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Put Players Profit on Western Digital Corp.

Sarah Wasserman (swasserman@sir-inc.com)

3/17/2010 3:19:13 PM

Option players have tuned into Western Digital Corp. (WDC) today, with the tech titan seeing double its expected option volume. Specifically, 16,000 contracts have crossed the tape today, well above WDC's average volume of 6,797.

Puts on WDC have been popular among speculators today, with volume soaring to 9,957 -- more than double the equity's average daily put volume of just 3,975.

The March 40 put has received the most attention today, with 5,402 contracts changing hands. With 46% of these puts trading at the bid price, it seems a good portion of these contracts were sold. With WDC currently trading at $39.46, and open interest at this strike set at 8,544, it seems likely that some bears were closing their in-the-money positions for a profit.

WDC's 10-day International Securities Exchange (ISE) put/call volume ratio stands at 2.38, indicating that puts bought to open have more than doubled calls during the past two weeks. Furthermore, this ratio ranks in the 83rd annual percentile of its annual range, pointing to a greater appetite for puts among speculators lately.

However, skepticism toward WDC hasn't overtaken the Street, with nine out of 20 ranking analysts deeming the equity a "buy" or better -- six of which are "strong" buy ratings.

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Bear Initiates Short Call Spread on Alcoa Inc.

Sarah Wasserman (swasserman@sir-inc.com)

3/17/2010 2:22:22 PM

Alcoa Inc. (AA) has attracted a crowd of call players today. Specifically, 94,000 calls have crossed the tape -- six times the equity's average daily call volume.

However, this heavy call activity is not all spurred by the bulls, as evident by at least one trade. Late this morning, a block of 2,000 April 15 calls crossed the tape at the bid price of $.46, suggesting they were sold. At the same time, a block of 2,000 April 17 calls traded at the ask price of $.09, implying they were bought. While we can't determine yet whether or not these calls are newly added positions, it they are, what we have is a short call spread.

In a short call spread, the player sells an at- or slightly out-of-the money call, while simultaneously purchasing a deeper out-of-the-money call. The goal of this strategy is to have the stock stay below the sold call until expiration, rendering the written option worthless. By buying the call, the trader hedges his bets in the event of an unsuspected rally.

With AA currently trading at $14.54, this trader is hoping for AA to stay below the $15 level by April expiration. In this best-case scenario, the sold call expires worthless, and the trader keeps the $.37 credit ($.46 - $.09) received at initiation.

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Put Players Flock to Fuqi International (FUQI) Following Firm's Accounting Confession

Andrea Kramer (akramer@sir-inc.com)

3/17/2010 1:15:15 PM

Put traders have flooded Chinese jewelry giant Fuqi International (FUQI) today, after the firm confessed that accounting errors skewed its earnings in the first three quarters of 2009. What's more, the company warned that its fourth-quarter figures will be about half of what it had previously forecast.

In light of the news, the shares of FUQI have surrendered about 6.8 points, or 36%, so far today, with the stock now lingering in the $12.20 neighborhood. As such, it's no surprise that the near-the-money March 12.50 put has seen almost 2,300 contracts change hands on open interest of fewer than 400 contracts, hinting at the addition of new positions. Furthermore, 55% of the soon-to-expire puts have traded closer to the ask price, confirming our suspicions of eleventh-hour bearish bets.

From a broader standpoint, the security has already seen roughly 17,000 puts exchanged � more than 23 times its expected daily volume of fewer than 700 contracts. The accelerated put activity echoes the recent trend on the International Securities Exchange (ISE), where the stock has racked up a 10-day put/call volume ratio of 0.83, in the 88th annual percentile. In other words, traders on the ISE have scooped up bearish bets over bullish at a faster pace only 12% of the time during the past 12 months.

However, not everyone on the Street is skeptically skewed toward FUQI. According to Zacks, seven out of eight analysts consider the stock a "strong buy," leaving plenty of room for potential downgrades to further exacerbate the equity's slide.

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Option Trader Predicts Short-Term Trajectory for Take-Two Interactive Software, Inc. (TTWO)

Andrea Kramer (akramer@sir-inc.com)

3/17/2010 12:39:43 PM

Take-Two Interactive Software, Inc. (TTWO) was singled out for a low volatility play, with one speculator initiating a short straddle on the gaming guru. More specifically, yesterday afternoon, an equal amount of April 10 puts and calls changed hands for the bid prices of $0.55 and $0.50, respectively, suggesting they were sold. Plus, both put and call open interest at the April 10 strike inched higher overnight, pointing to new positions.

Since the trader wrote the options, the short straddle was initiated for a net credit of $1.05 ($0.55 + $0.50) per pair of contracts, which also represents the maximum potential profit on the play. However, in order to pocket the initial premium, the investor needs the shares of TTWO to settle right at the round-number $10 level by the time April-dated options expire, rendering the 10-strike calls and puts worthless.

