Whirlpool Call Buyers in a Spin Over New Chinese Factory

By option_review

July 16, 2009

495

Today’s tickers: WHR, MRK, EBAY, RHI, XLP, MOS, GE, LSI & MGM

WHR – The manufacturer of appliances and products for home use experienced a 7% surge in shares to $53.34 after announcing yesterday that it has opened a new factory in China with another appliance company known as Hisense-Kelon Electrical Holdings. Option traders were seen buying bullish call options at the July 55 strike price where 2,800 lots were scooped up for 28 cents each. One investor was seen locking into gains by purchasing a put spread in the August contract. The August 50 strike price had 2,200 puts bought for 2.61 apiece spread against the sale of 2,200 puts at the lower August 44 strike for a premium of 86 cents. The net cost of the spread amounts to 1.75 and yields maximum potential profits of 4.25 if shares of WHR recede to $44.00 by expiration next month. Finally, additional bullishness was observed as high as the August 60 strike price where traders bought 1,200 calls for an average premium of 1.37 per contract. Option implied volatility on Whirlpool has been steadily rising over the past two days, opening at about 53% on Wednesday and increasing to the current reading of 60%. – Whirlpool Corp.

MRK– The pharmaceutical company appeared on our ‘hot by options volume’ market scanner this afternoon after a ratio put spread was implemented in the October contract. The investor responsible for the transaction appears to be positioning for continued downward movement in the stock. Shares are currently lower by less than 0.5% to $27.69. The ratio spread involved the purchase of 5,715 in-the-money puts at the October 29 strike price for a premium of 2.70 each against the sale of 11,440 puts at the lower October 26 strike for 1.20 per contract. By selling twice as many puts, the investor reduced the cost of the transaction to just 30 cents. Thus, he will attain the maximum profits available of 2.70 if the stock declines to $26.00 by expiration. – Merck & Co., Inc.

EBAY – Shares of the online marketplace have enjoyed a rally of more than 4% today to arrive at the current price of $18.61. Investors who are hoping for continued upward movement in the price of the underlying were seen positioning themselves in the August contract. Approximately 6,500 call options were coveted at the August 20 strike price for a premium of 34 cents apiece. EBAY’s shares must rally higher by about 9% in order for call-buyers to begin to garner profits beginning at the breakeven price of $20.34. – eBay, Inc.

RHI – Shares have slipped by about 3.5% to $21.86 today for the firm which provides specialized staffing and risk consulting services. The RHI ticker symbol edged onto our ‘hot by options volume’ market scanner after one trader initiated a bearish put spread in the August contract. The investor positioning for near-term downward movement in the price of the stock has established the put spread just ahead of the firm’s second-quarter earnings that are due for release on Tuesday July 21, 2009. At the August 20 strike price, 5,500 puts were purchased for a premium of 70 cents apiece and spread against the sale of 5,500 put options at the lower August 17.5 strike for 20 cents each. The net cost of the transaction amounts to 50 cents and yields maximum potential profits of 2.00 per contract if shares can decline to $17.50 by expiration. Shares must fall approximately 11% before the investor begins to amass profits starting at the breakeven share price of $19.50. – Robert Half International, Inc.

XLP – The consumer staples fund attracted bullish investors to pick up call options across multiple contracts today even though shares of the ETF are currently off by less than 0.5% to $23.72. Near-term bulls picked up 1,300 calls at the August 24 strike price for 40 cents apiece, as well as 1,600 calls at the higher August 25 strike for a dime per contract. Those traders who are biding their time, looked to the December 26 strike price to covet 3,900 calls for an average premium of 25 cents apiece. Shares of XLP must rally higher by about 11% before traders begin to profit above the breakeven point at $26.25. Finally, the January 2010 24 strike attracted one investor to scoop up 20,400 calls for 1.02 per contract. The price of the stock must increase to $25.02 within the next six months for the trader to breakeven on today’s transaction. – Consumer Staples Select Sector SPDR

MOS – Earlier this week shares in this fertilizer company jointly owned by commodity behemoth Cargill and agricultural firm IMC Global, were trading just under $40. Today shares breached $50 after a Sao Paulo-based newspaper ran a story suggesting local company Vale might buy the company. The price tag of $25 billion infers a further 10% possible gain for shares of Mosaic, which is based in Minnesota. Option traders wasted no time snapping up calls expiring tomorrow promising buyers rights to secure the stock at $50 per share. The premium surged amid the uncertainty reaching 1.75 per 100 shares having closed yesterday at 30 cents apiece. With a declining dollar and rising commodity prices over the last few days, call activity has been evident in Mosaic’s options especially in the July contract, which expires this weekend. We find the rise in open interest at the 45 and 40 strikes curious given the fact that unless shares settle above $50 on Friday, money spent will be worthless. Option implied volatility rose from 65 to 70% amid today’s activity. – The Mosaic Company

GE – On the eve of earnings shares in GE are down 1.5% at $12.05, which is making option trading an active pastime today. There are twice as many 12 strike puts at play as there are calls in the July contract today with some 32,000 bearish contracts changing hands at 34 cents. Investors bought both calls and puts after the opening bell in what might be straddle plays in the expectation of a big move in either direction after earnings tomorrow. Some 6,000 option combinations may have traded at a price of 68 cents. Option pricing currently expects that shares in GE will remain within a range after earnings of between $11.66 and $12.34. Decent call volume of 12,900 contracts has changed hands at the July 13 strike. Delta on these call options currently shows a one-in-eight chance of a rally of 7.9% to reach $13.00 before Friday’s closing bell. – General Electric

LSI – Semiconductor maker LSI saw heavy volume in its options today but the activity is largely confined to jostling by a sole investor who rolled forward a long 31,000 lot call position from the July to September contract at the same strike. Shares in the company are trading at $5.15 and are higher today by 3.4%. The investor paid a 50 cent premium for the privilege of staying long with the September strike carrying a 70 cent premium. – LSI Corporation

MGM – It would require a two-month long rally of 57% in shares of the casino and hotelier to reach $10.00 after a 1.7% decline today as its shares are trading at $6.34. Yet one bullish investor appears to have traded a butterfly using September calls at the 7.5/10 and 12.5 strikes involving around 27,000 lots. The net premium paid amounts to 30 cents and means that if shares did rally to the central $10 strike by expiration the investor would reap 2.30 per contract. Shares did reach $13.60 during bullish days in May on optimism over financing prospects at the company. They subsequently traded back to $5.51. – MGM Mirage

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