Traders Buy Out-of-the-Money Calls on Struggling KeyCorp

Call buying has been the trend lately for KeyCorp (KEY) speculators. On Wednesday, traders on the International Securities Exchange (ISE) bought to open 2,359 calls on KEY, compared to just four puts. The bulk of the day's action was centered around the stock's September 6 call, where 7,110 contracts changed hands on open interest of 3,332.

Yesterday's largest trade at this popular strike was a block of 1,867 contracts that crossed the tape at 12:49 p.m. Eastern at the ask price of $0.45. Implied volatility rose 4.7% as a result. Today, open interest at the September 6 call stands at 8,691 contracts, establishing it as the site of peak call open interest for the series. The September 7 call isn't far behind, though, with 8,550 contracts in residence. With KEY trading near $5, both of these options are out of the money.

Wednesday's bias toward bullish bets was nothing new for KEY. The stock sports a 10-day ISE call/put volume ratio of 3.92, with call purchases nearly quadrupling puts during the past two weeks. This ratio ranks higher than 91.5% of other such readings taken during the past year, indicating that traders have rarely snapped up calls over puts at a faster pace.

Short sellers, meanwhile, are scaling back their exposure to this regional banking issue. Short interest on KEY dropped by 25.9% during the past month, and dwindled by 15.4% during just the most recent reporting period.

On the charts, KEY's lackluster price action hasn't done much to inspire bullish speculation. The shares are off 39.4% year-to-date, and support in the $5 region appears to be weakening after multiple tests.

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Single-Day Surge in Call Buying Sweeps Halliburton Company

Traders on Wednesday rushed to buy calls on Halliburton Company (HAL). During the course of the session, option players on the International Securities Exchange (ISE) bought to open 3,297 calls on HAL, compared to 466 puts. In other words, speculative investors picked up seven times more bullish bets than bearish during the course of the session.

The stock's August 22 call was the center of attention yesterday, with 5,905 contracts crossing the tape on open interest of 3,768. Much of the day's volume consisted of newly opened positions, with open interest at this strike arriving today at 7,902 contracts. With HAL trading shy of the $20 level at last check, these calls are out of the money.

Wednesday's bias toward calls continues a recent trend on the shares, which have now racked up a 10-day ISE call/put volume ratio of 2.25. This ratio ranks in the 81st annual percentile, suggesting calls on HAL have been more popular than usual in recent weeks.

The prospect of hedging by short sellers seems unlikely; short interest on the shares has dropped lately, and many of these bears are likely taking profits -- the equity has slipped significantly from its June 11 peak near $25.

At last check, HAL shares were sharply lower, down 5.5% at $19.56. The stock is currently testing unproven support at its 20-week moving average.

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Put Buying Jumps on Nasdaq OMX Group

Nasdaq OMX Group (NDAQ) was the focus of some heavy put trading on Wednesday, as more than 4,400 contracts changed hands. This volume is nearly three times the equity's average daily trading volume, according to data from WhatsTrading.com. Furthermore, roughly 90% of the volume changed hands at the ask, indicating that these bearish bets were most likely purchased.

In the front three months of options, the most active option was the August 20 put, which added roughly 3,500 new positions. Open interest for this back-month option now stands at 4,239 contracts. At 10:15 a.m. Eastern time, several large blocks totaling 3,168 contracts changed hands at an ask price of $1.20.

This surge in put buying caused the stock's Schaeffer's put/call open interest ratio to jump overnight from 0.68 (in the 18th annual percentile rank) to 0.87 (in the 56th annual percentile rank).

Put trading has also been brisk on the International Securities Exchange (ISE) and the Chicago Board Options Exchange (CBOE). The 10-day ISE/CBOE put/call volume ratio comes in at 1.37, as nearly 1.4 puts have been purchased to open for every one call purchased to open. This ratio is higher than 84% of all those taken during the past 12 months, indicating a growing skepticism among investors.

