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Option Traders Forecast Post-Earnings Slide for Focus Media Holding (FMCN)

Andrea Kramer (akramer@sir-inc.com)

3/10/2010 12:40:41 PM

Focus Media Holding Limited (FMCN) is expected to confess its fourth-quarter and full-year earnings on Tuesday, March 16, according to Thomson Reuters. Ahead of the event, it seems short-term option speculators are betting on a post-earnings pullback for the digital media diva.

During the past couple of weeks, the stock has racked up a put/call volume ratio of 0.78 on the International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE). This reading registers in the 97th annual percentile, indicating that investors have initiated bearish bets over bullish at a faster pace only 3% of the time during the past 12 months.

Further reflecting the recent affinity for FMCN puts, the stock on Tuesday saw about 3,600 puts change hands � more than tripling its expected daily volume of about 1,000 contracts. The out-of-the-money March 15 put saw almost 3,000 contracts exchanged � 99% of which traded at the ask price, indicating they were bought. Plus, put open interest at the front-month strike jumped by more than 2,000 contracts overnight, confirming our suspicions of newly added bearish positions.

At last check, FMCN has inched 0.7% higher to linger in the $16.10 neighborhood.

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Call Buyers Bet on New Highs for OmniVision Technologies, Inc. (OVTI)

Andrea Kramer (akramer@sir-inc.com)

3/10/2010 12:21:48 PM

Call traders centered on OmniVision Technologies, Inc. (OVTI) on Tuesday, as the shares continued their journey toward annual-high territory. During the course of the session, the semiconductor-device maker saw about 9,600 calls exchanged � more than eight times its expected daily volume of fewer than 1,200 contracts.

The out-of-the-money 17.50 strike was most popular � especially among the intermediate-to-long term options crowd. More specifically, the April 17.50 call saw roughly 7,900 contracts cross the tape, while the June 17.50 strike saw more than 1,000 calls change hands. The majority of the calls traded at the ask price, and call open interest at both strikes powered higher overnight, pointing to buy-to-open activity.

The accelerated bullish betting echoes the recent trend on the International Securities Exchange (ISE), where speculators during the past two weeks have bought to open more than 32 times as many OVTI calls than puts. In fact, the stock's 10-day call/put volume ratio of 32.49 stands only four percentage points from an annual optimistic acme.

In that same vein, the equity's Schaeffer's put/call open interest ratio (SOIR) currently rests at 0.47, implying that calls more than double puts among near-term options. This reading registers in the 36th annual percentile, indicating that short-term option players have been more bullishly biased toward OVTI only 36% of the time during the past year.

In early afternoon trading, OVTI has advanced 3.5% to flirt with the $16.70 level � less than a point shy of its 52-week high of $17.48, tagged in September 2009.

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Back-Month Put Sellers Swarm MEMC Electronic Materials, Inc. (WFR)

Andrea Kramer (akramer@sir-inc.com)

3/10/2010 12:02:55 PM

By the closing bell yesterday, MEMC Electronic Materials, Inc. (WFR) had seen roughly 3,100 puts change hands, more than doubling its average single-session volume of about 1,400 contracts. However, upon closer inspection, we find that not all of the action was bearishly skewed.

The equity's out-of-the-money April 12 put saw around 2,500 contracts exchanged � the majority of which traded at the bid price, implying they were likely sold. Plus, put open interest at the back-month strike skyrocketed by almost 2,500 contracts overnight, pointing to sell-to-open activity. By writing the 12-strike puts, the sellers are betting the shares of WFR will remain atop the $12 level through April options expiration, in which case they can pocket the initial premium received.

Meanwhile, the stock's at-the-money April 13 call has garnered the most attention so far today, with more than 5,000 contracts exchanged. However, most of the calls have crossed between the bid and ask prices, and the 13 strike already harbors close to 9,900 open call positions. In other words, we can't yet tell how much of today's activity will translate into new bullish or bearish positions.

At last check, WFR has added 3.9% to explore the $13.30 region.

