Clorox Attracts Options Bulls

The Clorox Company (CLX) has been cleaning up its act fast and investors are noticing. Shares of the consumer products manufacturer have increased nearly 15% from their lows of the year and are now just dollars away from their 52-week high. Options investors are also bullish with some 9,929 call options trading hands, which is more than 13x the average volume of 754 contracts.

The majority of the volume was centered around the September $65 calls followed by the October $65 calls. The premiums on the options suggest that traders believe shares of Clorox will trade above $65.40 during the next 15 days and above $66.25 during the next 45 days. These numbers represent a 5.7% and 7.1% premium, respectively, over the current market price.

Last quarter, Clorox reported higher sales but lower profits for both the fourth quarter and year end. The company earned $158 million on sales of $1.5 billion for the fourth quarter. For the year, Clorox earned $461 million on sales of $5.27 billion. Recently, the company has begun to raise its prices to help offset prices and keep margins relatively steady.

The Clorox Company is a manufacturer and marketer of consumer products. The Company markets brand names, including its namesake bleach and cleaning products, Green Works natural cleaners, Poett and Mistolin cleaning products, Armor All and STP auto care products, Fresh Step and Scoop Away cat litter, Kingsford charcoal, Hidden Valley and K C Masterpiece dressings and sauces, Brita water-filtration systems, Glad bags, wraps and containers, and Burt’s Bees natural personal care products. 

CenturyTel Options Surge Higher

CenturyTel, Inc. (CTL) shares declined marginally Thursday, but the company’s options jumped sharply. The September and October $35 strikes saw the most action with more than 25,000 contracts trading hands. The premiums on these options suggest that traders believe shares will rise above $39.40 over the next 15 days and above $35.50 during the next 43 days. Overall, CenturyTel saw some 25,665 call options trade hands, which is nearly 20x the average volume of 1,315 contracts.

Shares of CenturyTel have risen nearly 25% off of their lows of the year after the company raised its dividend and its outlook for 2008. Analysts shared the optimism with at least one analyst upping its price target. Argus upgraded the stock to a “buy” from a “hold” and set a $48 price target saying that its acquisition of Madison River last year has been a success and will significantly improve its results going forward. The analyst also suggested that the company could itself become an acquisition target.

Last quarter, CenturyTel posted lower quarterly profits but still managed to beat analyst forecasts. The fall in profits was primarily due to a year-earlier revenue settlement that set a high bar. The company also reported strong growth in high speed internet customers during the second quarter. Excluding special items, the company earned 87 cents per share compared to analyst estimates of 81 cents. Meanwhile, operating revenues rose 2.8% to $657.1 million compared to estimates of $654 million.

CenturyTel, together with its subsidiaries, is an integrated communications company engaged primarily in providing an array of communications services, including local and long distance voice, Internet access and broadband services. It conducts its operations in 25 states located within the continental United States. Shares in CenturyTel lost $0.07, or 0.18%, during Thursday’s trading.

UST Options Frezy Sparks Rumors

UST Inc. (NYSE: UST) shares spiked higher Thursday after a flurry of bullish options activity hit the stock. Some 11,929 call options were purchased at the October $60 strike by mid-day with premiums sitting at around $1.10 per contract. The action suggests that traders believe UST will surpass $61.10 within the next 43 days, which is an increase of 10.4% after the recent spike in the share price. Given the premium and number of contracts traded, this equates to a bullish $1.3 million options bet on UST.

The action has led to speculation that UST could be a takeover target, especially after it dropped out of a Lehman Brothers conference that it was supposed to speak at 1:30EST. However, a spokesman for UST said that two of the company’s executives had a scheduling conflict and that Lehman was notified Wednesday. The spokesman also refused to comment on takeover speculation as it is against company policy. Regardless, traders and investors pushed shares nearly 2% higher during mid-day trading.

UST through its direct and indirect subsidiaries is engaged in the manufacturing and marketing of consumer products. The company’s segments include Smokeless Tobacco Products, Wine and All Other Operations. The Smokeless Tobacco Products segment manufactures and markets smokeless tobacco products. The Wine segment produces and markets varietal and blended wines, and imports and distributes wines from Italy. UST Inc.’s international operations, which market moist smokeless tobacco, are included in the All Other Operations segment.

Take-Two Options Surge Ahead of Earnings

Take-Two Interactive Software (TTWO), creator of the hit Grand Theft Auto videogame series, is set to report earnings for its fiscal third quarter on Thursday. Options activity on the stock suggests that traders are hedging their bets with a bias towards the upside. Some 23,424 call options changed hands Wednesday, which is nearly 5x the average daily volume of 4,719 contracts, according to Shaeffer’s Research.

Electronic Arts (ERTS), a giant in the video game industry, was supposed to have completed its bid to take over Take-Two ages ago. However, Take-Two resisted the $2 billion deal preferring to await the results of its Grand Theft Auto IV sales. These results will become public information during Thursday’s earnings announcement and should shed some light on the merger situation. To date, the two companies have signed a non-disclosure agreement, but that remains a long shot from a definitive merger.

