite SIRI's long-term technical troubles, most of the Street has joined the aforementioned Fool in the bullpen. According to Zacks, both of the ranking analysts deem the shares a "strong buy," with nary a "sell" in sight. On that same note, Thomson Reuters pegs the average 12-month price target at $0.76 - in a region SIRI has explored only briefly during the past year.
Should the dollar mark continue to elude the shares of SIRI, the bulls in the brokerage bunch could abandon ship. A round of downgrades and/or price-target reductions could exacerbate the stock's challenges on the charts.
SPECIAL OFFER
| Highest Option Volume for the Week Ending Monday, October 19, 2009
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| Ticker Symbol
| Call Volume
| Put Volume
| Total Volume*
| Put/Call Ratio
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| Spdrs(SPY)
| 252,411
| 413,151
| 665,562
| 1.64
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| S&P 500 Index(SPX)
| 171,788
| 468,449
| 640,237
| 2.73
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| Nasdaq 100 Index Trckng Stck(QQQQ)
| 155,816
| 314,362
| 470,178
| 2.02
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| Citigroup Inc(C)
| 229,729
| 156,207
| 385,936
| 0.68
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| Bank of America Cp(BAC)
| 233,298
| 128,352
| 361,650
| 0.55
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| General Electric Co(GE)
| 141,526
| 112,291
| 253,817
| 0.79
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| Sel Sec Spdrs Fd Financial(XLF)
| 170,882
| 76,123
| 247,005
| 0.45
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| Ishares Msci Emerging Markets(EEM)
| 71,436
| 136,818
| 208,254
| 1.92
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| Ishares Russell 2000 Index(IWM)
| 39,766
| 105,033
| 144,799
| 2.64
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| United States Natural Gas Fund(UNG)
| 89,718
| 41,957
| 131,675
| 0.47
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| Highest Option Volume Compare to Average Volume
for Week Ending Monday, October 19, 2009
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| Ticker Symbol
| Call Volume
| Put Volume
| Total Volume*
| 5-week Avg Volume
| Volume Ratio
| Put/Call Ratio
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| Adtran Inc (ADTN)
| 19,580
| 14,861
| 34,441
| 11,348
| 1.32
| 0.76
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| Cardinal Health Inc (CAH)
| 26,745
| 1,635
| 28,380
| 8,944
| 16.36
| 0.06
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| Digital River Inc (DRIV)
| 26,873
| 18,094
| 44,967
| 12,871
| 1.49
| 0.67
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| Linear Tech Cp (LLTC)
| 44,945
| 34,765
| 79,710
| 27,438
| 1.29
| 0.77
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| Petsmart Inc (PETM)
| 14,209
| 5,576
| 19,785
| 6,815
| 2.55
| 0.39
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| Petmed Express Inc (PETS)
| 2,816
| 8,891
| 11,707
| 4,036
| 0.32
| 3.16
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| Rovi Corporation (ROVI)
| 10,159
| 8,788
| 18,947
| 5,149
| 1.16
| 0.87
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| Sterlite Industries (SLT)
| 16,558
| 9,087
| 25,645
| 8,087
| 1.82
| 0.55
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| Starent Networks Corp (STAR)
| 49,322
| 3,970
| 53,292
| 18,284
| 12.42
| 0.08
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| Teekay Corporation (TK)
| 61,216
| 450
| 61,666
| 18,085
| 136.04
| 0.01
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*Minimum 10,000 contracts in weekly volume
SPECIAL OFFER
| Dissecting The Sectors
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| Financials
Bearish
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Outlook: Despite logging a year-to-date rally of more than 24%, the Select Sector SPDR Financial Fund (XLF) could come under pressure in the coming weeks. Technically speaking, the XLF peaked last week at its declining 80-week moving average. We have observed that this long-term trendline sometimes serves as important support/resistance levels. On the sentiment front, we are noticing a huge uptick in call buying on the XLF. Specifically, the XLF's buy (to open) call/put ratio has turned higher. When this ratio trended higher in 2008 and early 2009, bank stocks skidded. The current behavior in this ratio may indicate that the shorts are coming back after a wave of short covering. In other words, they're buying XLF calls to hedge short positions. If this is true, the shorting activity would have a depressive coincidental impact on the group. Elsewhere, Barron's recently had a cover featuring Bill Miller, the popular Legg Mason Value Fund manager, with the exclamation, "He's Back!" This fund manager has heavy exposure to financial names, which hurt his performance badly last year. The timing of the cover may have bearish contrarian implications for the financial sector. For those of you with call positions or with big long exposure, the XLF put acts as a hedge in the event of a market pullback.
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| Oil Services
Bullish
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Outlook: Fresh signs of an improving global economy seem to be popping up on a daily basis, and energy prices have responded by trekking higher in anticipation of rising demand. Specifically, crude futures have more than doubled from their Dec. 24 low of $35.13 per barrel. The oil services sector has wasted no time in capitalizing on this strength, with the Oil Service HOLDRS Trust (OIH) soaring more than 74% since the start of the year. The OIH has gained momentum since the market bottom in March, rallying nearly 99% off its March 6 low of $64.65. Meanwhile, the trust's 50-day buy-to-open put/call volume ratio could be in the process of rolling over, which may be a concern for the sector. Typically, OIH puts are utilized by institutional investors as a way to hedge long positions on oil sector stocks or indexes. What's more, the brokerage bunch has room for upgrades, as 46% of ratings on oil service stocks are currently "buys," compared to 67% in July 2008 and 61% at the end of last year. Any upgrades from these analysts could lend additional support for the oil services sector. Technically speaking, OIH crossed above its 80-week moving average last week, which is coincidentally the site of a 38.2% Fibonacci retracement of the trust's July 2008 peak and its December 2008 low.
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| Retail
Bullish
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Outlook: Technically speaking, the retail sector has come on strong since the March bottom, with the S&P Retail SPDR (XRT) rallying more than 103% during this time frame. What's more, retail remains one of the strongest sectors, and is trading above its 80-week and 160-week trendlines. This month, XRT crossed above the 61.8% Fibonacci retracement of its June 2007 peak and its November 2008 low. This level is at 34, which coincidentally posed a major challenge for the XRT from February-September 2008. However, pessimism is thick on the retail sector, as only 42% of the 951 analyst rankings on retail stocks are "buys," according to Zacks, leaving plenty of room for potential upgrades. That said, the XRT's 50-day buy-to-open put/call ratio has recently rolled over from a near-term peak, a development that could be a concern for the sector. However, the XRT is up about 20% since the rollover in this reading began. Within the sector, we see bullish opportunities for Expedia Inc. (EXPE), Whole Foods Market Inc. (WFMI), Green Mountain Coffee Roasters Inc. (GMCR), Polo Ralph Lauren (RL), AutoNation Inc. (AN), Starbucks Corp. (SBUX), Chipotle Mexican Grill Inc. (CMG), and Aeropostale Inc. (ARO).
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About Schaeffer's Investment Research
Schaeffer's Investment Research, founded by Bernie Schaeffer in 1981, is a financial information and trading resources company. It publishes Bernie Schaeffer's Option Advisor, the nation's leading options subscription newsletter. The firm's contrarian approach focuses on stocks with technical and fundamental trends that run counter to investor expectations. The firm's website, http://www.SchaeffersResearch.com , is recognized as one of the leading information sources for stock and options traders and was cited as the top options website by both Forbes and Barron's. Click here for more details about Schaeffer's trading methodology.
Have a question about any of the content in this enewsletter, submit your question or call Schaeffer's at 1-800-448-2080.
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