Technically speaking, the shares of NDAQ are down more than 16% since the start of 2009, underperforming the broad market. The stock is down 0.34% in morning trading as the stock struggles to hold support at its 10-week moving average.

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Intel Sees Jump in Call Trading as Optimism Builds

Optimism shines brightly on the shares of semiconductor giant Intel (INTC). The Schaeffer's put/call open interest ratio for the stocks stands at 0.61, as call open interest easily outnumbers put open interest ratio among near-term options. This reading is also lower than two-thirds of those taken during the past 12 months, pointing to a lingering optimism among short-term speculators.

There was a slight preference for calls in trading on Wednesday. More than 121,700 option contracts changed hands yesterday, which is more than double the stock's average daily trading volume of 57,819 contracts. Of that volume, nearly 57% changed hands on the call side, according to data from WhatsTrading.com.

Peak call open interest in the July series resides at the 17 strike, with more than 87,800 contracts. This hefty accumulation of bullish bets could act as a layer of options-related resistance during the near term.

Wall Street is also smitten with the shares. INTC has earned 23 "buy" ratings, eight "holds," and three "sells." This configuration leaves the security vulnerable to potential downgrades should the security fail to live up to their heightened expectations.

Technically speaking, the equity has tacked on more than 16% since the start of 2009, but is down more than 1% in trading this morning. The stock has broken above short-term resistance at the 16.50 level and continues to rise along the support of its ascending 10-week moving average. The security has suffered only two weekly closes below this trendline since mid-March.

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Option Traders Flock to Calls on Akamai Technologies

Akamai Technologies (AKAM) has seen an uptick in call trading recently. On Wednesday, the stock saw nearly 28,000 contracts cross the tape, which is almost four times the equity's average single-day volume of 7,203 contracts, according to data from WhatsTrading.com. Roughly 90% of this volume changed hands on the call side.

The International Securities Exchange (ISE) has registered an increase in call trading recently. During the past 10 trading sessions, 4.2 calls have been purchased to open for every one put purchased to open. This ratio of calls to puts is higher than 71.5% of all those taken during the past 12 months.

Action on the Chicago Board Options Exchange (CBOE) has also favored the call side. The 50-day ISE/CBOE call/put volume ratio comes in at 6.35, indicating that six calls have been purchased to open for every one put purchased to open. This ratio is higher than 97% of all those taken during the past 12 months, pointing to a growing optimism.

However, not everyone is quite so optimistic, as Wall Street is giving the shares the cold shoulder. According to the latest data from Zacks, 12 of the 19 analysts following AKAM rate it a "hold" or worse. Any upgrades from this group could add some lift to the shares.

Technically speaking, the stock has gained more than 34% since the start of 2009 and is currently in the process of bouncing off support at the 19 level.

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Daily Wrap-up - A Mild Gain for the Dow Jones Industrial Average

The day ends with the Dow Jones Industrial Average (DJIA) up 57 points. That is off the best levels of the session but does recoup much of what was lost yesterday so the back-and-forth continues. The Amex Gold Bugs Index (HUI) remained the strongest group while the Amex Biotech Index (BTK) and US Oil Fund (USO) were the weakest.

As I reiterated again earlier, the action is light so I am not putting too much emphasis on it. In fact, I am going to use it as an excuse to spend a few days away from the office. As usual, my colleagues will be filling in to keep you abreast of any major developments. I will return later next week - have a great holiday weekend!

Chart Courtesy of Thomson Reuters

Click here for symbol descriptions

Charts Courtesy of Thomson Reuters

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Bears Have a Healthy Appetite for Puts on Whole Foods Market, Inc.

Pessimism toward Whole Foods Market, Inc. (WFMI) is reaching peak levels among option traders on the International Securities Exchange (ISE). During the past 10 days, speculators on the ISE have bought to open 16,290 puts on WFMI, compared to just 1,154 calls. The stock's 10-day put/call volume ratio of 14.12 ranks less than one percentage point from an annual peak, as traders have rarely shown a greater preference for puts over calls.

