Lexmark Call Buyers Out In Force

By option_review

July 14, 2009

455

Today’s tickers: LXK, EEM, MT, VIX, HUM, IPI, MIR & UNH

LXK – The world’s fifth-largest printer and toner seller announced that printers with internet connectivity and programmable software will be available in September. Shares of LXK have enjoyed an approximate rally of 2% to $18.13. Investor’s bullish on LXK concentrated their interest in call options on the stock today. The now in-the-money August 17.5 strike price had about 1,700 calls picked up for an average premium of 1.25 apiece. Investors long of these calls are hoping shares of LXK will rise 3% from the current price to surpass the breakeven point at $18.75. Traders who are looking for an even sharper rally bought 2,000 calls at the higher August 20 strike for 35 cents per contract. Shares would need to climb higher by 12% before traders breakeven at a price of $20.35. Option implied volatility surged to 52% on the stock, up from yesterday’s reading of about 46%. – Lexmark International, Inc.

EEM– Shares of the emerging markets fund have climbed approximately 1% to stand at $31.40. The spread of a massive number of put options between the July and August contracts caught our attention today as one investor looks to be taking a bearish stance on the exchange-traded fund. It appears that some 73,000 puts were sold at the July 31 strike price for an average premium of 37 cents apiece and spread against the purchase of 73,000 puts at the lower August 30 strike for 1.07 each. The net cost of the calendar spread amounts to 70 cents to the party responsible for the transaction. Shares of EEM would need to decline by about 7% before the investor begins to garner profits at the breakeven point to the downside at $29.30. – iShares MSCI Emerging Markets Index

MT– The steel producer attracted the attention of bearish traders today amid a very slight dip in shares by less than 0.5% to $30.84. The near-term July 30 strike price saw the short sale of approximately 3,100 in-the-money calls for a premium of 1.30 per contract. Given the high degree of risk inherent in uncovered call selling, it would seem that the investors responsible for writing the calls expect shares of MT to fall below $30.00 by expiration. The full 1.30 premium received for the sale will be retained as long as the call options land out-of-the-money by this coming Friday. Additional bearishness was observed in the form of a calendar roll. One investor appears to have sold 6,300 puts at the July 30 strike for 45 cents each in order to purchase 6,300 puts at the August 30 strike price for an average premium of 2.40. The net cost of extending downside protection through to expiration in August amounts to 1.95 to the investor. Profits will amass to the downside if the stock falls beneath the breakeven price of $28.05. – ArcelorMittal ADS

VIX – Investors continue to assign lower relevance to the reading of implied volatility via the equity option market. Last week’s run on the stock market only provoked a rise to a reading of 33.0 for the Vix, commonly taken as Wall Street’s fear gauge. We still take the view that much of the world’s problems have at the very least been quantified and given the scope of measures employed in dealing with them, the likelihood of a sustained rise in volatility would appear to be low. Investors appear to be acting along those lines at least. Today we noted the sale of around 10,000 August-cycle call options with a 30 strike price at premiums ranging from 2.90 to 3.20. If the Vix index remains below the strike through expiration, such calls are worthless. Today the Vix index has once again fallen and hovers just above the end of June lows at 25.55. – CBOE Vix Index

HUM – Bearish put buying was observed on Humana today after the full-service benefits solutions firm failed to win the bidding process for contracts with the U.S. Defense Department worth approximately $55.5 billion. Shares have slipped more than 5% to the current stock price of $28.94. Investors fearful of further downside movement in the stock looked to the near-term July 27 strike price where 4,500 put options were purchased early on in the trading day for a premium of 20 cents apiece. The puts will yield downside protection for investors long the underlying stock (or profits for investors short the stock) beneath the breakeven share price of $26.80 through expiration. – Humana Inc.

IPI – Near-term bullish investors eyeing call options on IPI today were seen positioning for upward movement in the price of the stock despite the downgrade to ‘underperform’ the potash producer received from analysts at Oppenheimer & Co. yesterday. Shares of Intrepid are currently off by 1% to $22.74. Traders hoping for a rally picked up 1,400 in-the-money calls for a premium of 1.14 each at the July 22.5 strike price. Shares would need to rally about 4% for investors to begin to amass profits at the breakeven point of $23.64 by expiration. Other optimistic individuals looked to the higher July 24 strike to purchase 1,700 calls for 63 cents apiece. Finally, 1,600 call options were coveted as high as the July 25 strike for an average premium of 28 cents per contract. Investors long of the July 25 strike calls will begin to accrue profits if shares can rally 11% from the current price to breach the breakeven point at $24.28. – Intrepid Potash, Inc.

MIR – At least one option trader appears determine to maintain a bullish stance on independent energy producer, Mirant, whose shares stand up 2.6% at $15.26. It looks as though an earlier plan hatched June 9 to get long of calls at the July 15 strike has been scotched by a subsequent decline in the share price. When the investor originally bought 10,000 calls securing buying rights over a million Mirant shares at $15 apiece, the stock was trading at $16.54. Heading into expiration the slump in prices of crude and heating oil along with the price of natural gas has depressed shares at Mirant. Having paid a 2.05 premium at the time, the investor hoped to walk away as a shareholder by expiration at the end of this week. That’s looking like a decidedly risky bet just now, which helps explain the roll of those July 15 calls and into September 12.50 calls this morning. The investor paid a net 2.70 premium in an effort to stay long of Mirant after Labor Day. The recent decline at Mirant has been fostered by the view that the economic recovery is likely to falter, which has ushered in a greater deal of sensitivity to an over-supply of crude oil. This investor hopes to see through this argument. – Mirant Corp.

UNH– Bullish news regarding the health and well-being company had boosted shares earlier in the trading day, although the stock is currently off by 1% to $24.72. UnitedHealth Group received new coverage by an analyst at Wells Fargo who rated the firm at ‘market perform’ today. Additionally, UNH (along with Aetna Inc. and TriWest Healthcare Alliance Corp.) won contracts valued at about $55.5 billion to provide managed care for the U.S. Defense Department over the next six years. Despite the bullish news surrounding the Minnetonka, Minnesota-based company, option traders were seen purchasing put options. The near-term July 24 strike price had about 10,200 put options purchased for an average premium of 27 cents apiece. Perhaps the investors responsible for the trades are long the stock and cautiously optimistic in the near-term, thus are buying put options in order to lock into recent gains experienced by UNH. Otherwise, the put options could be held by bearish traders who expect to profit beneath the breakeven point at $23.73 by expiration. – UnitedHealth Group, Inc.

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