Today’s tickers: BX, GCI, AA, LVS, XLF, JPM, C, AGN, RHT, SU & SWY
BX The Blackstone Group L.P. – The broader market experienced gains after fresh information from the Treasury Department was released regarding its plan to utilize private and public funds to relieve banks of bad credit and toxic assets. Shares of BX soared on the news by 23% to $7.77 because it is has now been widely reported that hedge funds and private-equity firms are likely to reap substantial gains from the public-private partnership. Blackstone jumped to the top of our ‘hot by options volume’ market scanner after one investor established a sold straddle in the May contract. At the May 7.5 strike price 10,000 calls were sold for 1.60 each while 10,000 puts were also sold for 1.10 each. The gross premium pocketed on the trade amounts to 2.70 and is fully retained if shares settle at $7.50 by expiration. Call volume has far outweighed put volume with a ratio of 2.4 calls to each put traded. We observed pure call buying in the April contract where traders picked up lots as high up as the 10 strike for a premium of 33 cents each. One investor paid a net cost of 40 cents in order to roll 4,350 in-the-money calls at the June 2.5 strike price forward to the same low strike expiring in January 2010. Optimistic traders also picked up 3,000 calls at the January 10 strike price for 1.86 each. Option implied volatility peaked at 120% today, but has since come off to the current reading of 105%.
GCI Gannett Co., Inc. – Shares of the international news and information company are up by more than 7% to stand at $2.30. GCI appeared on our ‘hot by options volume’ market scanner after one trader utilized options in search of gains on the rising stock. We believe that this investor likely purchased 1,000,000 shares of the underlying stock and simultaneously sold 10,000 calls at the April 2.5 strike price for a 15 cent premium. By selling the option contracts the trader effectively reduced the price of the shares to $2.00 each because the stock was trading at $2.15 at the time of the trade. Should the 2.5 calls land in-the-money by expiration this investor will have sustained gains of 23% if the shares get called away from him at the end of the month.
AA Alcoa Inc. – The aluminum producer’s shares have increased by 11% to $7.28 in the midst of a broader market rally. Despite the gains, option investors took a more pessimistic view of Alcoa. The nearly-at-the-money April 7.5 strike price, investors shed 14,000 calls for a premium of 74 cents each. Similarly, the April 10 strike saw some 8,000 calls sold for a 16 cents premium per contract. Solidifying the near-term bearish view was put activity at the April 5.0 strike price where 4,000 puts were purchased for 17 cents each. Perhaps some traders see Alcoa falling through the current $4.98 52-week low on the stock. In order to profit from the put purchases, shares would need to decline to a breakeven of $4.83 or less. It is likely that the call sales were initiated by investors who are happy to bank gains on today’s share price rise, but who are also not ready to declare that AA is out of the darkness as of yet.
LVS Las Vegas Sands Corporation – The owner of casino resorts and properties in Las Vegas and Macao has experienced a 5% rally in shares today to $2.53. One investor, rather than taking a bullish stance with 15,000 calls at the April 5.0 strike price, sold the contracts for a premium of 5 cents each. Perhaps this trader does not see shares climbing above $5.00 by the expiration, and therefore chose to take advantage of the rise in call premium inherent in today’s share price rally.
XLF Financial Select Sector SPDR – Shares of the financials ETF are soaring upwards by more than 9% today to stand at $8.89. One investor took action in the June contract by enacting a bullish trade as banking stocks make gains across the board. At the June 7.0 strike price the trader sold 12,000 puts for a premium of 60 cents apiece in order to fund the purchase of 12,000 calls at the June 11 strike for 60 cents each. The trade was initiated at no cost this investor although shares will need to rally higher by 23% in order for the calls to land in-the-money by expiration.
JPM JPMorgan Chase & Co. – With shares rallying 14% to $26.45, one might expect that a call-to-put ratio of 1.67 would indicate bullishness. However, the larger picture on JPM today appears to be more guarded optimism by option investors. The now in-the-money April 26 strike price saw optimistic investors picking up more than 6,000 calls for 2.49, which would now cost you 2.86 per contract. The 26 strike price seems to represent a cap for many traders because at upper strikes there was more call-selling observed than call-buying. At the April 27.5 strike price traders shed 9,000 calls for a premium of 1.77 each. Further along, the April 30 strike had more than 19,000 calls sell for approximately 91 cents apiece. Perhaps investors have the ‘what goes up must come down’ mentality on financials given the volatile nature of banking stocks as of late, and are therefore remaining cautiously optimistic with today’s rally.