As a result, the stock's Schaeffer's put/call open interest ratio (SOIR) checks in at 1.39, just 12 percentage points from its own 52-week high. In other words, short-term traders have been more pessimistically aligned just 12% of the time during the past year.

Elsewhere on Wall Street, short interest on WFMI rose by 8.9% during the past month, and now accounts for 19.7% of the stock's available float. Plus, not one of the 13 analysts following the shares consider them worthy of a "buy" rating, according to Zacks

Judging by this resoundingly negative sentiment, you might never guess that the upscale grocer is actually faring quite well on the charts. WFMI recently consolidated into support at its 20-week moving average, which could serve as a springboard to launch the shares higher.

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Rising Skepticism on SanDisk Corporation

Puts were much more popular than calls yesterday on SanDisk Corporation (SNDK), at least among traders on the International Securities Exchange (ISE). Traders on the ISE bought to open 1,734 puts on SNDK, compared to just 196 calls.

The day's bearish bias is in keeping with the recent trend among SNDK's option traders. The stock sports a 10-day put/call volume ratio of 1.38, which ranks higher than 95% of other such readings taken during the past year. In other words, traders on the ISE have purchased puts over calls at a faster pace just 5% of the time.

The most popular front-month put is the 14 strike, which carries open interest of 6,363 contracts. At last check, these puts are out of the money by a narrow margin.

Short sellers are also piling on with new bearish bets. Short interest on the shares jumped by 25.2% during the past month, and now accounts for 6.4% of the equity's available float.

This rising skepticism coincides with a period of flattish price action for SNDK; the stock has bounced between the $12 and $16 levels since March. Skeptics might be placing their bets in anticipation of a rejection from technical resistance -- the equity's 20-month moving average is descending toward SNDK's current perch.

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Midday Market Check - The Back and Forth Continues

We head into the second half of the session with the Dow Jones Industrial Average (DJIA) off its best levels but still up 90 points. That, of course, seems to be the magic number this week. The Dow gained that amount on Monday and more or less gave back that same amount yesterday. Today, the bulls are back (or at least a few of them) to push the market back to where it stood Monday.

Continuing the "yo-yo" theme, we find that yesterday's weakest sector, the Amex Gold Bugs Index (HUI), is today's strongest. The Semiconductor HOLDRS (SMH) and Amex Networking Index (NWX) are also relatively strong. The US Oil Fund (USO) and Amex Biotech Index (BTK) are the weakest areas.

For most of the week I have been talking about the light participation and I have no reason to change my tune now. The back-and-forth makes it feel like there are just a few players fighting over the same "piece of market turf."

Chart Courtesy of Thomson Reuters

Click here for symbol descriptions

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Option Skews - Relatively Heavy Call Activity on Citigroup Inc, Bank of America Corp, Research in Motion Limited

Here are the stocks seeing a bias toward call activity on Tuesday. This filtered scan is based on the International Securities Exchange (ISE) buy-to-open data. It looks for stocks where the previous day's call volume on the ISE is at least twice as great as the put volume. It then sorts the stocks based on the call volume. Since this is buy-to-open data, this can be a good source for finding stocks where optimism is emerging. Of particular interest to me would be situations where we see call activity on stocks that are still in intermediate-term downtrends. This would be a potentially cautionary sign from the contrarian perspective

Companies included in today's scan results: Citigroup Inc (C), Wyeth (WYE), Bank of America Corp (BAC), American International Group (AIG), Research in Motion Limited (RIMM), Ford Motor Co (F), General Electric (GE), Elan, plc (ELN), Las Vegas Sands Corp. (LVS), DryShips Inc. (DRYS), Cisco Systems (CSCO), J.P. Morgan Chase & Co. (JPM), Target Corp. (TGT), Amgen Inc (AMGN), Alcoa (AA), Microsoft (MSFT), CIGNA Corp. (CI), EMC Corp. (EMC), Huntington Bancshares Incorporated (HBAN), Biogen Idec Inc (BIIB), Walgreen (WAG), Dell Inc (DELL), Medarex (MEDX), Exxon Mobil (XOM), Motorola (MOT).