Regardless, the stock price and bullish options activity suggests that traders and investors believe that a deal will eventually occur - Take-Two’s stock continues to trade well above its price prior to a deal announcement while call options significantly out-number put options. The timing and terms of this deal may depend on Thursday’s earnings results, which should shed more light on the valuation of the hit GTA IV series.

Take-Two announced that it will report financial results for the third quarter ended July 31st on Thursday, September 4th, after the market close. A conference call to discuss the results will be held at 4:30PM Eastern Time and can be accessed by dialing (877) 407-0984 or (201) 689-8577.

El Paso Attracts Options Interest

El Paso Corporation (EP) options moved sharply higher Wednesday with over 100,000 of the October $17 calls trading hands. Some 155,710 call options were traded in total, which is more than 17x the average daily volume of 8,854 contracts, according to Shaeffer’s Research.

The move into the October calls suggests that traders believe natural gas will begin the incline that it typically sees this time of year, according to CNBC’s Pete Najarian. The Fast Money star himself disclosed a call spread in the stock, which underscores his bullish sentiment.

Natural gas prices have dropped some 45 percent over the past two months and stand at just 84 cents per thermal unit. Last month, prices were $1.08 while two months ago it was trading at $1.44. However, natural gas usage tends to increase in the winter and prices are expected to rise.

There is also a lot of talk among politicians looking to natural gas as a new form of energy. Currently, the U.S. has enough natural gas to last 120 years, which makes it an attractive fuel. Automobiles using natural gas aren’t anything new either - Argentina has been using them for some time now.

Whether or not natural gas rebounds to become the next big energy play remains to be seen, but the upcoming jump in prices has at least some options traders looking at companies like El Paso Corporation over the next few months as it focuses exclusively on natural gas transmission, exploration and production.

Treasure amid the Market’s Shipwreck

American factory orders came in higher than expected in July. The dollar saw gains against the euro for its 10th straight session. Crude oil and commodities continued their decline to multi-month lows. It’s not hard to see why some investors are seeing sunny skies ahead.

Time for a Turnaround

Those who are old enough should not be that surprised either – stagflation is not a new phenomenon. The financial media, perpetually predicting a doomsday, has the public obsessively focused on the “housing meltdown”, “credit crisis”, and “soaring commodities”.

Now, I’m not saying that investors should ignore the financial media, because they do have some valid points. Agricultural stocks like Potash Corporation (POT) and Monsanto (MON) have racked up gains while companies like Home Depot (HD) and Target (TGT) have racked up losses.

Investor and consumer sentiment are now at all-time lows – but so are stock prices. American icons like Warren Buffett and Bill Miller may be sitting on heavy losses, but they are digging deep into their wallets to buy more stock. So should you.

After all, it was the best investor of all time that said “be fearful when others are greedy and be greedy when others are fearful.” Now is the time to be greedy…

Finding Treasure among Trash

Profitable, growth-orientated companies trading at steep discounts to their intrinsic value are the underpinnings of a quality stock portfolio. Lucky for you, there are many such opportunities in today’s market.

Retailers like Target (TGT) and Sears (SHLD) have already staged impressive turnarounds, but still trade well below their 52-week highs. Meanwhile, large technology names like eBay (EBAY) and Cisco Systems (CSCO) are also available on the cheap.

Not everything is on sale, however. Some stocks deserve to be cheap. Financials and real estate investment trusts, among others, should probably be avoided until the market paints a clearer picture of where they are headed.

Another one of my favorite Warren Buffett quotes is: “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” Don’t take risks on stocks just because they are cheap – make sure they are well-known, quality companies.

The Best Way to Cash in

Investing in a turnaround is risky, but can pay off handsomely. One way to tilt odds in your favor is to diversify your holdings and use leverage to increase your upside. Unfortunately, diversifying requires a lot of capital and leverage works in two directions.

Luckily, there is a solution. Investors looking to multiple their upside while reducing their downside may want to consider long-term equity anticipation securities (or LEAPS). These long-term options allow investors to focus on a long-term timeframe while realizing the advantages of options.

LEAPS options can give investors the right to purchase shares at a fraction of the cost of purchasing the underlying shares. This means investors have more money to diversify, less money at stake per stock, and more leverage – a win, win, win situation.

TASER Options Move Higher

TASER International, Inc. (TASR) shares may have ended Tuesday even, but the options market painted a different picture. Some 7,081 call options traded hands on the day, which is more than 5x the average daily volume of 1,359 contracts. The majority of the trading was centered around the September $7.50 calls, which are currently trading at $0.10 per contract. The action suggests that traders expect TASER shares to surpass $7.60 per share during the next 16 days.

Last quarter, TASER International announced a sharp decline in both top and bottom line growth. Revenues dropped 18% to $21.1 million on a net operating loss of $4.3 million. The decline in sales was due to lower muncipal spending in the U.S. and several large non-recurring international orders in the second quarter of 2007. Meanwhile, research and development costs soared around 139% and took a piece out of the bottom line numbers.