Technically speaking, the shares of TTWO have been somewhat lethargic of late, remaining relatively flat since the start of 2010. More specifically, the equity has trended sideways between the $9 and $10 levels since mid-December 2009, with upward momentum stifled by its 20-week moving average.

On the sentiment front, most of the Street remains leery of TTWO. Only five out of 18 ranking analysts deem the stock a "buy" or better, according to Zacks, and the security's Schaeffer's put/call open interest ratio (SOIR) of 0.49 ranks in the skeptically skewed 73rd annual percentile.

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Long-Term Option Player Bets on St. Jude Medical, Inc.

Sarah Wasserman (swasserman@sir-inc.com)

3/17/2010 11:53:20 AM

St. Jude Medical, Inc. (STJ) saw brisk option trading Tuesday, with volume soaring to 15 times the medical supplier's daily average.

Interestingly enough, the October-dated series saw the most attention Tuesday, with the October 35 put seeing volume of 6,005, and the October 45 call seeing 6,004 contracts traded.

Zeroing in on specific activity, it seems one trader opted to open a long-term bullish position on STJ. Early Tuesday afternoon, a block of 2,000 October 45 calls crossed the tape at the ask price of $1.55, implying they were bought. Overnight, open interest at this strike soared from 104 to 6,025, suggesting that these calls were bought to open.

At the same time, a block totaling 2,000 October 35 puts traded for the bid price of $1.45, indicating that they were sold. Open interest ballooned overnight from 59 to 6,064, confirming that these puts were sold to open.

By selling the puts, this bullish player was able to substantially offset the cost of his purchased calls. In fact, this trader was able to finance most of the cost of this trade, initiating it for a net debit of just $.15. Ultimately, this trader is hoping that STJ will rally above the 45-strike by October, rendering the written puts worthless, and the purchased calls in the money. However, should STJ instead head south, plummeting past the $35 level, not only will the purchased calls expire worthless, but this trader could face assignment on his written puts.

STJ has added 9.8% in 2010, and is currently exploring the $39.90 area.

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Commentary by WhatsTrading.com

Unusual Activity Roundup, Mar 17

3/17/2010 4:20:03 PM

Some less actively traded names seeing bullish order flow: Texas Roadhouse (TXRH), Mueller Water Products (MWA), Granite Construction (GVA) Bearish order flow: VF Corp. (VFC), Embraer (ERJ), Knight Transportation (KNX) Post Earnings: General Mills (GIS) Pre-Earnings: Nike (NKE), FedEx (FDX) Ex-div.: Tiffany (TIF), Dr. Pepper (DPS), National Semi (NSM), Provident Energy (PVX), DTE, Holly (HOC)

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Alcoa Inc (AA) $14.76 +6.95%

3/17/2010 3:00:06 PM

Alcoa (AA) shares rallied nearly 7 percent to $14.75 and are easily the best gainers in the Dow Jones Industrial Average on reports the company might begin to get discounts on power supplies in Italy. Alcoa said in November that it would temporarily idle smelters in Sardinia and Venice. However, under a new decree Sardinia and Sicily would be upgrade and industrial consumers like Alcoa would get discounts on power supplies. AA is up and options volume is running 4X the average daily, with 171K contracts on the tape so far. April 15 calls are the most actives. The top trade is a block of 8000 on the bid of 47 cents and marked "tied", and so a possible buy-write. Also seeing buyers of Oct 15 and 20 calls. A seller of an April 15 - 17 call spread, 2000X. A buyer of July - Oct 15 call spread, 4000X. And, an April 13 - 15 "collar", 2800X.

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Crocs Inc (CROX) $7.92 +7.17%

3/17/2010 1:20:06 PM

Crocs (CROX) is up 52 cents to $7.91 and seeing relative strength after Piper Jaffray analysts upped their price target to $9 from $8.50. The analysts met with management and said they have increased confidence in growth strategies, leadership, and opportunities in global markets for the company. They recommend CROX. In the options market, volume is running about the typical levels, but with clearly more action on the call side of the options chain. 1475 contracts traded, compared to 66 puts. The action is focused on Mar 7, April 8, Mar 8 and Sep 8 calls, with about 75 percent trading at the asking price.

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Polycom Inc (PLCM) $33.01 +8.44%

3/17/2010 11:20:06 AM

Polycom (PLCM) gapped higher and is up $2.71 to $33.05 on 10X the average daily options volume after FT.com reported that Apax is in talks with the video game maker about going private. April 30 calls are the most actives, with 8815 traded. Some players might be exiting positions, as the contract is $3 in-the-money and was the subject of interest on Mar 11 and Mar 15 when shares were between $29 and $30. July 35 calls and April 30 puts are seeing interest as well.