Citigroup Inc, Bank of America Corp, and Research in Motion Limited are the situations that stood out to me -

• Citigroup tops today's list with nearly 85,000 calls bought on Tuesday. However, I still think the waters are too muddied here to get a good sentiment read and there is little encouraging about the near-term chart. The stock is oversold but so far there has been no sign of interest from buyers.
• Bank of America also saw relatively heavy call buys but at least the daily chart here shows an uptrend. Unfortunately, the stock has so far been capped at resistance near 15. I still don't think this is an environment to front-run breakouts.
• The weekly chart of Research in Motion is worth noting. In April, the stock broke above resistance near 60 and shot into the lows from early-2008. There has since been a pullback that leaves the equity in a wasteland of sorts. While the near-term action looks cloudy, the intermediate-term breakout still stands. As the "wasteland action" plays out, I will be keeping an eye on how the sentiment profile evolves. The most encouraging contrarian scenario would be for the shares hold above the former resistance near 60 amid an uptick in skepticism. For that to happen though, the stock would need to stop showing up on this scan.

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Option Skews - Relatively Heavy Put Activity on Cypress Semiconductor Corp, Cerner Corp, Netflix Inc, PowerShares QQQ Trust

Here are the stocks seeing a bias toward put activity on Tuesday. This filtered scan is based on the International Securities Exchange (ISE) buy-to-open data. It looks for stocks where the previous day's put volume on the ISE is at least twice as great as the call volume. It then sorts the stocks based on the put volume. Since this is buy-to-open data, this can be a good source for finding stocks where skepticism is emerging. Of particular interest to me would be situations where we see put activity on stocks that are still in intermediate-term uptrends. This would be a potentially encouraging sign from the contrarian perspective.

Companies included in today's scan results: SPDR Trust Series I (SPY), PowerShares QQQ Trust (QQQQ), Pfizer (PFE), Emulex Corp. (ELX), Intel Corp. (INTC), Cypress Semiconductor Corp (CY), Regions Financial Corp (RF), Nokia Corp. (NOK), Cerner Corp. (CERN), NVIDIA Corp. (NVDA), Sina Corp. (SINA), American Express (AXP), Juniper Networks (JNPR), Amazon.com Inc (AMZN), Darden Restaurants (DRI), Corning Incorporated (GLW), Sony Corp. (SNE), Morgan Stanley (MS), Radioshack (RSH), AU OPTRONICS CORP (AUO), SanDisk Corp. (SNDK), Suncor Energy (SU), BB&T Corp. (BBT), Netflix Inc (NFLX), Southern (SO).

Cypress Semiconductor Corp, Cerner Corp, Netflix Inc, and the PowerShares QQQ Trust are the situations that stood out to me -

• Shares of Cypress Semiconductor continue their uptrend. The stock recently bounced off support near 8.25 and are back at their recent peak.
• Cerner recently pushed above resistance near 60. The breakout in March was followed by a consolidation above former resistance so it will be interesting to see if that stair-step pattern continues.
• The put buys in Netflix were relatively mild but the chart is still interesting. The equity rallied from November to April and then pulled back but remained above support near 35. The stock has since stabilized and started to show initial signs of life. The shares have demonstrated an ability to move so it will be worth watching to see if buyers start to come back after the holiday.
• It might also be worth watching the daily chart of the PowerShares QQQ Trust. The ETF recently tested support near 35 and is now back in a position to challenge the highs from early June.