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Coach, Inc. Bags Heavy Call Volume

Sarah Wasserman (swasserman@sir-inc.com)

3/10/2010 11:54:45 AM

Option activity on Coach, Inc. (COH) surged Tuesday, with volume of 10,000 contracts crossing the tape. Option shoppers preferred calls to puts, with nearly 6,000 of these bullish bets changing hands -- four times greater than COH's usual call volume of 1,403.

Option players showed the greatest preference for the April 40 call, which had volume of 2,114 contracts. With 99% of these calls trading at the bid price, it appears nearly all of these 2,114 contracts were bought. What's more, with open interest at this strike increasing by 1,997 positions overnight, it seems the majority of these calls were bought to open.

By buying to open the April 40 call, the speculator believes COH will exceed the 40-strike by April expiration. In this scenario, the trader has two choices: she can sell the in-the-money call for a profit, or exercise the call option and purchase COH at the strike price -- which will be a discount to its price at expiration.

Despite this trader's optimism, sentiment toward COH is nearing an annual pessimistic peak. Currently, the stock's Schaeffer's put/call open interest ratio (SOIR) checks in at 1.28, in the 82nd percentile. In other words, short-term speculators have been more bearish toward COH only 18% of the time during the past year.

However, analysts on the Street are feeling slightly more upbeat toward COH, with 12 out of 21 analysts on Zacks rating the retailer a "buy" or better.

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Option Customers Flock to The Kroger Co. Post-Earnings

Sarah Wasserman (swasserman@sir-inc.com)

3/10/2010 11:19:10 AM

On Tuesday, The Kroger Co. (KR) took its turn at the earnings confessional, disclosing its fourth-quarter results. The nation's largest grocery chain reported fourth-quarter profits of 39 cents per share, down from 53 cents per share during the same year-ago period. Despite this 36% decrease, KR beat the Street's prediction of 34 cent profits per share. Furthermore, KR remains optimistic, saying it hopes incentives such as gas rewards and bargain prices will help boost sales in 2010.

Option players are also optimistic toward KR, as indicated by the stock's Schaeffer's put/call open interest (SOIR) ratio of 0.49, which ranks in the fifth annual percentile. In other words, short-term option players have been more bullish toward KR only 5% of the time during the past year.

Following KR's earnings report, option activity surged to over triple the retailer's daily average, with 19,000 contracts crossing the tape. Calls and puts were nearly deadlocked, with 10,000 calls traded, compared to 9,410 puts.

The March 22.50 put received the most attention, with nearly 4,000 contracts crossing the tape. With the majority of these puts trading between the bid and ask prices, it's difficult to determine whether traders were buying or selling these puts. However, open interest increased by over 1,800 contracts overnight, so it appears a portion of yesterday's activity resulted in new positions at this strike.

KR is down .8% to explore the $22.16 area.

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Commentary by WhatsTrading.com

Microsoft Corp (MSFT) $29.02 +0.76%

3/10/2010 12:19:57 PM

The top equity options trade so far today is a block of 38K January 35 calls on Microsoft (MSFT). It was bought at 52 cents per contract and not tied to stock, according to a source on the floor. It might close an existing position, as open interest is 77.7K.

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Norfolk Southern (NSC) $53.74 +0.0%

3/10/2010 10:19:58 AM

Norfolk Southern (NSC) is often considered the best managed rail company, but the stock is not at 52 week highs like it's counterparts Union Pacific (UNP) and Kansas City Southern (KSU). That could change with a break of $55, which would target a move to $60. Option traders were decisively bullish Tuesday, with 4,425 calls trading, 3X average, and 90% offer side buys. The April and June $55 calls both saw buyers, with 2,800 in April $55's changed hands. Shares trade 13.2X earnings and 18X cash value, and recently were raised to Overweight at Barclays with a $62 target. Recent improvements in pricing, shipping volumes, and improved outlook for coal were cited as reasons for the upgrade.