The good news is that gross margins improved 4.4% to 64.5% in the second quarter as the company continues to focus on controlling costs. TASER also repurchased 1.8 million shares of its common stock for $12.5 million in the second quarter of 2008. These actions are seen as a bet by the company on its new upcoming products. It also conveys the belief that the market for its products will eventually turn around and drive future demand.

TASER International develops and manufactures advanced electronic control devices designed for use in the law enforcement, military, corrections, private security and personal defense markets. The company makes ECDs for two main types of market segments; the law enforcement, military, corrections and professional security markets, and the consumer market. TASER’s ECDs use propelled wires or direct contact to conduct energy to affect the sensory and motor functions of the nervous system.

PepsiCo Options Surge Higher

PepsiCo, Inc. (PEP) shares may have jumped higher Tuesday, but the options market was the real story. Some 91,290 call option contracts changed hands throughout the day, which is more than 12x the average daily volume of 7,192 contracts. The majority of the activity was centered around the September $65 call options, which are trading at a $4.50 premium. The trading suggests that PepsiCo shares will move past $69.50 during the next 16 days before expiration.

The move higher comes after a sharp correction in commodities that many are hoping will increase margins and ignite consumer spending. Lower commodity costs in an environment when pricing remains consistant means that margins could receive a boost. Meanwhile, lower energy costs equates to more cash in consumers’ pockets that they can then turn around and spend on discretionary goods like soda and snacks.

Last quarter, PepsiCo announced a 9.1% rise in profits after it boosted prices for potato chips and streamlined delivery routes. Net income increased to $1.7 billion, or $1.05 a share, which exceeded analyst estimates by 4 cents. Meanwhile, sales jumped 14% to $10.9 billion. Sales of Cheetos, Ruffles and SunChips gained even as CEO Indra Nooyi raised prices to counter a 10% increase in commodity costs this year - a cost that may begin to decline and boost margins.

PepsiCo, Inc. is a global snack and beverage company that manufactures, markets, and sells a range of salty, convenient, sweet and grain-based snacks, carbonated and non-carbonated beverages and foods. The business is divided into four divisions: Frito-Lay North America, PepsiCo Beverages North America, PepsiCo International, and Quaker Foods North America. The international division sells in approximately 200 countries, with operations in Mexico and the United Kingdom.

HD Options Traders Place Bullish Bets

The Home Depot, Inc. (HD) shares dropped last week, but the options market painted a different picture. Call options on the home improvement retailer surged higher Friday, with more than 220,000 call option contracts trading hands. The majority of the action was centered around the September $22.50 calls. The premium on these options suggests that shares will trade above $27.15 over the next 17 days ahead of expiration.

Last quarter, Home Depot announced a sharp 24% drop in profits and reiterated its downbeat outlook for the year. The news comes amid a weak housing market that shows little sign of recovery. Expectations did beat Wall Street analyst estimates, but experts like Jim Cramer are still bearish on the stock. Last week, Cramer recommended that investors buy Lowe’s and sell Home Depot based on the growth (or lack thereof) in same-store sales - a key retail metric.

The Home Depot, together with its subsidiaries, operates full-service, warehouse-style stores selling an assortment of building materials, home improvement, and lawn and garden products, which are sold to do-it-yourself customers, do-it-for-me customers and professional customers. In addition, the Company operates EXPO Design Center stores (EXPO), which offer products and services primarily related to design and renovation projects.

Frontline Options Likely to Retrace

Frontline Ltd. (FRO) shares rose last week on concerns about tropical storm Gustav and current inventories. Weather models on Monday continued to show the storm hitting the Louisiana coast as a Category 3 hurricane, which forced companies to shut down 96% of the Gulf’s oil production and 82% of natural gas output. In total, 12.5% of total U.S. refining capacity was shut down and other plants cut rates. Oil tanker stocks like Frontline stand to benefit such distruptions as it should spur foreign demand.

Frontline call options also saw higher-than-average trading volume on Friday on the optimism. Some 175,549 call options traded hands, which is more than 17x the average trading volume of just 10,000 contracts. The majority of the action was centered around the September $55 call options, which saw over 95,000 contracts trade hands. The premium on these options suggests that traders are betting that shares will be trading above $60.40 per share during the next 17 trading days.

However, Frontline investors may not be so optimistic on Tuesday when trading resumes. Tropical storm Gustav showed no signs of strengthening over the weekend and removed an element of risk priced into oil. Crude prices slipped to $114.86 as a result with London contracts trading at $113.40 a barrel. The next big influence on oil prices will be seen on September 9th when OPEC meets to discuss its output policy.

Frontline Ltd. is engaged primarily in the ownership and operation of oil tankers, including oil/bulk/ore (OBO) carriers. As of February 29, 2008, the Company operated a tanker fleet consisting of 76 vessels. The fleet consists of 42 VLCCs, which are either owned or chartered in, 20 Suezmax tankers, which are either owned or chartered in, eight Suezmax OBOs, which are chartered in, and five VLCCs, and one Aframax tanker under its commercial management.

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