Schaeffer's Midday Options Update Features Wal-Mart Stores,
Starbucks, Tor Minerals International, Knight Capital Group, and Altria Group
CINCINNATI--(BUSINESS WIRE)--Jan. 3, 2006 Today's Schaeffer's Midday Options Update features Wal-Mart Stores (NYSE:WMT), Starbucks (NASDAQ:SBUX), Tor Minerals International (NASDAQ:TORM), Knight Capital Group (NASDAQ:NITE), and Altria Group (NYSE:MO). The Midday Options Update contains a brief commentary on the day's most notable activity and a table listing the most-active calls and puts for the day. The Midday Options Update is published every day at www.SchaeffersResearch.com - the home of Bernie Schaeffer and Schaeffer's Investment Research. For additional information about this report or to have it delivered to you free via email every day click on the following link. http://www.schaeffersresearch.com/redirect.aspx?CODE=PRMOU12M&PAGE=1 .
Options Update: Investment Strategies for Altria Group
It seems that investors were trying to ring in 2006 on a positive note, but a larger-than-anticipated drop in the Institute for Supply Management (ISM) index put a bit of a damper on a fast start. According to a survey by MarketWatch, investors expected the index to drop to 57.6 percent in December from 58.1 percent in November. Well, at least they were right about the drop. However, the ISM index's plunge to 54.2 percent was a bit of a shock.
This news was unwelcome in respect to the dollar, which was already struggling. Following the economic report, the dollar plunged further. Of course, weakness in the dollar is, more often than not, good news for gold, which has continued to extend its early gains. Gold for February delivery marched to a high of $530.50 an ounce on the New York Mercantile Exchange, its highest level since the middle of December. This positive price action has been a welcome development for gold and silver sectors. The AMEX Gold BUGS Index (HUI) has added more than five percent, as has the CBOE Gold Index (GOX). Furthermore, the PHLX Gold and Silver Index (XAU) has added more than four percent to reach its highest level since 1987.
Oil has advanced to the edge of a two-month high this morning, as traders looked to a dispute between Russia and Ukraine. The dispute stoked concerns that Russia may use its energy resources as a political tool, which in turn ignited supply concerns. Thanks to these concerns, February-dated crude has surged back above the $63 level, which has not been seen since late October.
Wal of Worry
On Saturday, Wal-Mart Stores (NYSE:WMT) announced that its December same-store sales will come in at 2.2 percent. The retailing giant had forecast same-store sales in a range of two percent to four percent. Investors have not taken these results well, as WMT dropped roughly two percent in early trading activity. The 2.2-percent gain is the lowest December sales growth rate for WMT in the past five years.
I'll Take a Grande Mocha Shanghai Xing Ba Ke
Okay, so it may sound like the latest drink at Starbucks (NASDAQ:SBUX), but it isn't. However, SBUX is making slight gains this morning after The Wall Street Journal reported that a Shanghai court ruled that Shanghai Xing Ba Ke Coffee Shop infringed the trademark rights of the caffeine king. The Chinese company had been using a variation of the SBUX logo and the company's name, Xing Ba Ke, is a transliteration of SBUX in Chinese characters. Apparently, xing ("shing") means star in Chinese while ba ke sounds like "bucks." The Journal reported that the court ordered Shanghai Xing Ba Ke to pay SBUX $62,000.
The Imperfect TORM
Tor Minerals International (NASDAQ:TORM) has plummeted more than 39 percent this morning after announcing that a major alumina customer decided that it will not renew its purchase order for specialty aluminas in 2006. TORM stated that the $7 million order accounted for roughly 21 percent of its total sales in 2005. The metal manufacturer anticipates this decision will have a "significant impact" on its earnings in the first half of 2006.
A Bad NITE's Sleep
This morning, Knight Capital Group (NASDAQ:NITE) received a lash with the downgrade whip from Raymond James. The brokerage cited recent trends in the company's market share as well as overall industry bulleting board volume trends for its downgrade to "market perform" from "outperform." NITE has dropped more than six percent in trading action this morning.
