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Pre-Earnings Pessimists Hop on Molson Coors Brewing Company

Andrea Kramer (akramer@sir-inc.com)

7/30/2010 12:23:52 PM

Beer behemoth Molson Coors Brewing Company (TAP) will chug into the earnings spotlight on Tuesday, Aug. 3. Ahead of the event, it appears the options crowd is somewhat wary of the stock, with bearish bets being added at an accelerated pace lately.

During the past two weeks, speculators on the International Securities Exchange (ISE) have shown a distinct preference for long puts over calls, as indicated by TAP's 10-day put/call volume ratio of 2.22. What's more, this ratio ranks in the 91st percentile of its annual range, implying that traders on the ISE have bought to open puts over calls at a faster clip only 9% of the time during the past year.

Meanwhile, a plethora of options players on Thursday opted for the pessimistic road less traveled. By the closing bell, TAP had seen nearly 2,300 August 45 calls cross the tape � about eight times its expected daily call activity at any strike. However, 88% of the calls traded at the bid price, and call open interest at the at-the-money strike swelled by almost 2,000 contracts overnight, pointing to sell-to-open activity.

By writing the August 45 calls to open, the sellers are betting the shares of TAP will finish south of the $45 level by the time front-month options expire. In this best-case scenario, the calls will expire without value, allowing the traders to retain the entire credit received at initiation � the most they can possibly gain on the play.

Around midday, the shares of TAP have added 0.2% to hover just shy of the $45 level.

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Post-Earnings Calls Proliferate on MetLife, Inc.

Sarah Wasserman (swasserman@sir-inc.com)

7/30/2010 12:02:05 PM

Insurance issue MetLife, Inc. (MET) reported on Thursday that second-quarter profits rose to $1.56 billion, a huge reversal from its year-ago losses of $1.4 billion. Earnings arrived at $1.23 per share, surpassing the consensus estimate for a profit of $1.00 per share.

Thursday's positive earnings surprise has catapulted MET roughly 3.5% so far today, to $41.64 -- above the troublesome $40 level, which has served as significant resistance to MET in the past several weeks. Prior to this, the $40 level provided support for the stock, and could now resume that role.

Calls have been wildly popular on MET today, with some 4,500 of these bullish bets changing hands so far -- already triple the insurance stock's usual daily call volume of just 1,416 contracts.

Option players have taken note of MET's technical feat, with the September 42 call being the day's most active strike. Roughly 860 contracts have traded on this strike so far today -- 83% at the ask price, suggesting they were likely purchased. Given MET's post-earnings jump, these calls are now out of the money by less than one point.

Despite today's heavy call activity, puts have actually been popular on MET lately. The stock sports a 10-day International Securities Exchange (ISE) put/call volume ratio of 1.60, in the 76th annual percentile. However, in light of Thursday's solid earnings report, these put players may rethink their bearish positions on MET, resulting in a fresh wave of buying pressure for the insurance concern.

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Pre-Earnings Puts Purchased on First Solar, Inc.

Sarah Wasserman (swasserman@sir-inc.com)

7/30/2010 10:37:40 AM

First Solar, Inc. (FSLR) reported after the close on Thursday that quarterly net sales were $587.9 million, up 12% from $525.9 million in the second quarter of 2009, due to increased production volume and systems revenue. Analysts were looking for revenue of $545.42 million. FSLR also reported a profit of $1.84 per share, exceeding analysts' prediction for a profit of $1.61 per share.

Option activity was rampant ahead of FSLR's quarterly report, with 47,000 contracts traded on Thursday -- more than double the solar stock's expected single-session volume of just 21,000 contracts. Puts were especially popular, with some 26,000 of these bearish bets traded.

The August 120 put was popular on Thursday, with 2,511 contracts traded. Most of these puts traded at the ask price, indicating they were likely purchased, and open interest at this strike grew by nearly 1,000 contracts overnight, revealing the addition of fresh bearish positions.

With FSLR currently trading at $127.77, these 120-strike puts are some seven points out of the money. While these puts could very well have been purchased by bearish bettors, it's also possible that nervous shareholders purchased these puts as protection in the event of a post-earnings pullback from FSLR.

Technically speaking, FSLR has been trending upward for the past two months, and is perched several points above its 10-week and 20-week trendlines, both of which are located around the $123 level.

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Option Players Bet on a Post-Earnings Trip South by Expedia, Inc.

Sarah Wasserman (swasserman@sir-inc.com)

7/29/2010 3:30:21 PM

Expedia, Inc. (EXPE) will travel to the earnings confessional after the close today, with analysts looking for a second-quarter profit of 42 cents per share. EXPE has a solid history in the earnings spotlight, beating the consensus estimate in each of the last four quarters.

