JNPR has had a tremendous move the past two weeks, as has EMLX.
Remember this is an options expiration week and that may reduce volatility after tomorrow. Cramer points out
today how the option pricing of INTC indicates not much fireworks from the earnings today.
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Options Trap Locks Intel in a Range
By James J. Cramer
10/16/2001 10:32 AM EDT
Intel (INTC:Nasdaq - news - commentary) goes out at $25 on Friday? That sure is what it seems like. This stock, like so many other stocks that I follow, seems totally in the grips of Friday's option expiration.
In a vacuum, I would bet you 100-to-one that Intel gets trapped by options at $25 on Friday. Of course, the company reports tonight, but if it is as planned -- perhaps with layoffs thrown in -- I think the stock will simply drift up to $25 by the weekend.
Why do I think this? Some of it is instinctive. By this point I can look at a stock during expiration week and pretty much divine what buyers and sellers of puts and calls will do to a stock. Of course, if Intel gets a takeover bid -- unlikely -- it wouldn't work. And if Intel reports a huge shortfall -- also unlikely, given that it did not preannounce -- the bet would be off. Another terrorist attack, too, isn't factored in.
But everything else is. Because options are, historically, "smarter" than common stocks. They telegraph more.
Take the Oct. 25 calls. They are at 70 cents. That's a sign this sucker isn't getting through $25. They are too cheap. That's a bet that smart money is betting that this stock gets trapped at $25. I bet they'll sit there and sell you that contract all day.
The Oct. 25 puts at $1.00 (with the stock at $24.44) are also no bargain, although they look like one. They are signaling that this stock is not going to get hammered here. They would be richer otherwise.
What's the likelihood that these puts and calls are lying to us? Very small. I figure you could sell both of these and bet that they go out at zero.
So why not advise that? Not enough vig, frankly. I don't like to sell calls for 60 cents. And I hate selling puts naked anyway, especially for a buck and change, because of the possibility of a cataclysm -- always a possibility, even before Sept. 11 -- making it so you lost five to make a buck. Awful bet.
Those of you who are looking for a breakout or a breakdown, may I suggest that you wait 'til next week? Right now it's looking like a classic pinning. No money to be made by anybody, as far as I am concerned. |