Most-Active Options Update
At 1:28 p.m. eastern time, the Dow Jones Industrial Average (DJIA - 10,714.9) has dropped 0.03 percent. The S&P 500 Index (SPX - 1,250.53) is 0.17 percent higher, and the Nasdaq Composite (COMP - 2,204.7) has lost 0.03 percent. At 1:29 p.m. Eastern time, 2,518,208 calls have changed hands compared to 1,503058 puts, equaling a single-day put/call volume ratio of 0.59. The CBOE's equity put/call volume ratio weighed in at 0.58.
According to Hoover's, Altria Group (NYSE:MO) is the world's largest tobacco firm, operating through its subsidiaries, Philip Morris USA and Philip Morris International. MO's Marlboro brand has been the world's best-selling cigarette brand since 1972. While the company controls roughly half of the U.S. tobacco market, tobacco is only part of its portfolio. MO owns 85 percent of Kraft Foods, the world's second-rated food company. Today, MO has seen rather heavy activity on its January 80 call contract (MO AP) and its March 75 call contract (MO CO).
This activity should not come as a surprise to any who have followed MO's technical performance. To call the company a strong performer could be a bit of an understatement. Let's take a gander at a weekly chart for MO first. Since moving above their 10-week and 20-week moving averages in late October 2004, the shares have finished below this double-barreled support a mere three times.
Now, let's step out a notch further and look at a monthly chart for MO. The last time the equity finished below both its 10-month and 20-month moving averages was April 2003. This support has helped the firm ascend to a new all-time high.
You will notice that I put a line at the 75 level on that monthly chart; there is a method to my madness, although some of you may question that. The 75 level is the site of peak call open interest for the front three months of options, with more than 229,000 open contracts for this period. This configuration could provide a bit of options-related resistance, which is the last thing MO needs to see at the 75 level. Notice how the 75 level acted as resistance for the past five months, strength added to this level could make it a considerable hurdle.
The 75 level is one area of concern for me, and analyst rankings and short-covering support provide another. First, according to Zacks eight of the 11 analysts covering MO rate it a "buy" or better. Should this group change its mind, the shares could see a bit more downside pressure. Combine this configuration with the fact that it would take less than three days to cover the shorted shares and you have another area of concern.
It seems that the speculative options crowd has decided to focus on the areas of concern rather than MO's past performance. Puts outnumber calls in the front three months of option activity, resulting in a Schaeffer's put/call open interest ratio of 1.10. Furthermore, this ratio is higher than 93 percent of those taken during the past 52 weeks.
It is this combination of pessimism in the throes of strong performance that we look for as contrarians. As a result of this backdrop, MO receives a Schaeffer's Equity Scorecard rating of 8.0 out of a possible 10. A Scorecard rating of this ilk indicates that there could be ample money on the sidelines, which could provide a further boost to the shares. Possibly enough of a boost to push the shares through the 75 level.
Click on the following link to access a Monthly Chart of MO Since January 2003 With 10-Month and 20-Month Moving Averages: http://www.schaeffersresearch.com/wire?ID=14910 .
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About Schaeffer's Investment Research (www.SchaeffersResearch.com)
Schaeffer's Investment Research, founded by Bernie Schaeffer in 1981, is a financial information and trading resources company. It publishes Bernie Schaeffer's Option Advisor, the nation's leading options subscription newsletter. The firm's contrarian approach focuses on stocks with technical and fundamental trends that run counter to investor expectations. The firm's website, http://www.SchaeffersResearch.com , is recognized as one of the leading information sources for stock and options traders and was cited as the top options website by both Forbes and Barron's. Click here for more details about Schaeffer's trading methodology: http://www.SchaeffersResearch.com/method .
CONTACT: Schaeffer's Jocelynn Drake, 513-589-3800 email@example.com