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Daily Rundown, March 10

3/10/2010 8:59:58 AM

Early indications point to a steady open on a slow news day and very quiet trading across international financial markets Wednesday. About an hour before the opening bell on Wall Street, stock index futures hint at modest early gains for both the Dow Jones Industrial Average and the NASDAQ.\n
\nStock benchmarks saw narrow trading overseas. Japans Nikkei finished down .04 percent and Hong Kongs Hang Seng was unchanged. In Europe, Frances CAC 40 Index is up .3 percent, Germanys DAX up .2 percent, and UKs FTSE is flat.\n
\nIn the US, the focus turns to the only economic stat of the day at 10:00 a.m. eastern time. A report on wholesale inventories is expected to show an uptick of .2 percent for January.\n
\nWith no other news to guide the action, bonds are drifting in aimless trade. The benchmark ten-year Treasury is down 2/32nd and now yields 3.71 percent.\n
\nThe dollar added .49 to 90.43 against the yen. The euro gained .0004 to 1.3602 against the buck. \n
\nCrude oil added .25 cents to $81.74 a barrel and gold rose $2.1 to $1124.40 an ounce.\n
\nAmong the stocks to watch, Intermune (ITMN) launched 64.5 percent higher after an FDA panel voted to approve the companys pirfenidone. Factset (FACT) jumped 66 percent after Abbott (ABT) made a $27 cash bid for the company. American Eagle (AEO) rose 5 percent on better-than-expected earnings. Navistar (NAV) lost 7 percent after reporting a quarterly profit of 23 cents per share, which fell well short of analyst estimates of 85 cents. Retailers will be in focus after the closing bell with a number of second tier names -- Hot Topic (HOTT), Mens Wearhouse (MW), Jo-Ann Stores (JAS) -- slated to release results. \n

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Unusual Activity Roundup, Mar 9

3/9/2010 4:00:01 PM

Some less actively traded names seeing bullish order flow: Exact Sciences (EXAS), Beazer Homes (BZH), BJs Wholesale (BJ) Bearish order flow: Maiden Holding (MHLD), PDL Biopharma (PDLI), Potlatch Holding (PCH) Post Earnings: Kroger (KR), Force Protection (FRPT) Pre-Earnings: Navistar (NAV) , J Crew (JCG) Ex-div.: Allstate (ALL), Wal-mart (WMT), Smith International (SII), ADP

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Citigroup Inc (C) $3.81 +7.02%

3/9/2010 1:20:01 PM

Citi (C) calls are seeing heavy trading as shares gain 22 cents to $3.78, session highs and their best levels of 2010. 165.6K April 4 calls traded (37% Mid / 52% Ask), 138.5K Mar 4 calls (78% Ask), and 54.8K Jun 4 calls traded (27% Mid / 55% Ask). An impressive 581K Citi calls traded so far and trading is still brisk. Implied volatility is down about 2.5 percent to 49. The bullish flow comes amid mixed action in the financials Monday, but seems to reflect some optimism that the worst might be over for Citi shareholders.

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AirTran Holdings Inc (AAI) $5.22 +5.24%

3/9/2010 12:20:00 PM

Airtran (AAI) is up 29 cents to $5.25 amid relative strength in the airline sector Tuesday. Reuters reports that demand for air travel among business customers is picking up. According to UAL CFO Kathryn Mikells, "We're clearing seeing signs of economic recovery and premium and corporate travelers returning." The Arca Airline Index (.XAL) is up 2.4 percent with help from the 5.8 percent gain in AAI. Meanwhile, AAI call options are seeing action, with 2130 traded, or about 7X the normal for the first two hours of trading. Mar, April, and Oct $5 calls are seeing the bulk of the flow.

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Cisco Systems Inc (CSCO) $26.20 +0.27%

3/9/2010 11:00:03 AM

Cisco Systems (CSCO) calls are seeing active trading ahead of the company's 8:00 a.m. PT web cast. The networking company is expected to make a major product announcement, which might be new technology for wireless carriers. Shares are up 3 cents to $26.16 and 64K calls traded (28K puts). The total volume represents 7X the typical activity for the first hour of trading. March 26, March 27, and April 27 calls are the most actives. Implied volatility is up about 3.5 percent to 26, as players jockey for position ahead of the news.

