Today’s tickers: XLE, PFE, FRE, GLD, DELL, WLP, LMT & FNM
XLE – Shares of the energy fund are up more than 1% to $52.92. We observed near-term bearishness and medium-term bullishness displayed through options on the ETF today. A ratio put spread initiated in the September contract indicates near-term pessimism by some traders. The transaction involved the purchase of 2,500 puts at the September 52 strike for 1.69 apiece spread against the sale of 5,000 puts at the lower September 48 strike for 55 cents each. The net cost of the trade amounts to 59 cents and yields maximum potential profits to the downside of 3.41 if shares fall to $48.00 by expiration. Bullish sentiment was seen at the December 57 strike where 2,100 calls were coveted for 2.00 apiece. An 11.5% rally in shares to the breakeven price of $59.00 will allow this optimistic energy player to begin to amass profits by expiration in December. – Energy Select Sector SPDR ETF –
PFEA – Short straddle initiated in the pharmaceutical company’s January 2011 contract today suggests far-term bullish sentiment on the stock. Shares of PFE are currently higher by approximately 0.5% to $16.71. The straddle was enacted at the January 20 strike where 15,000 calls were shed for 1.12 apiece and 15,000 puts sold for 4.90 per contract. The gross premium on the transaction amounts to 6.02, and will be fully retained by the straddle-seller if shares settle at $20.00 by expiration. Over the next sixteen months shares must rally about 20% for the trader to bank the full 6.02 premium. If the stock fails to center at $20.00, the investor’s premium will erode down to zero if shares move sufficiently in either direction. Once the entire premium has evaporated, the trader will begin to accrue losses above the breakeven point to the upside at $26.02 or beneath the breakeven point to the downside at $13.98. We note that Pfizer has not traded above $20.00 since May 20, 2008. Nearer-term trades indicate that investors may be bracing for declines in the stock. The October 16 strike price had 4,100 puts picked up for 43 cents apiece while the higher December 17 strike had about 2,400 puts purchased at 1.34 per contract. – Pfizer, Inc. –
FRE – Investors were observed making bullish bets on Freddie today as shares soared higher than 30% at times to a maximum of $2.34. Shares are currently up 23% to stand at $2.12 this afternoon. Option traders positioning for a continued rally scooped up 4,100 calls at the September 3.0 strike price for 16 cents apiece. Optimism spread to the October 3.0 strike where more than 5,400 calls were coveted for 28 cents per contract. Shares of FRE must surge another 55% in order for call-buyers to breakeven at a price of $3.28 by expiration in October. Additional bullish action was seen at the October 2.0 strike where traders shed 1,200 puts for an average premium of 42 cents each. Investors short the puts receive the 42 cents premium in exchange for bearing the risk that the stock slips lower by expiration. If this should occur, traders will have shares of the underlying put to them at an effective price of 1.58 apiece. – Freddie Mac –
GLD – The gold exchange-traded fund had some interesting option trades initiated during the trading session. Shares of the underlying are currently down more than 1% to stand at $92.57. One investor was seen banking gains by enacting a closing purchase of a large short put position in the December contract. It appears that this trader originally sold 38,000 puts at the December 75 strike price for an average premium of 2.30 per contract back on May 6, 2009. Today he bought back the put options for about 37 cents apiece. The investor has enjoyed net profits of 1.93 per contract for a total of $7,334,000 by closing out the position today. Bullish action was observed in the March 2010 contract in the form of a call spread. It seems that one trader chose to purchase 16,000 calls at the March 100 strike for 4.60 apiece spread against the sale of 16,000 calls at the higher March 120 strike for 1.60 each. The net cost of the transaction amounts to 3.00 per contract and yields maximum potential profits of 17.00 in the event that the GLD rallies up to $120.00 by expiration. The investor will breakeven on the trade if the fund rises 11% from the current price to breach the breakeven point at $103.00 by expiration. – SPDR Gold Trust ETF –
DELL – The second-largest maker of personal computers attracted bullish attention this morning amid a more than 4% rally in shares to $15.07. The stock surged when it received an upgrade to ‘buy’ at Broadpoint AmTech. Investors itching for further upward momentum on DELL purchased approximately 8,000 calls at the now in-the-money September 15 strike price for an average premium of 69 cents apiece. Traders long the calls will begin to amass profits if shares rise 4% from the current price to surpass the breakeven point at $15.69 by expiration next month. Option implied volatility jumped 11% higher from Friday’s closing value of 41% to the current reading of 45.5%. – Dell, Inc. –
WLP – Option bears trudged around the health benefits company today and enacted pessimistic plays in the September and October contracts. Shares have edged less than 0.5% lower during the session to arrive at the current price of $54.62. Plain-vanilla put buying occurred at the near-term September 55 strike price where traders picked up about 2,600 in-the-money puts for 2.35 each. Finally, a large bearish reversal play was initiated by an investor who shed calls to fund downside protection. The reversal involved the sale of 10,000 calls at the October 60 strike price for a premium of 1.35 apiece spread against the purchase of 10,000 puts at the lower October 50 strike for 1.55 per contract. The net cost of the transaction amounts to 20 cents. Shares must fall approximately 9% lower by expiration in order for the trader to begin to accumulate profits beneath the breakeven point to the downside at $49.80. – WellPoint, Inc. –
LMT – The defense contractor’s shares were falling sharply in earlier trade despite a stronger open and before an option trader appeared to place an order banking on a rally for its share price before September expiration. Its shares reached $73.75 when one trader appears to have sold put options at the 70 strike in order to get long of calls at the 75 strike. The net of the two premiums leaves the investor facing a lower cost to get long the stock of just 55 cents. The trade has lifted a few eyebrows and clearly created some waves as some investors were forced to take the tone of the trade and buy into a brief rebound. The share price has been trapped between $73.11 and $77.16 for the past four weeks despite the recovery for the broader market. The stance taken today by one investor appears to be a smart move as he’s buying towards the bottom of this range while at the same time would benefit above a breakeven point at $75.55 within the next month in the event that investors were tempted to test the top of the channel. Implied options volatility was a little higher at 27% today. – Lockheed Martin Corp. –
FNM – Shares of the largest U.S. home funding company have sky-rocketed this morning, gaining more than 50% at times, and reaching an intra-day high of approximately $1.83. Bullish investors came out of the woodwork to covet near-term calls in the September contract. More than 16,000 calls were picked up at the September 2.0 strike for a premium of 23 cents apiece. The breakeven point on the transaction at $2.23 mandates that the stock climb another 22% before investors begin to amass profits. Bullish sentiment spread to the higher September 3.0 strike where some 5,000 calls were coveted for an average premium of 8 cents per contract. Shares would need to climb a whopping 68%, or 1.25 higher, for investors to realize profits by expiration. Signs of extraordinary movements in the underlying were evident last week as volatility on the stock jumped. Option implied volatility on FNM surged 36% higher from the opening reading of 147%, to reach an intra-day high of 200%. – Fannie Mae –