EXPE could benefit from a positive earnings surprise, as the stock is down 17.2% year-to-date. The travel titan is currently battling overhead resistance from its 20-week moving average, which provided support for EXPE throughout the latter half of 2009, but has since switched roles to serve as resistance. This trendline is located just beneath the $22 level.

Ahead of earnings, option players seem relatively skeptical of the stock, with some 2,500 puts changing hands so far today -- more than double EXPE's expected daily put volume of fewer than 1,000 contracts.

The August 21 put has been most popular today, with 1,232 contracts traded -- 79% at the ask price, suggesting they were likely bought. With EXPE trading around $21.22, these puts are right at the money. Assuming these contracts are newly added, it would appear that option players are counting on a post-earnings trip south from EXPE.

Option players are generally bearish toward EXPE. In the past two weeks, speculators on the International Securities Exchange (ISE) have bought to open 2.3 puts for every call. This ratio ranks in the 91st percentile of its annual range, revealing that traders on the ISE have rarely initiated bearish bets on EXPE at a faster pace.

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Call Activity Picks Up as Positive Earnings Caffeinate Green Mountain Coffee Roasters Inc.

Sarah Wasserman (swasserman@sir-inc.com)

7/29/2010 2:59:57 PM

Green Mountain Coffee Roasters Inc. (GMCR) Wednesday reported that third-quarter earnings of 19 cents per share, just surpassing analysts' expectations for earnings of 18 cents per share. Revenue for the quarter came in at $311.5 million, beating the Street's prediction for $307.48 million in revenue. The coffee concern also said that it estimated growth between 44% and 50% for the fiscal year 2011.Traders appear to have responded positively to this news, with GMCR currently up 9%, to around $31.26.

Unsurprisingly, call players have pounced on GMCR today, with some 24,000 of contracts changing hands so far today -- six times the stock's expected single-session call volume of around 3,444 contracts.

In fact, a significant portion of today's call volume can be attributed to one trader. Early this morning, 7,689 August 29 calls, marked "spread," traded at the bid price, while 7,689 December 30 calls, also marked "spread," changed hands at the ask price.

Given today's circumstances, it appears this trader rolled his August call position up and out to the December series. By increasing the strike from 30 to 31, this trader is essentially upping his bullish position on GMCR. With the stock's technical jump today, these 30-strike calls are already in the money.

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Commentary by WhatsTrading.com

Select Sector SPDR Energy Fund (XLE) $53.70 -0.46%

7/30/2010 12:20:02 PM

Energy Select Sector ETF (XLE) lost 22 cents to $53.73 a share after crude oil slipped 65 cents to $77.71 a barrel Friday. One options strategist seems to expect volatility in the fund and bought the August 53 - 55 strangle at $1.69, 10000X on PHLX. Looks like a new position. XLE is one of nine Select Sector Funds. Collectively, the nine funds hold all of the S&P 500 stocks. XLE holds all of the energy-related names. Implied volatility in the fund is now 26, compared to S&P 500 volatility, as measured by VIX, at 24.5.

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Oracle Corp (ORCL) $23.59 -0.46%

7/30/2010 11:20:03 AM

Oracle (ORCL) shares fell late Thursday and are down 26 cents to $23.44 this morning on news the company is being sued by the Department of Justice for alleged software contract fraud. The news triggered a flurry of activity in Oracle's August 23 adn 24 puts late yesterday. The 23s traded 14,789X (78 percent Ask) and open interest increased by 9,349. The 24s traded 13,800X and created 10,741 in new open interest. In all, open interest in Oracle puts increased by 24K yesterday (vs. +267 calls) and implied volatility jumped to 31.5 from 25.

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Riverbed Technology Inc (RVBD) $36.52 +0.66%

7/29/2010 1:19:58 PM

Riverbed shares are up 30c to $36.60, and touched a new 52-week high of $37.28 Thursday. Option volume is running 5x the daily average in what looks very similar to action seen Wednesday, when an investor was apparently selling Jan 41 calls at $2.80 to buy the Jan 31 - 36 put spread at $2.20, 3000X total. Today, the, Jan. $31/$36 put spread has traded 3,600x in what looks like a purchase at $2.05. Meanwhile, Jan 41 calls traded on the $3 bid, 3600X. Another block of 3400 Sep 40 calls also traded, at the $1.20 ask, and this might be an offsetting trade. In the end, it looks like this strategist is accumulating a bearish position -- selling Jan 41 calls and buying the Jan 31 - 36 put spread -- over the past two days. Co. reported earnings last week.

