Bank of America Bet to $16 by August

Today’s tickers: BAC, FXI, JWN, WFC, XHB, CNQ, ANF & PEP

BAC– And finally today, one investor apparently sees a 60% improvement in the prospects for shares over at BAC having placed a 60,000-lot trade on the PHLX to lock-in to the bank’s shares at $16.00 apiece come August. The trader bought 60,000 call options at the strike while selling the same amount of 20 strike calls for a net premium of 46 cents. Ordinarily the speculation would have cost the investor 72 cents, but the use of the premium at the 20 strike eroded the cost significantly. Currently the premium associated with securing rights to buy BoA shares at twice the current cost is a staggering 28 cents! With shares trading around $10.73 and down more than 5% at the end of trading today, this investor is taking a very bullish perspective on the company and allowing only a pretty tight schedule. The same tried in November might have cost around 60 cents instead but would have provided three more months to come good. – Bank of America Corp.

FXI – Shares of the China ETF are down 1% to $33.44, but one covered put strategist sees further bearish movement in the stock through expiration in June. It appears that this individual sees Chinese stocks giving back some of the gains made in the rally that followed the release of the stimulus package by the Chinese government. He established the covered put by selling short the stock in conjunction with the simultaneous short sale of 33,955 put options at the June 32 strike price for a premium of 1.13 apiece. This strategy was transacted when shares were at $34.09, just three cents off of the high for the day. The investor is likely looking to have shares put to him at $32.00 when the underlying price falls low enough for the puts to wind up in-the-money. The premium received for writing the puts today effectively lowers the price he must pay, should shares be put to him by expiration, to $30.87. Should this scenario come to fruition, he will have gained 9% on the stock. – iShares FTSE/Xinhua China 25 Index Fund

JWN – The fashion specialty retailer attracted bearish option plays despite a significant bullish move in the price of the underlying stock which is currently up more than 7.5% to $22.56. The department store-chain reported yesterday that first-quarter profits fell less than expected due to tighter inventory controls enacted to counter weakened consumer discretionary spending habits in this recessionary environment. JWN is hoping to achieve earnings of $1.50 per share for the year and managed to attain first-quarter earnings of 37 cents per share. Option traders have not let their guard down, however, and remain wary of “better-than-expected” results. Investors were seen selling 1,000 calls at the June 24 strike price for 1.09 each as well as 1,000 calls at the July 24 strike for 1.63 per contract. Finally, bearish sentiment spread to the October 15 strike price where some 4,000 put options were purchased for about 1.22 each. These protective puts will begin to yield profits to the downside if shares of JWN decline by 39% to the breakeven point at $13.78 by expiration. – Nordstrom, Inc.

WFC– Shares of the financial services company are off by more than 2.5% to $24.99 today amid declines observed in a number of the large TARP-recipient banks. One bearish investor foresees a not-so-Wells Fargo as evidenced by the massive put spread he established in the October contract today. The trader purchased 25,000 puts at the October 18 strike price for a premium of 1.97 apiece which were spread against the sale of 25,000 puts at the lower October 13 strike for 72 cents each. This individual incurs a net cost of 1.25 for the spread and has the potential to accrue maximum gains of 3.75 if shares declined to $13.00 by expiration. The stock would need to fall approximately 33% to the breakeven point at $16.75 before profits begin to amass to the downside. WFC’s shares last traded near the $13.00 dollar mark in March and have since rallied up to the current price. The stock would need to tumble back down over the next five months in order for the investor to walk away with maximum gains. – Wells Fargo & Co.

XHB – Shares in the homebuilders ETF have climbed more than 1% to stand at $12.24. The September contract was targeted by one medium-term bull looking for a recovery in the housing market in four months time. He appears to be optimistic that housing has reached a bottom. The September 17 strike price saw heavy trading at an average premium of 26 cents apiece. Today’s purchase of 20,000 calls is no anomaly as it has been added to another long call position representing the 32,000 lots of open interest at this strike. Shares of the fund would need to rally by about 41% from the current price in order to breach the breakeven point at $17.26 by expiration. – Homebuilders Select Sector SPDR

CNQ – Shares of Canada’s second-largest gas producer have continued to decline today, down another 2.5% to $49.56. CNQ helped lead Canadian fuel producers lower yesterday following disappointing U.S. retail sales data indicating a break in rallies seen in crude oil and natural gas. Option investors were observed bracing for continued bearish movement in the stock today. The June 49 strike price witnessed the sale of 2,400 in-the-money calls for an average premium of 3.70 each suggesting that some traders expect the calls may not be in-the-money by expiration next month. The full premium will be retained if shares fall below $49.00. One medium-term bear hoping to profit to the downside looked to the September contract and established a put spread. The investor bought 2,000 puts at the September 47 strike price for 5.20 each and sold 2,000 puts at the September 38 strike for 1.90 apiece. The net cost of the spread amounts to 3.30 and yields a maximum potential profit of 5.70 if shares were to decline to $38.00 by expiration. This individual will begin to amass profits if shares fall by another 12% through the breakeven point at $43.70 over the next four months. – Canadian Natural Resources Ltd.

ANF – The teen-apparel retailer made an appearance on our ‘hot by options volume’ market scanner this morning after reporting a first-quarter loss of 31 cents per share. Just one year ago the premium branded clothier reeled in 69 cents per share when the living was easy and customer’s wallets weren’t locked up tighter than Fort Knox. ANF’s sales have been truncated some 30% in stores open at least one year as cash-strapped consumers cut back on unnecessary purchases or else opt for products occupying a lower price range. Option traders exchanged more than 23,000 contracts on the stock amid a more than 2.5% decline in shares to $26.50. Puts traded two times to every call indicating a general concern that ANF’s share price will continue to struggle. The June 28 strike price witnessed the sale of more than 1,000 calls for an average premium of 78 cents apiece. Such a trade suggests that investors do not see shares making bullish moves by expiration. Abercrombie & Fitch was one of the top stocks on our ‘top option implied volatility % losers’ scanner as its volatility sank to 52% this morning down from yesterday’s high of about 70%. – Abercrombie & Fitch Co.

PEP – Global beverage, snack, and food company, PepsiCo, has experienced a share price decline of more than 1% to $50.25 amid continued efforts by the firm to acquire regional U.S. bottling companies. PepsiCo recently purchased a 70-employee bottler in Massachusetts, its fourth acquisition in the past fifteen months. One investor purchased 15,000 at-the-money puts at the October 50 strike price for a premium of 3.60 each. Such a position may represent outright protective put buying. Otherwise, the trade could be the work of an investor who appears to have sold 30,000 puts short back on April 28, 2009 for 4.20 apiece at the October 50 strike. If this is the case, the trader has closed out half of the short position by buying 15,000 puts today for 3.60, taking in a profit of 60 cents per contract. – PepsiCo, Inc.