V, INTC, SVU Options — Unusual Trading Activity — July 13, 2012
This week we’re going back to take a look at some very unusual options trading activity in Visa (V), Intel (INTC), and Supervalu (SVU).
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:
Visa Options (V)
Options in credit card company Visa (V) showed a large amount of unusual trading activity Tuesday morning.
Visa is not far from the all time highs it reached last week. While the stock’s down slightly today at $123.30, shares of this mega cap credit-card company have doubled since late 2010.
And experienced option traders are weighing whether it’s time to jump in or abandon ship.
Well, at least one trader decided today it was time to jump in… and jump in big!
He was probably influenced by the recent consumer credit report. It showed more people are continuing to use credit cards for their purchases.
So, what’s this trader doing today?
According to our tracking system, he sold 5,000 V July $120 strike put options for an average price of $0.90. This represents two times the number of contracts currently open on this particular strike.
Remember, put selling is a bullish trade. The option trader needs the stock to stay at or above the strike price by expiration to profit. And that’s exactly what this trader is expecting.
The total premium collected from the sale of these 5,000 Visa contracts was a cool $450,000.
Now, as long as V stays at or above $120 per share for the next two weeks, this trader will be a very happy camper.
And I think there’s a very good chance the trade will work out for him.
Here’s why…
For those of you who don’t know, Visa manages a group of global payment card brands. They sell licenses to financial institutions that issue credit cards to their customers.
The company itself brings in revenue by acting as the payment processor which facilitates the authorization, clearing, and settlement of transactions on its proprietary networks.
And Visa maintains the largest card scheme in the world.
But that’s only half of the story…
The bullish case for Visa hinges on the love affair consumers and businesses have with their credit cards. As long as they continue to pay more with cards and less with cash and checks, Visa will continue to benefit.
In addition, the company isn’t exposed to any credit risk. Lending to cardholders isn’t part of Visa’s business model. As a result, the deteriorating consumer credit environment has little effect on the company.
And finally, Visa’s network is hard (if not impossible) to duplicate. The company connects thousands of financial institutions, and its network is used daily by millions of cardholders and merchants.
The fact is… this expansive network creates a substantial barrier for potential competitors.
Tough to question these facts and debate the truth that this is a great name.
Intel Options (INTC)
Options in mega-cap chipmaker Intel (INTC) showed enormous activity Tuesday afternoon late in the day.
Since Intel reported disappointing earnings last quarter, the stock’s been on the outs with investors.
After its earnings, Intel plummeted from a high of just above $29 a share to a low of $25 a share. Today, the stock is still trading just above its lows at $25.56.
And guess what? Their next earnings announcement is set for July 17th. Right before July options expiration.
But, while retail investors may be nervous, option traders are embracing this decline by jumping in on the weakness.
More specifically, one option trader came in right before the close and purchased nearly 16,000 contracts of the INTC July $27 strike calls at an average price of $0.11 a piece.
This represents a $176,000 bet that this stock is going to move higher on their upcoming earnings.
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, why’s INTC still worth this big bet?
As most of you know, Intel is the largest chipmaker in the world. They manufacture microprocessors and platform solutions for the global personal computer market.
Not only that, Intel has sustained its position at the forefront of technology by investing heavily in R&D. As a result, the company holds roughly 80% market share in the global microprocessor space.
But most importantly, INTC sports powerful brand recognition. You see, the company subsidizes marketing efforts by customers when they highlight their brand… making this coalition very profitable.
Bottom line…
Let’s not forget one of the keys I’ve noticed in my many years of trading options. These traders are usually right more often than they’re wrong!
Supervalu Options (SVU)
Options on retail grocer Supervalu (SVU) experienced unusual activity Thursday morning.
Supervalu doesn’t normally trade many option contracts. With a stock price under $5 per share, it’s a name most option traders don’t pay a lot of attention to.
But that could be about to change… and not in a good way!
You see, SVU is in trouble.
The company continues to lose disproportionate market share and underperform its peers. And this, coupled with a very rocky stock market, isn’t giving traders a warm and fuzzy feeling.
To say option traders are getting spooked would be an understatement!
Supervalu’s down a whopping 43% this morning at $2.95.
And today’s large option trade in SVU reflects that in a big way. Our tracking system picked up multiple traders coming in and purchasing 10,000 SVU July $3.00 put contracts at a price of $0.30 apiece.
The total cost of the trades was $300,000.
It’s a highly bearish trade to say the least.
Don’t forget, this is a straight put position with unlimited upside potential. As long as SVU continues falling in value, these traders stand to rake in a tidy profit.
And believe it or not, I think this trade has a good chance of success. SVU may just be next in a long line of companies to file for bankruptcy.
As you may know, Supervalu operates in two segments… retail grocery stores and independent services.
The company’s grocery stores account for roughly 75% of sales and operating profits. The primary store formats are conventional supermarkets operating under 12 different banner names as well as low-price, limited-assortment Save-A-Lot grocery stores.
Supervalu’s independent services division is responsible for the company’s remaining sales. They provide distribution and related logistics support services to more than 2,500 independent grocery and other retail endpoints.
So why are option traders so negative on Supervalu all of a sudden?
Well, first off, SVU just announced earnings with a huge EPS and revenue miss.
One reason for this is the company’s high cost structure. It’s preventing Supervalu from stopping the secular market share shift to non-traditional food retailers.
According to government data, traditional grocery store chains have seen their market share decline to 58%. That’s a huge drop from 78% in 1983.
In addition, grocery distribution is a diminishing business. The problem is the segment currently accounts for about 22% of Supervalu’s total sales and 25% of its EBITDA.
The ongoing decline doesn’t bode well for the company’s future growth.
What’s worse, the overall food market is estimated to decline 2%-4% annually in the foreseeable future. It will be tough for SVU to make any sort of turnaround in a shrinking market.
Clearly, with all this negative information swirling around Supervalu, the idea of buying some puts here makes a lot of sense.
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