C Citigroup, Inc. – Despite the 16% rise in shares to $3.06, option plays today painted more of a bearish picture. Heavy volume was observed across multiple contracts which could represent a continuation of the conversion trading we reported last week. In the June contract we were able to isolate a sold straddle at the 5.0 strike price. This investor looks to have sold 7,100 calls at the June 5.0 strike for a premium of 22 cents each while also selling 7,100 puts for 2.75 apiece. The gross premium enjoyed on the trade amounts to 2.97 and provides a nice buffer against upward or downward movement in the share price over the next 25 days. This investor is hoping that shares will settle at $5 by expiration so that he can keep the full 2.97 premium, although for this to occur shares would need to rally by an additional 63%. Option implied volatility has come off since Friday’s reading of 200% to the current volatility at 180%.
AGN Allergan Inc – Shares in Botox-maker, Allergan have jumped throughout this morning with options buyers getting in ahead of the game through purchases of call options expiring in April that have tripled in value within the session. We don’t see the fundamental news driving the stock on our screens but can see a slew of calls bought earlier at the 45.0 strike for around 40 to 45 cents. Some 5,750 calls out of around 9,700 appear to have been bought today as the stock has jumped 6.7% to $42.10. Since that time calls have risen in value to a current premium of 1.50 offering early-birds a handsome, wrinkle-free payoff. At the 50.0 strike investors also swooped earlier to secure buying rights on the stock and scooped up around 5,900 calls of which 3,255 were bought at the lower end of today’s 15-55 cent range.
RHT Red Hat Inc. – April call options have been the focus today at software-services provider and maker of the Red Hat Linux operating system. It appears that, with shares up 9.3% at $16.29, investors are looking for further upside potential as they buy 17.5 and 20.0 strike calls. We saw a decent 2,500 bull call spread trading for around 40 cents, which would leave a buyer breaking positive ground at an expiration-based share price of $17.90 with maximum upside potential of 2.10 per contract. At the 17.5 strike within today’s overall 16,000 volume, some 11,000 changed hands within a premium range of 40-70 cents, which contrasts to the rally up to as high as 1.60 earlier offering buyers instant gains. Buyers were also happy to take on calls at the April 20 strike also for premiums ranging between 15-70 cents.
SU Suncor Energy Inc. – Shares are up by less than 1% to $25.45 after the Canadian company agreed to purchase rival Petro-Canada for $15.5 billion (USD). The all-share deal reported this morning will create the largest energy producer in Canada. SU edged onto our ‘most active my options volume’ market scanner after one investor focused in on the January 2010 contract. We believe that this trader enacted a call spread, although we note that the lots traded to the middle of the market. At the January 30 strike price, 9,000 calls were purchased for 4.75 each while the January 35 strike had 9,000 calls sold for 3.23 apiece. Additionally, the trader sold 6,000 calls at the January 40 strike price for 2.30 per contract as a vehicle to further fund the bull call spread. The net cost of the trade amounts to 1.52 before factoring in the sale of the 6,000 puts. After the premium on the January 40 calls is priced in it is evident that this trader put on all three legs of the trade at no cost to himself. In less than one year, this trader will be looking for upside movement to $35 in order to gain the maximum profit available on the trade of 5.00.
SWY Safeway, Inc. – The food and drug retailer has seen its shares rally by more than 4% to $20.38. SWY popped onto our ‘hot by options volume’ market scanner after investors took bullish stances. At the now in-the-money April 20 strike price traders picked up 2,500 calls for a premium of 95 cents apiece that has now been driven up to 1.25 per contract. At the April 22.5 strike 6,000 calls were picked up for 25 cents each as investors seem to be keeping their fingers crossed for continued share price rallies by expiration. In order to profit from the out-of-the-money calls, shares will need to climb by 11% to breach the breakeven point on the trade at $22.75. Option implied volatility has risen today from 40% to the current value of 50%.
