TWC, WY, SINA Options — Unusual Trading Activity — August 17, 2012
This week we’re going back to take a look at some very unusual options trading activity in Time Warner Cable (TWC), Weyerhaeuser (WY), and SINA (SINA).
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:
Time Warner Cable Options (TWC)
Options in cable network company Time Warner Cable (TWC) showed a large amount of trading activity just before the market’s close Friday.
The broad market continued its grind upward into the end of the week. Both the Dow and the S&P 500 closed higher Friday capping off a fifth straight week of gains.
The question now is… with the S&P at a critical resistance level of 1,400, is the market poised for a breather?
It appears some option traders believe it is.
How do I know this?
Simple, option traders are beginning to buy more put options than call options on individual names. In other words, traders are betting on stocks heading lower in the near term.
So, it’s not surprising that our tracking system is showing some put buying on companies that have seen nice run-ups lately.
And Time Warner Cable is one of those names.
Shares of the cable provider have been trending higher since the end of November when they traded just above $57 a share. On Friday, the stock closed just under $90 a share.
So, the big trade in TWC?
Our tracking system detected at least two traders buying 5,000 contracts of the TWC August $85 strike put options. One block traded 2,700 contracts and another only eleven seconds later of 2,300 contracts. The average price paid was $0.20 per contract.
The total cost of the trade was a mere $100,000. But, if the stock does pull back, these traders stand to make a huge profit.
Let’s remember… when buying puts, the maximum profit potential is unlimited. The more the stock falls below the option’s strike price, the bigger the gain.
And in this case, it’s not a bad potential pay-off!
So, why so much negativity around this name?
If you don’t already know, Time Warner Cable owns cable networks that pass roughly 29 million homes. They serve more than 12 million television subscribers, 10.5 million high-speed internet access customers, and 5 million phone subscribers.
The company’s network covers much of Ohio, New York, and the Carolinas. And major markets served include New York City, Los Angeles, and Dallas.
Nevertheless, the company has its fair share of problems moving forward.
For one, TWC will continue struggling to grow and maintain its margins. With phone companies skimming off television customers and the internet access business maturing, margins are under pressure.
In addition, the company’s fixed-line phone service is a declining business. Internet-based video and wireless services are hampering growth. And the problem is only likely to worsen as time goes on.
More importantly, wireless is a major hole in TWC’s service capabilities. The company is currently shifting its wireless strategy, selling off its spectrum holdings and abandoning long-time partners Clearwire (CLWR) and Sprint (S) in favor of Verizon Wireless (VZ).
The Clearwire arrangement’s failure demonstrates that partnerships are a poor substitute for outright network ownership.
Bottom line…
These points are leading some option traders to believe TWC is going to head down in a hurry.
Weyerhaeuser Options (WY)
Options in Weyerhaeuser (WY) – one of the world’s largest forest product companies – showed enormous activity before the close Monday.
Since WY reported earnings last quarter, the stock’s been in favor with investors.
Weyerhaeuser’s massive wood products business, which makes lumber, panel, and engineered wood products, rode the wave of improved market conditions and efficiency initiatives to its best quarter in years.
Sales increased 22% sequentially to $796 million as volumes and prices improved across all categories.
And lately, Weyerhaeuser has risen with its recent improvements in the housing market. As a result, one trader apparently believes that the wood-products company has still more room to run.
Yesterday afternoon our complex tracking system detected 2,200 call contracts exchange hands in a single block.
More specifically, one option trader came in right before the close and purchased 2,200 WY September call $25 strike options in a strong buying pattern. He paid an average price of $0.20 for a total investment of $44,000.
We know this was a strong buy because open interest in the strike price was only 864 at the start of the session. There’s no question this trader believes WY will trend higher over the next several weeks.
Don’t forget… buying call options outright is a strategy used when a trader feels a stock is going to rise in value. And it gives a trader unlimited upside potential.
So, is WY worth the risk?
As some of you may know, Weyerhaeuser ranks among the world’s largest forest product companies. They operate four primary business segments… timberlands, wood products, cellulose fibers, and real estate.
What’s interesting is that Weyerhaeuser is structured as a REIT.
As a result, the company isn’t required to pay federal income taxes on earnings generated by timber harvest activities. Only earnings from its wood products, cellulose fibers, and real estate segments are subject to federal income tax.
And for some investors that’s an added bonus.
WY also has a few other good things going for it.
The company’s Pacific Northwest timberlands are immensely productive. The region is well-positioned to benefit from any shortfall in Canadian log supplies (a consequence of the mountain pine beetle’s appetite for British Columbia pines) as well as rising Asian wood demand.
In addition, debt reduction efforts facilitated by asset sales have improved Weyerhaeuser’s financial strength. The company is now in better position to weather long troughs in the housing cycle. And with the continued uncertainty in the housing market, this definitely gives WY a competitive edge.
Finally, the 2010 REIT conversion will make Weyerhaeuser a much more tax-efficient entity going forward.
Bottom line…
Let’s not forget one of the keys I’ve noticed in my many years of trading options. Even with lower profile names like WY, option traders are usually right more often than they’re wrong!
We’ll see!
SINA Options (SINA)
Options in Chinese internet company SINA (SINA) showed heavy activity Tuesday as the S&P started to give back morning gains.
SINA received a huge vote of confidence before it releases earnings after the close today.
During Tuesday’s trading session, our tracking system detected a trader come in and sell 2,550 SINA August $45 strike put options for $0.59 a piece. This trade was against open interest of 2,237 contracts, indicating that this was a new opening transaction.
The premium collected from the trade totaled $150,450.
Obviously, this put seller is betting SINA will hold that $45 strike price through this week’s expiration. And if it does, he’ll be laughing all the way to the bank!
I think the chances of this trade working out are good even though SINA was down today at $51.50. The Shanghai-based online media company has been beaten down along with other Chinese stocks, losing 55 percent of its value since last September.
So, any good news with today’s earnings should keep the stock price above the $45 per share level.
But before we go any further, let’s take a closer look at SINA…
For those of you who don’t know,Sina is a leading internet media company in China. In fact, the Sina portal is one of the most popular in China, ranking third in terms of user traffic in the country.
The company generates about 70% of its revenue from online advertising, with the rest coming from wireless value-added services.
As a recognized source of reliable online news and information, Sina has attracted a well-educated and relatively wealthy user group. This makes them an ideal venue for advertisers.
But that’s not all…
After building a successful blog business by leveraging strong connections with celebrities, Sina is replicating the model with its new Twitter-like Weibo business. Sina Weibo reports 300 million registered users and ranks sixth in China in terms of user traffic.
The company plans to begin monetizing its massive Sina Weibo user base during the second half of this year.
Bottom line…
SINA looks strong right now, and it seems that option traders believe it will remain strong well past earnings.
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!
***Editor’s Note*** Our colleague and friend over at Biotech Supertrader released the name of a “cancer drug” stock that you should take a look at. The stock is trading in the $5 range but could be a lot higher in the near term. Click here for details on this development.
Safe Trading,
Marcus Haber
Category: Unusual Options Trading Activity