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Stocks Advancing Amid Heavy Short Interest - Advanced Micro Devices Inc, Antigenics Inc, Doral Financial Corp

As explained in our education section, short interest is a useful sentiment indicator that measures the level of investor pessimism toward a stock. While it isn't always a simple "long only" indicator, it can give you insight into situations where you might see concentrated buying demand. The purpose of this post is to highlight heavily-shorted stocks that could be in the midst of a potential short covering rally. More details about the methodology are listed below.

Companies included in today's scan are: Georgia Gulf (GGC), Doral Financial Corp (DRL), Geron Corp. (GERN), Antigenics Inc (AGEN), ORBCOMM Inc. (ORBC), Hutchison Telecom Int (HTCH), XenoPort, Inc. (XNPT), ITT Educational Services (ESI), Cooper Tire & Rubber (CTB), Equinix (EQIX), Skilled Healthcare Group, Inc. (SKH), Jos. A. Bank Clothiers (JOSB), Cheesecake Factory Incorporated (CAKE), Palm Inc (PALM), Entercom Communications (ETM), FuelCell Energy (FCEL), Career Education (CECO), Insulet Corporation (PODD), American Greetings (AM), Corinthian Colleges (COCO), Fuel Systems Solutions Inc (FSYS), Comtech Telecommunications (CMTL), Cepheid (CPHD), Advanced Micro Devices Inc (AMD), American Capital Ltd (ACAS).

Methodology - the query scans my database of companies which has some basic filters to eliminate stocks that don't trade frequently. The table above is a filtered list of stocks that have at least 10 percent of their float sold short and showed a gain in the previous trading day. I use this as a tool for finding situations where stocks with heavy short interest have begun to move.

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Stocks Showing Unusually Heavy Volume - Geron Corp, Apollo Group Inc, Biogen Idec Inc

Here are the results for today's unusual stock volume scan. The scan looks at the previous day's volume and compares it to the recent average volume. It then sorts the stocks based on those that showed the biggest increase (the "unusual" part) in volume.

Companies included in today's scan are: Emulex Corp. (ELX), Quanta Services (PWR), Geron Corp. (GERN), Western Digital (WDC), Ingersoll-Rand (IR), Valmont Industries (VMI), American International Group Inc (AIG), Schnitzer Steel Industries (SCHN), Apollo Group Inc (APOL), H&R Block (HRB), Coldwater Creek (CWTR), Elan, plc (ELN), Corus Bankshares Inc (CORS), TRW Automotive (TRW), Biogen Idec Inc (BIIB), Digital River (DRIV), Shanda Interactive Entertainment (SNDA), deCODE genetics (DCGN), Kinetic Concepts (KCI), Tower Semiconductor. (TSEM), American Greetings (AM), China Techfaith Wireless Communication Technology Limited (CNTF), World Wrestling Entertainment (WWE), ValueClick (VCLK), Starbucks Corp (SBUX).

These are the top stocks from today's scan, which has some basic filters to eliminate stocks that don't trade frequently. A description of the column headings is below.

• Move Previous Day - yesterday's percent return.
• Volume Increase - looks at the previous day's volume and compares it to the recent average volume. It then sorts the stocks based on those that showed the biggest increase (the "unusual" part) in volume.
• Close - yesterday's closing price.
• Total Ratings - number of analysts who track the stock, according to Zacks.
• Buy Percent - percent of the analysts who rate the stock as a "buy". I use this to help gauge sentiment and potential buying demand. If everyone already loves a stock, that means a steady stream of new money will need to enter the stock to fuel a rally.

Note - sentiment data is current as of the previous trading day...

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Futures on the Dow Jones Industrial Average Suggest a 30-Point Gain

Good morning everyone - welcome to Wednesday. We start the day with stock futures showing a mild upside bias. The S&Ps are 6 points above fair value. Futures on the Dow Jones Industrial Average (DJIA) are suggesting an opening gain of roughly 30 points.

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