Today’s tickers: BAC, HAL, XLE, LVS, AIG, HD & AUXL
BAC – Shares of BAC have gained 2% during the trading session to arrive at the current price of $17.10. A bull call spread established in the January 2010 contract today suggests that one investor expects the stock to rally by expiration next year. It appears that the trader has purchased 15,000 calls at the January 17.5 strike price for an average premium of 2.18 apiece spread against the sale of 15,000 calls at the higher January 22.5 strike for 69 cents each. The net cost of the transaction amounts to 1.49 and allows for maximum potential profits of 3.51 per contract if the stock climbs to $22.50 by expiration. Shares must increase approximately 11% before the investor responsible for the trade breaks even at a price of $18.99. If the stock surges 31.5% higher than the current price, the trader will have realized maximum profits of 3.51 per contract for a total of $5,265,000. – Bank of America Corp. –
HAL – The oil and gas company has enjoyed a more than 2.5% rally in shares to $24.27, prompting some traders to scoop up call options in the September contract. The September 26 strike price had more than 7,000 calls exchange hands this afternoon on previous existing open interest of just 425 contracts. More than 4,200 of those calls were purchased for an average premium of 40 cents apiece. Investors long the calls are hoping to see shares of HAL rise at least 9% to breach the breakeven price on the transaction at $26.40 by expiration. Additional call action was observed at the September 25 and 27 strikes which sandwich the central September 26 strike where the most call activity took place. – Halliburton Co. –
XLE – If the price of crude oil is above $70 per barrel when so many investors are questioning the validity or at least the sustainability of the prevailing recovery, what then are the prospects for oil in 16 months time? One option trader appeared to trade in costly put options expiring in December 2010 in exchange for less expensive call options that would benefit from a rally in the energy sector. A bullish reversal in the December 2010 contract indicates long-term optimism by option traders expecting the energy sector to appreciate over the next 16 months. Despite a dip in the share price to $45 around one month ago, resurgent woes over economic growth have failed to put a dent in the current price of the XLE at $50.82. It appears that this investor expects energy prices to be one-way traffic when the recovery finally arrives. The reversal play involved the sale of 6,500 deep in-the-money puts at the December 2010 55 strike price for a premium of 10.55 apiece, spread against the purchase of 6,500 calls at the same strike for 5.40 per contract leaving the investor pocketing a net credit of 5.15. That would be enough to cushion any blow down to $49.85 should shares be put to him at expiration. Open the gushers above the 55 strike price. – Energy Select Sector SPDR –
LVS – The casino operator continues to impress investors and an earlier announcement from the company that it had filed an application to possibly list on the Hong Kong Stock Exchange. Such a listing implies selling a minority interest in its Macau operations in order to raise a billion or two dollars according to one analyst. The liquidity constraint that the company faced thanks to the recession appears to be lifting shares, which rose 4.3% today to $13.29. September and December call options pinpoint further gains in the stock over coming months. The 15 strike expiring next month attracted buying in 5,500 contracts at prices up to 70 cents, while more optimistic investors paid premiums of up to 1.30 for December 17.5 strike calls. Options implied volatility continues to ameliorate at 85%, but shares still need to breach the $14.00 high of last week to attract more buying. – Las Vegas Sands Corp. –
AIG – The insurer appeared on our ‘top option implied volatility % gainers’ market scanner this morning amid higher investor uncertainty regarding the stock’s price. Volatility on the AIG is currently soaring 26% higher to 138% amid a more than 27% rally in shares to $33.87. The huge boost in value of the stock stems from news that AIG’s new CEO, Robert Bonmosche, revealed that he expects the firm will be able to repay bailout funds received from the U.S. government. Frenzied options activity was observed since the opening bell this morning, and traders have currently exchanged more than 315,000 option contracts on the stock. Notable trading occurred in the August contract which expires tomorrow afternoon. Optimistic investors picked up more than 10,000 calls at the August 35 strike price for about 99 cents each. Uber-bullish traders coveted 8,000 calls at the higher August 40 strike for an average premium of 41 cents per contract. These contracts will expire worthless tomorrow unless shares of AIG breach $40.00. Further, investors will only realize profits if the stock surges an additional 19% to surpass the breakeven point at $40.41. Higher strikes were targeted in the September contract by option bulls itching for further upside. The September 55 strike had about 1,200 calls purchased for 59 cents each while the sky-high September 60 strike price had 1,100 calls scooped up for 39 cents apiece. – American International Group, Inc. –
HDA – long-term bearish stance taken by one investor in the February 2010 contract pushed the home-improvement retailer onto our ‘most active by options volume’ market scanner this morning. Shares of HD are trading about 0.5% lower to stand at $26.67. Second-quarter results for the company revealed that same-store sales slipped 8.5% lower and likely contributed to the 7% decline in profits. However, earnings beat analyst expectations due to cost cutting efforts, which lowered operating costs for the quarter by 8%. Perhaps the pessimistic options play we observed was motivated by an individual who expects continued weakness in sales for HD through expiration day in February. It appears that the trader shed 7,300 calls at the just out-of-the-money February 27 strike price for a premium of 2.06 apiece in order to partially finance the purchase of 7,300 just in-the-money puts at the same strike for 2.85 each. The net cost of the bearish reversal amounts to 79 cents and yields profits beneath the breakeven point at $26.21. The investor responsible for the transaction is likely anticipating share price erosion for Home Depot over the next six months. – Home Depot, Inc. –
AUXL – The specialty biopharmaceutical company appeared on our ‘hot by options volume’ market scanner after a ratio put spread was initiated in the September contract. Shares of AUXL are currently less than 0.5% higher to $28.99. The put spread observed suggests that traders anticipate near-term declines in the stock. The transaction involved the purchase of 5,000 puts at the September 25 strike price for a premium of 2.30 apiece spread against the sale of 3,350 puts at the lower September 22.5 strike for 1.35 each. The uneven ratio makes calculating the breakeven point a bit trickier, but suffice it to say, the intended bias to the play is down but not too hard. Such a combination could be the work of shareholders slightly concerned and seeking some protection against an adverse move. At least 1,650 of the higher strike puts are not funded by the sale of lower strike puts. Thus, it is possible to say that these 1,650 contracts will yield profits in the event of a 22% decline in shares through the breakeven price of $22.70 by expiration. – Auxilium Pharmaceuticals, Inc. –