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Daily Rundown, March 9

3/9/2010 10:20:03 AM

Stocks are indicated lower on weakness overseas and falling commodities prices Tuesday. Less than thirty minutes before the opening bell, stock index futures indicate that the Dow Jones Industrial Average might lose about 20 points at the open.\n
\nTrading was cautious overseas before the opening bell on Wall Street. While Asias equity markets finished mixed, benchmarks are broadly lower across Europe. UKs FTSE is down .7 percent, Frances CAC 40 lost .6 percent, and Germanys DAX slipped .6 percent.\n
\nWeakness in Europe comes as Greeces Prime Minister George Papandreou travels to Washington to meet with President Obama Tuesday. In a speech to the Brookings Institute Monday, Papandreou said his country has not requested a bailout, but hopes European support will ensure his debt ridden country can borrow from global financial markets.\n
\nMeanwhile, the euro is taking a hit, falling .0085 to 1.3546 against the buck. The dollar fell .52 to 89.76 against the Japanese yen.\n
\nWith no economic data to guide the market action, bonds are bid on the spreading problems in Europe and after China reiterated its commitment to buying Treasurys. The benchmark ten-year note is up 8/32nd and now yields 3.68 percent.\n
\nHowever, euro weakness is weighing on commodities. Crude oil lost $1.37 to $80.50 a barrel and gold fell $11.50 to $1112.50 an ounce.\n
\nAmong the stocks to watch Tuesday, Cisco (CSCO) moves into the spotlight at 11:00 eastern time. The networking company is expected to announce a new product that will forever change the internet, which is possibly a technology for wireless carriers.\n
\nTexas Instruments (TXN) is down 1.4 percent after the company offered in-line guidance in its mid-quarter update after the closing bell yesterday. TIVO slipped 1.5 percent, even after the company posted earnings and revenues that easily topped analyst estimates late Monday. H&R Block (HRB) is also lower on earnings. Navistar (NAV) and Collective Brands (PSS) might see some pre-earnings action ahead of earnings, due out after the closing bell. \n

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Unusual Activity Roundup, Mar 8

3/8/2010 4:19:35 PM

Some less actively traded names seeing bullish order flow: Iridum Comm (IRDM), General Growth Properties (GGP), Logitech (LOGI) Bearish order flow: Pinnacle Entertainment (PNK), Rehabcare Group (RHB), Wonder Auto (WATG) Post Earnings: Poniard Pharmaceuticals (PARD), Yingli Energy (YGE) Pre-Earnings: Kroger (KR), E-House Financial (EJ), H&R Block (HRB) Ex-div.: Home Depot (HD), CBS, Brinker (EAT), Allegheny Tech (ATI), Expedia (EXPE)

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Palm Inc (PALM) $5.74 +0.53%

3/8/2010 1:59:39 PM

PALM, which hit a new 52-week low of $5.4 this morning, has seen a 17 cent spike in the past few minutes and is now up a nickel to $5.76. Option volume is still on the light side, with 18K calls and 12K puts traded. Implied volatility in PALM has been moving higher for the past few weeks and is up another 2.5 percent to multi-week highs around 93.

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More Options Commentaries and Observations by Schaeffer�s

Options Update: Call Buyers Converge on Capital One Financial Corp. (COF)

Call traders flocked to Capital One Financial Corp. (COF) on Tuesday, as a plethora of financial issues followed Citigroup (C) into the black. During the course of the session, COF saw roughly 16,000 calls cross the tape, almost doubling its expected daily volume of about 8,300 contracts.

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Option Activity Alert: General Electric Company Lures Call Buyers

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MannKind Corp. Shrugs Off Post-Earnings Plunge, Resumes Long-Term Uptrend

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Lexmark International Defies Bears, Challenges Key Technical Resistance

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