Schering-Plough (SGP) Option Action Looks Bullish…..
The
bullish action in Cisco
(
CSCO |
Quote |
Chart |
News |
PowerRating), EMC
(
EMC |
Quote |
Chart |
News |
PowerRating) and Siebel Systems Inc.
(
SEBL |
Quote |
Chart |
News |
PowerRating)
has been overshadowed by the rumors driving Schering-Plough
[SGP|SGP] and the subsequent call
buying. June 40 calls have been the most sought after, with over 7,000 changing
hands in the first three hours of trade. Traders are hearing the takeover price
may be just over $60, but rumored suitor Merck
(
MRK |
Quote |
Chart |
News |
PowerRating) may have to increase its alleged bid to get the job done.
Here are two ways we may play that potential takeover:
-
Buy
the June 40 — 45-bull call spread for $1.55. That’s paying $2.25 for the
40s and selling a like number of 45s for $.70. This spread offers
fabulous risk vs. reward and gives you a solid month to see if the deal
gets announced. -
A
more conservative play would be to buy the November 40 — 50 bull call
spread for $3.30. That’s paying $4.60 for the 40s and selling a like
number of 50s for $1.30. You will not get as fast a tracking of the short-term movement, but you get a lot more time to be right and can virtually
triple your investment if the deal gets done for a price above $50!
BULLISH $ WEIGHTED CALL vs
PUT
| Symbol
|
Call
Volume
|
Put
Volume
|
$W
Call Vol
|
$W
Put Vol
|
| CSCO
|
37,487
|
5,067
|
101,229
|
12,810
|
| EMC
|
8,624
|
3,390
|
67,728
|
12,664
|
| SEBL
|
9,432
|
2,417
|
43,863
|
10,851
|
| SGP
|
24,238
|
9,664
|
52,201
|
16,660
|
Even
the semiannual Lou Gerstner rah-rah session hasn’t been enough to lift Big
Blue
(
IBM |
Quote |
Chart |
News |
PowerRating), as traders took profits throughout today’s session. Dollar-weighted put
vs. call ratios aren’t tremendously bearish, but hawkish
comments from a prominent Bear Stearns analyst seem to have encouraged action in
IBM puts.
The semiconductor sector has been up and down all day, but a look at our dollar-weighted scans shows the smart money continues to pour into the put (bearish)
side of that sector.
BEARISH $ WEIGHTED PUT vs
CALL
| Symbol
|
Call
Volume
|
Put
Volume
|
$W
Call Vol
|
$W
Put Vol
|
| SOX
|
351
|
2,560
|
5,786
|
54,026
|
| IBM
|
12,390
|
17,157
|
37,872
|
81,559
|
One
of the most bizarre events of the day was the announcement by World
Wrestling Federation Entertainment
(
WWF |
Quote |
Chart |
News |
PowerRating) and NBC
(
GE |
Quote |
Chart |
News |
PowerRating) that they are discontinuing their professional football league, the
XFL.
For
a man known for his bravado and outrageous promotion, the XFL seemed the perfect
vehicle for WWF Chairman Vince McMahon. The challenge of taking on the NFL and
that old boys’ club was seemingly a role Mr. McMahon was born to play.
Unfortunately, the WWF head honcho and Dick Ebersol of NBC were shown to be more
like the wrestlers the WWF promotes, more bluster than daring do.
If either Mr. Ebersol or Mr. McMahon thought they would lose less than the $35
million they’ve told us they lost to build a competitor to the
multibillion-dollar NFL you really had to wonder what they were smoking. I mean
GE flushed between $400 and $500 million on their internet portal, NBCI, so it
is almost unimaginable that they would pull the plug on the XFL with losses that
were less than the interest on the money they lost on NBCI.
Now, I suppose we could look at the dismissal of the XFL in one of two
ways;
-
Two
veteran managers were extremely disciplined and cut their losses rather than
letting them run. This would follow my second rule of making money in the
stock market; You can’t eat like a bird and *$#@ like an elephant! -
Or
Messrs. Ebersol and McMahon had no business getting into the XFL if they
thought they could build a billion-dollar business in a single season.
I
hope you all have a great weekend and be sure to check out our show, “Doctor J
& the Traders†on www.webfn.com,
looping throughout the weekend!
(1010WallStreet.com
has licensed the use of Hamzei Analytics proprietary options analytics)