Today’s tickers: RF, MSFT, F, VMW, FXI, AGN, WYE, XRT & COH
RF Regions Financial Corporation – The banking firm has slipped by more than 5% to $5.50 today, spurring option traders to heavily favor puts by a factor of four times to every call in action on the stock. We observed one investor looking to profit from further downward movement in shares by enacting a put spread in the near-term May contract. At the May 5.0 strike price he purchased 15,000 puts for an average premium of 50 cents apiece spread against the sale of 15,000 puts at the May 4.0 strike for 25 cents each. The net cost of the spread amounts to 25 cents and yields a maximum potential profit of 75 cents if shares decline all the way to $4.00 by expiration. He begins to garner profits to the downside beginning at the breakeven share price of $4.75. Another bearish trader targeted the now in-the-money May 6.0 strike price and appears to have bought 13,000 puts for an average premium of 1.05. Pessimism on the stock spread to the June 7.0 strike price where it appears that one investor sold 2,500 calls for 70 cents apiece in exchange for getting long 2,500 puts at the in-the-money June 7.0 strike price for 2.05 per contract. The net cost of the downside protection amounts to 1.35 and has already begun to amass profits for this investor as shares are currently below the breakeven point on the trade of $5.65.
MSFT Microsoft Corporation – Shares have dipped slightly by less than 1% to $18.65 ahead of its earnings conference call scheduled for 5:30 PM (EST) today. Street estimates place third quarter earnings at 39 cents per share. Our attention was drawn to one bullish investor looking to get long of call options in the October contract. It appears that this trader sold 5,113 puts at the October 16 strike price for a premium of 1.19 apiece in order to finance the purchase of 5,113 calls at the October 21 strike for 1.11 each. The investor has banked an 8 cent credit on the trade and is looking for shares to rally by about 13% by expiration in order to for the calls to land in-the-money, and for the premium on the calls to grow richer over time.
F Ford Motor Co. – Shares of the automotive company have rallied by more than 2.5% to $4.40 hot on the heels of Goldman Sachs’s upgrade of the firm to its “Conviction Buy” list and the revision of its target price to $6.00 yesterday. The analyst at Goldman does not believe a declaration of bankruptcy is likely from Ford and sees the company maintaining its stronger position as compared with Chrysler and General Motors. Late in the trading day, Ford jumped higher up on our ‘most active by options volume’ market scanner after one investor looks to have sold 50,000 calls for an average premium of 1.90 at the January 2011 5.0 strike price in order to get long of 50,000 puts at the same strike for 2.65 apiece. The net cost of the downside protection amounts to 75 cents and yields profits at any share price below the breakeven point at $4.25 by expiration. We believe that it is likely that this investor is long of shares of Ford and is looking to lock into gains made on the rise in shares at some point since the 52-week low of $1.02 was realized on November 20, 2008. He may also be seeking to protect his stock position by profiting from downward movement in shares should Goldman’s higher target price for the firm fail to come to fruition over the next couple of years. Option implied volatility was driven higher today from about 87% at the start of today to the current reading of nearly 100%.
VMW VMware, Inc. – Shares of the virtualization company have plummeted by nearly 20% to $26.17 after the firm dispensed the good news with the bad, so to speak. The good news is that earnings for the first quarter were up to 18 cents per share from the 11 cents earned one year ago. However, the bad news that VMW sees its second-quarter revenue falling short of expectations, weighs heavily on the share price today. We observed one investor who was able to profit significantly from a short sale established earlier this week. It appears that this trader sold about 2,800 calls at the May 30 strike price for 2.45 apiece on April 21st, and today closed out the short position by buying the calls back for a mere 70 cents per contract. Thus, the net profit enjoyed on the strategic play amounts to 1.75. Option implied volatility on VMware has come off since yesterday’s reading of 73% to the current value of 65% following the dispersion of earnings news to investors.
FXI iShares FTSE/Xinhua China 25 Index Fund – The China ETF has rallied by about 1.5% to $31.65. The FXI ticker symbol jumped onto our ‘most active by options volume’ market scanner after a couple of large volume trades were observed in the January 2010 contract. It appears that one investor sold some 30,000 puts at the January 23 strike price for 2.15 apiece. The sale represents fresh interest at the strike and implies that this trader is now short 30,000 put options. He will retain the full premium as long as shares remain above $23.00 by expiration next year. We also witnessed another investor taking a bullish stance at the January 2010 37 strike price by purchasing 2,700 calls for a premium of 2.73 per contract. In order to profit from the position, shares would need to zoom upwards by 25% over the next nine months and surpass the breakeven point at $39.73 by expiration. Overnight the Chinese government said ongoing infrastructure revival efforts will drive growth back to 9% this year and 10% next year.
AGN Allergan, Inc. – The multi-specialty health care company attracted bullish option traders this morning amid continued rumors that GlaxoSmithKline (GSK) may be interested in acquiring the firm and a jump in option implied volatility from 55% yesterday to the current value of nearly 61%. Shares of AGN have gained slightly by about 0.5% to stand at $46.88. We observed fresh buying interest at the May 55 strike price by traders looking for shares to rally by expiration next month. Investors scooped up more than 3,000 call options at the May 55 strike for an average premium of 81 cents per contract. In order to amass profits shares would need to explode upwards by about 19% to the breakeven point at $55.81.
WYE Wyeth – The pharmaceuticals company is slightly higher today by less than 0.5% to $42.02, but appeared on our ‘most active by options volume’ market scanner immediately after the opening bell as option traders looked for downside protection on the stock. We observed some 4,500 puts purchased for a premium of 1.40 per contract at the just in-the-money June 42.5 strike price. Healthcare was downgraded to ‘market weight’ from ‘overweight’ by Standard & Poor’s this morning due to an expected less defensive stance on the market coupled with ‘tailwinds’ from regulators and US administration. Perhaps the put-buyer in the June contract sees such ‘tailwinds’ weighing on large firms such as Wyeth, and is thus looking to profit from downward movement in shares. This trader will begin to reap the benefits of a long put position if shares decline by 2% from the current share price to the breakeven point at $41.10 by expiration.
XRT Retail Select Sector SPDR – The retail ETF edged onto our ‘most active by options volume’ market scanner after a few bearish investors sunk their claws into put options. We noticed similar pessimistic activity on the Consumer Discretionary ETF (XLY) yesterday as one trader picked up more than 50,000 put options. Shares of the retail fund are currently off by about 2% to $25.90 and trading activity in the June contract suggests an overall bearish tone as we head into the summer. One trader established a put spread by purchasing 6,600 puts at the June 26 strike price for 1.94 apiece spread against the sale of 6,600 puts at the June 22 strike for a premium of 66 cents each. The net cost of the spread amounts to 1.28 and yields a maximum potential profit of 2.72 if shares fall to $22.00 by expiration. Another bear wedged his position in between the strike prices selected in the put spread described above by buying 15,000 puts at the June 24 strike price for 1.24 each. This investor has not limited his potential gains to the downside as seen with the spread, and he begins to garner profits at any share price below the breakeven point at $22.76.
COH Coach, Inc. – The designer and marketer of high-quality handbags and accessories has given back some of the gains recorded earlier this week. Shares have dipped by more than 3.5% to $21.97 amid general pessimism observed through options activity in the retail sector. One investor appears to have sold more than 11,700 calls short at the May 25 strike price for an average premium of 35 cents. The 35 cent premium is enjoyed for bearing the risk that shares rally by expiration in May above the breakeven point at $25.35, at which point potentially unlimited losses would begin to amass. It looks as though this trader does not see shares rising by more than 15% from the current price by the third Friday in May.
