END, ALU Options – Unusual Trading Activity – December 14, 2012
This week we’re taking a look at some very unusual options trading activity in Endeavor International (END) and Alcatel-Lucent (ALU).
As many of you know, unusual options volume can be a valuable indicator as to what traders are thinking, and more importantly, where these stocks are heading in the short-term.
This is something professional options traders pay a lot of attention to, and for good reason…
Unusual options activity can “tip off” big moves in a stock, either up or down.
So let’s take a look at some ‘interesting’ activity that caught our eye this week:
Endeavor International Options (END)
Independent oil and gas company Endeavor International (END) is experiencing a large amount of call buying. Earlier today, 2,640 END December $7.50 calls traded for $0.15 apiece.
Open interest on the strike was only 3,919 today. So this appears to be a new trade. And it’s likely the trader is making a bullish bet by buying calls on END.
There hasn’t been much news on the stock since they reported earnings last month. So more than likely this is a trade based on END’s chart.
Since June, END has been in a trading range between $6.00 and $10.00. And it recently bounced off support near $6.00. The trader is simply making a bullish bet that END will continue to move higher before the options expire next week.
I don’t like this trade…
The trader is risking nearly $40,000 on an option that is out of the money and only has a week until expiration. He’ll need a 17% jump in the stock price just to break even at expiration!
I don’t see a catalyst to fuel that much upside in END before the option expires next week. So, he’ll likely take a total loss on this trade. But we’ll keep a close eye on it to see how it works out.
Alcatel-Lucent Options (ALU)
Put volume on the Alcatel-Lucent (ALU) soared today.
Shares of the French communications equipment company are currently trading for $1.26. The shares are up 14% today after news broke that ALU received a $2.1 billion credit line from Credit Suisse and Goldman Sachs.
The life line came just in time for the struggling company. They’ll use the proceeds to refinance old debt that threatened to throw the company into insolvency.
Now all ALU has to figure out is how to run a profitable business!
In other words, all this does is postpone the inevitable demise of the company from 2015 to 2018. And that’s exactly what the option trader is counting on…
According to our tracking system, a trader sold 9,490 January 2014 $1 puts for $0.25.
The trader believes that the lifeline will prevent the stock from falling below $1 through January of 2014. He collected $237,250 in option premium. And if he’s right, the options will expire worthless and he’ll keep the $237,250.
On the other hand, he’s also on the hook to buy 949,000 shares of ALU if it falls below $1 prior to the options expiration.
But that might not be such a bad thing… Don’t forget, he collected $0.25 in option premium on every share so his true purchase price if the shares are put to him would only be 75 cents apiece.
Will this put sale work out in the trader’s favor?
If ALU falls below $1, it’s likely on the verge of going belly up. But that seems unlikely to before the new financing deal comes due in 2018. So I’ll give this trade a thumbs up. But we’ll see how it plays out in the months ahead.
More Options Ideas…
That wraps up this week’s unusual options trading and volume…
Keep in mind, there’s a lot more unusual options activity going on than what we discuss here.
We just try to bring you what we feel are the most significant ones– and the ones you might actually be able to make some money on!
So keep an eye on your email inbox… we have a lot more options trading ideas coming your way!
Safe Trading,
Marcus Haber
Category: Unusual Options Trading Activity