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Materials Select Sector (XLB) $33.99 +0.65%

3/17/2010 10:20:06 AM

Select Sector Basic Materials (XLB) with a four way trade yesterday that looked a lot like an iron butterfly -- selling the June 32 straddle to buy the June 29 - 35 strangle, 10000X. However, looking at today's open interest, looks like the Jun 29 - 32 call risk-reversal was closed to open a position in the bullish June 32 - 35 risk-reversal (However, also possibly a roll of a strangle up in strikes.)\n
\n\nFlow Monitor Tip: You can see the open interest changes each morning using Flow Monitor. You'll get it here fast. In this example, enter XLB, then select option 5. To see more, enter + (you can do this several times.)

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Unusual Activity Roundup, Mar 16

3/16/2010 4:20:03 PM

Some less actively traded names seeing bullish order flow: Steelcase (SLT), Crown Castle (CCI), Jones Apparel (JNY) Bearish order flow: Werner Enterprises (WERN), Tibco Software (TIBX), Momenta Pharm (MNTA) Post Earnings: Sequenom (SQNM), Ariad Pharm (ARIA), AthenaHealth (ATHN) Pre-Earnings: Discover Financial (DFS), Khongzong (KONG) Ex-div.: HSBC (HBC), Chubb (CB)

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General Electric Company (GE) $17.99 +4.05%

3/16/2010 3:20:04 PM

GE, which saw more than 68,500 Mar 17.5 calls traded yesterday, is up 63 cents to $17.92 today and heading to session highs after the Fed stood pat on rates and said it expects rates to stay low for quite some time. GE shares were already higher ahead of the announcement after the company said it expects to make profits and increase its dividend in 2011.\n
\nIn the options market, trading remains brisk with another 281000 calls and 119000 puts on the tape so far. March 17.5 calls are agiain the most actives, with another 66.2K traded and some closing trades likely driving the action, as open interest is 174K and still the largest of any GE options contact. Some investors are likely rolling to the April 18, April 19, and June 18 calls on hopes the stock can continue its running to new 52-week highs.\n
\nClick here for yesterday's comment on GE, which included signs of call buyers in morning action. We monitor the options order flow throughout the day and post free updates at WhatsTrading.com. Please see our info on Premium (to your right) if you'd like continuous updates like this throughout the trading day, as well as other tools to find options trading ideas, information, and education.

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Starbucks Corp (SBUX) $25.21 +3.24%

3/16/2010 2:20:06 PM

Starbuck's (SBUX), gapped up, touched a new 52-week high, and was recently 81 cents higher to $25.23 after UBS upgraded the stock to Buy. Options action picked up as well, with 12,000 calls and 7,000 puts traded so far. March 25 and 26 calls, which have three days of life remaining after today, are the most actives. April 25 adn 26 calls are seeing interest as well. Implied volatility has eased about 1 percent and, at 25, is probing 52-week lows.

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E Trade Financial Corporation (ETFC) $1.66 +0.00%

3/16/2010 12:20:03 PM

Etrade Financial (ETFC) is flat at $1.66 and the July 1.5 - 2 strangle trades at 18 cents, 15000X on ISE. Looks like both legs sold and possibly a play on the stock staying within the two strikes (or breakevens of $1.32 and $2.18) through the July expiration.

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AMR Corp (AMR) $9.87 +0.30%

3/16/2010 10:20:02 AM

AMR lost 11 cents to $9.85 and in late-day action yesterday the bullish Aug 8 - 12 risk reversal trades at even, 4400X. Open interest data indicate that a new position was opened. Looks like a play on further gains for AMR over the next few months. Shares are 42.3 percent since early Feb amid renewed investor interest in the airline sector.

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More Options Commentaries and Observations by Schaeffer�s

Market Recap: Blue Chips Extend Longest Winning Streak in Seven Months

The luck o' the Irish was with the bulls today, as the blue chips extended their longest winning streak since August 2009. The Federal Reserve's decision to maintain rock-bottom interest rates continued to stoke buyers, with a bout of encouraging economic data adding fuel to the fire. More specifically, the Producer Price Index (PPI) fell by a steeper-than-anticipated 0.6% in February, the Labor Department reported, as declining energy prices sparked the index's sharpest drop-off in seven months. Despite paring its gains in afternoon action, the Dow Jones Industrial Average (DJIA) settled in the black for the seventh straight session, with all three major market indexes tapping new highs by the close.

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Can American Superconductor Corporation Hold Long-Term Support?

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Call Sellers Expect Sirius XM Radio (SIRI) to Remain Stifled in the Short Term

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Schaeffer on Charts: Taking the Long View

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