Today’s tickers: SAY, UNG, DVN, BJS, AXP, & IP
SAY – The global IT solutions provider popped up on our ‘hot by options volume’ market scanner this afternoon after bullish call activity was observed in the near-term September contract. Shares of the firm have rallied higher by more than 16% during the session to stand at the current price of $6.37. Investors appear to have purchased approximately 4,000 calls at the September 7.5 strike for an average premium of 35 cents apiece. Shares of SAY would need to surge 23% higher in order for traders long the calls to begin to amass profits above the breakeven price of $7.85. Bullish sentiment spread to the October 7.5 strike where another 1,600 calls were scooped up for a premium of 51 cents. Option implied volatility on Satyam has exploded upwards from an intraday low of 74% to the current reading of 120%. We note that the 15,000 contracts exchanged on the stock today represent more than 54% of the total existing open interest on SAY of 27,735 lots. – Satyam Computer Service Limited –
UNG – Shares of the natural gas exchange-traded fund have slipped 4.4% lower today to reach a 5-year low of $10.64. Despite the present weakness in UNG, one investor was seen making far-term bullish bets on the fund by targeting the April 2010 contract. It appears that the trader established a bullish reversal play by shedding 3,000 puts at the April 10 strike for 1.85 apiece in order to purchase 3,000 calls at the higher April 11 strike for 1.82 each. The trader receives a net credit of 3 pennies per contract and has positioned himself to add to his gains if shares rally higher than $11.00 by expiration. The short put position indicates that the investor is happy to have shares put to him at an effective price of $8.15 in the event that the put options land in-the-money by expiration. Shares need only remain higher than $10.00 for this individual to retain the 3 cent credit indefinitely. – United States Natural Gas ETF –
DVN – The independent energy company appeared on our ‘most active by options volume’ market scanner following contrarian options activity in the January 2011 contract. Shares of DVN may have slipped more than 2% lower to $61.15 today, but did not deter one option trader from initiating a bull call spread on the stock. Hoping for significant appreciation in the value of the underlying, the investor purchased 5,000 calls at the January 70 strike price for an average premium of 7.95 apiece, and simultaneously shed 5,000 calls at the higher January 100 strike for 1.77 each. The net cost of the spread amounts to 6.18 per contract and yields maximum potential profits of 23.82 if shares rally up to $100.00 by expiration in 2011. Shares of DVN must rally 25% to surpass the breakeven point at $76.18 in order for the call-spreader to begin to accumulate profits. Approximate gains of 64% from the current share price are required for the trader to bank the maximum profits available on the transaction of 23.82 per contract or a total of $11,910,000. – Devon Energy Corp. –
BJS – Shares of the provider of pressure pumping services to the petroleum industry surged 7% to $16.55 after the third-largest oilfield-services provider, Baker Hughes Inc., agreed to purchase the company for $5.5 billion. Option traders expecting continued gains in the price of the underlying scooped up about 5,300 calls at the now in-the-money September 16 strike price for an average premium of 85 cents apiece. Call-buyers will begin to accumulate profits if shares of BJS continue to climb through the breakeven point on the trade at $16.85 by expiration. Other option strategists locked in gains by purchasing 1,600 puts at the September 16 strike for 39 cents each. If the stock should surrender recent gains, investors holding the puts realize profits to the downside beneath the breakeven price of $15.61. Option implied volatility on BJS imploded at the start of the session, falling from 46% on Friday to an intra-day low of 39% today. – BJ Services Company –
AXP – Shares of the global payments and travel company are lower today by more than 1.5% to stand at the current price of $33.72. One option trader was observed bracing for continued bearish movement in the stock as he established a put spread in the October contract. The pessimistic transaction involved the purchase of 5,000 puts at the October 30 strike price for 1.00 per contract spread against the sale of 5,000 puts at the lower October 25 strike for 25 cents apiece. The net cost of the spread amounts to 75 cents and yields maximum potential profits of 4.25 if shares were to decline to $25.00 by expiration. Profits would begin to amass for the trader in the event that shares of AXP edge 13% lower to breach the breakeven point at $29.25. Option trades on the stock today painted a seemingly gloomy picture as investors exchanged more than 3 put options on AXP for every call option in play. – American Express Co. –
IP – Following an assessment from Steven Sears in Barron’s, shares in International Paper are higher – in particular he highlights a short strangle strategy that Credit Suisse analysts say would do well in the event that traders options premiums deflate somewhat as the earnings outlook improves. Currently the options market is positioned too defensively, argues the analysis and enables investors to sell both call and put premium to benefit from likely upgrades on earnings. However, the call buying we’re seeing today is adversely driving implied volatility higher as the shares have swung from an intraday loss to a gain. While the strangle isn’t really in the ball park yet, we can see from our market scanners that there is a decent amount of call buying at the September 22, 23 and even 24 strike call options as investors simply look for upside from the shares, which have so far advanced 1% to $22.64. Currently the 23 strike implies further share price gains of 5.5% within the coming three weeks. Today’s option implied volatility has jumped 10% to 49%. – International Paper –