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Genzyme Corporation (GENZ) $70.24 +3.30%

7/29/2010 11:19:58 AM

Genzyme (GENZ) is up $2.25 to $70.25 after the Wall Street Journal reported late yesterday that Sanofi (SNY) is "increasingly likely" to take a formal buyout offer to Genzyme's board. Then, CNBC reported this morning that SNY is likely to send a "bear hug" letter to Genzyme in the next 72 hours. Active trading continues in GENZ options. One player bought 5000 January 75 calls at $2.35 and sold 2,500 Aug 75 calls at 45 cents, possibly rolling a position and looking for an offer substantially greater than $75 per share. However, today's top trades also include an August 67.5 - Jan 65 put spread, apparently bought at $2.10, 4000X, which might be a hedge should any deal talk fall apart after the August expiration. Lazard downgraded GENZ shares to Hold from Buy this morning. Implied volatility is down 25 percent to 30.

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Kellogg Company (K) $49.94 -3.07%

7/29/2010 9:59:59 AM

With Kellogg earnings not so Grrrreat! shares opened at $49.54, a $2 gap down from Wednesday's close. Early option flow is concentrated in the Aug 50 puts, with 8000 contracts trading in the first 10 mins of the day, and the largest block trading at 1.10 on the ISE with shares near $50.10. Yesterday afternoon we noted buyers paying 50-55cents for this contract, and today's volume appears to be closing that short term bet for a gain.

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Rubicon Technology Inc (RBCN) $30.11 -5.37%

7/28/2010 4:20:01 PM

Shares of Rubicon, a maker of LED parts and products, are off $1.70 to 430.10 and option volume is 6x the daily average as the March $30 calls trade 1,538 and the March $40 calls trade 3,130 contracts in an opening ratio spread. The 30s were bought at $6.30 and 40s sold at $2.50. Looks like a bullish 1x2 spread ahead of earnings. The company is set to report on August 5.

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Microsoft Corp (MSFT) $26.04 -0.46%

7/28/2010 2:20:00 PM

A massive trade in Microsoft calls printed on the ISE this afternoon, totalling nearly 180,000 contracts, versus a hedge 700,000 shares at $26.11. Data indicates a customer bought 128960 September 28 calls to open, for an avg price near 24cents, and sold nearly 50,000 Jan-12 30 calls to open at an avg price near $1.975. Net options premium is about $6.7million collected on the trade, and while initially delta neutral, the trade is very long gamma and profitable if shares sell off sharply, or rally beyond the $29 level. Theta on the trade is nearly $54k/day and it may be related to the 190,000 contract spread that traded yesterday in MSFT (in that case, paper bought Sep 17th 27.5 calls against a sale of Oct 27s.)

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Symantec Corp (SYMC) $14.89 -0.67%

7/28/2010 1:20:01 PM

Symantec shares are off 10c to $14.90 and notable volume in the Sep. $16 calls as a block of 18,500 (now a total of 25,000) have traded at the 35 ask price most likely tied to stock. The computer software company is set to report earnings after the close.

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Patriot Coal Corporation (PCX) $12.20 -1.61%

7/28/2010 10:00:04 AM

Patriot Coal (PCX) shares lost 9.3 percent, to $12.40, post-earnings yesterday and a noteworthy trade surfaced late when a strategist apparently bought the Jan 11 - 20 call spread at $2.61, 6950X. Open interest indicate new positions in both legs and therefore a spread that makes its best profits if shares rally 61.3 percent through the January 2011 expiration. Shares are down another 24 cents to $12.16 this morning after BMO Capital cut PCX to Market Perform from OutPerform.

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Genzyme Corporation (GENZ) $67.66 +0.42%

7/27/2010 3:00:02 PM

Genzyme (GENZ) has given up early gains and is down a dime to $67.28 late Tuesday, but is up more than 25 percent since last week's news that Sanofi Aventis (SNY) might make a bid for the company. Options are actively traded again today. This morning, for example, a bearish three-way spread surfaced when a strategist sold 7000 October 75 calls at $1.60 to buy 7000 Jan 50 - 65 put spreads at $3.70. The spread, which looks like a new position, has been repeated more than once and volume in the Jan 50 - 65 put spread is approaching 10000. The action might be hedging activity by shareholders to protect recent gains in GENZ shares. Reuters reports today that Genzyme is considering SNY's informal takeover request, but isn't actively attempting to sell the company.

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More Options Commentaries and Observations by Schaeffer�s

Earnings Preview: Overseas Shipholding Group, Solarfun Power Holdings, and Evergreen Solar, Inc.

The proverbial earnings melting pot will once again be full to the brim next week, with an array of notables slated to confess their quarterly figures. Taking a gander at the calendar, three soon-to-report companies piqued my interest: solar concerns Evergreen Solar, Inc. (ESLR) and Solarfun Power Holdings Co. Ltd. (SOLF), as well as shipping issue Overseas Shipholding Group (OSG).

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Market Update: DJIA Bounces Back from Triple-Digit Loss

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Can Exxon Mobil Continue its Post-Earnings Rally?

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Trading Tools to Build Your Portfolio: Will Cloud Computing Give Microsoft Corporation an Edge?

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