Today’s tickers: RMBS, BIIB, IYF, OSK, GNW, XOP & S
RMBS – The latest from the rumor mill suggests that the memory chip maker may be the target of a buyout by Samsung Electronics for approximately $25.00 to $27.50 per share. Some analysts reported that such rumors are likely unfounded, and we should note also this is currently idle market chatter. Nevertheless, frenzied options activity was observed on the stock amid a more than 8% rally to $17.22. Option traders concentrated their efforts on out-of-the-money calls in the near-term September contract. Nearly 6,000 calls were picked up at the September 18 strike for about 68 cents each. The higher September 19 strike had 5,000 calls purchased for an average of 47 cents apiece. Finally, the most bullish investors looked as high as the September 20 strike to gather up more than 8,000 calls for 37 cents per contract. Rumors remain unconfirmed, but traders holding the call options are positioned to bank some serious profits if the buyout speculation proves accurate by expiration this month. – Rambus Inc. –
BIIB – The largest maker of medicines for multiple sclerosis announced that it has extended an unsolicited takeover bid, worth $356 million in cash, for its drug partner Facet Biotech Corporation. Shares of BIIB rose more than 2% during the session to the current price of $51.03. Perhaps the takeover bid inspired the bullish reversal strategy we observed in the April contract today. One investor appears to have shed 10,000 puts at the April 35 strike price for a premium of 90 cents apiece in order to partially offset the cost of purchasing 5,000 calls at the higher April 55 strike for 3.80 each. The net cost of the transaction amounts to 2.00 per contract. The investor responsible for the trade will begin to accrue profits if shares of BIIB rally approximately 12% from the current price to breach the breakeven point at $57.00 by expiration day. – Biogen IDEC, Inc. –
IYF – Shares of the IYF have moved slightly higher during the session, gaining less than 0.5% to arrive at the current price of $50.09. The ETF jumped onto our ‘most active by options volume’ market scanner this afternoon after a large bullish reversal play was initiated in the November contract. We note that the transaction was tied to stock. The investor responsible for the trade shed 20,000 puts at the November 40 strike price for 65 cents apiece in order to finance the purchase 20,000 calls at the higher November 60 strike for an average premium of 40 cents each. – iShares Dow Jones U.S. Financial Sector –
OSK – The manufacturer of specialty commercial trucks enjoyed a 1% rally during the session to stand at $32.86. Perhaps the bullish move in shares today stems from news released yesterday evening which detailed terms of a $20 million deal Oshkosh has signed with the U.S. Air Force. Oshkosh has apparently agreed to provide 36 vehicles set for deployment to Air Force bases around the globe beginning in January. Thusly, options activity on the stock was observed in the January 2010 contract where it appears that one investor has taken two bullish positions. A plain-vanilla call spread involved the purchase of 2,000 calls at the January 35 strike for 4.10 each, marked against the sale of 2,000 calls at the higher January 50 strike for 77 cents apiece. The net cost of the transaction amounts to 3.33 per contract. Next, it looks as if the trader initiated a put credit spread in order to partially offset the cost of the call spread. It appears that he sold 2,000 puts at the January 30 strike for 3.90 each and simultaneously purchased 2,000 puts at the lower January 25 strike for 2.05 apiece. The investor receives a net credit of 1.85 on the transaction which he will retain in full as long as shares remain higher than $30.00 through expiration in January 2010. Finally, maximum potential profits available on the call spread amount to 11.67 (excluding credit received from credit spread). The investor may pocket such profits if shares of OSK surge a ridiculous 52% from the current price to $50.00 by expiration next year. – Oshkosh Corp. –
GNW – Bullish sentiment was revealed through options activity which took place in the October contract on the financial company this morning. Investors were perhaps inspired to take optimistic positions in the stock today because GNW received an upgrade to ‘outperform’ with a price target of $15.75 at Northland Securities yesterday. Shares of Genworth are up slightly by 0.25% to stand at $9.15. Over the past six months the stock has exploded upwards, gaining approximately 829% to arrive at the current price. The bullish trading we observed on GNW involved the purchase of a call spread which was partially financed by the sale of put options. The call spread was established through the purchase of 10,000 calls at the October 10 strike for 90 cents premium, spread against the sale of 10,000 calls at the higher October 13 strike for 20 cents apiece. Finally, a chunk of 10,000 puts were shed at the October 7.0 strike price for a premium of 40 cents each. The net cost of the bull call spread amounts to just 30 cents per contract and thus yields maximum potential profits of 2.70 if shares rally up to $13.00 by expiration day. Shares must rise 13% from the current price in order to breach the breakeven point on the trade at $10.30. This investor stands to have a million shares in the company put to him in the event that shares breach the short put strike price by expiration. – Genworth Financial, Inc. –
XOP – Put-spreaders prancing in the December contract on the exchange-traded fund, pushed the XOP onto our ‘most active by options volume’ market scanner today. Shares of the fund have attained modest gains during the session, rising less than 0.5% to $34.35. Trading patterns on the XOP may indicate that investors are bracing for bearish movement in the price of the underlying through expiration in December. The December 34 strike price had 13,000 puts purchased for an average premium of 3.10 apiece, spread against the sale of 13,000 puts at the lower December 27 strike for 70 cents each. The net cost of the transaction amounts to 2.40 per contract and yields maximum potential profits of 4.60 if shares plummet to $27.00 by expiration. It is possible that traders are long the stock and offsetting the cost of protective, nearest-to-the-money, puts by selling the same number of out-of-the-money puts. If this is the case, shares of the XOP would experience an 8% decline before downside protection kicked in beneath the breakeven price of $31.60. – S&P Oil & Gas Exploration & Production ETF –
S – Frenzied call buying on Sprint was observed throughout the first half of the day. The 27% surge in implied volatility on the stock from 55% to the current reading of 70% indicates that investors are expecting the price of the underlying shares to shift perhaps sharply going forward. The rise in volatility and the concentration of call buying seen in the October contract this morning probably stem from yesterday’s announcement that Sprint will sell its first phone running Google’s Android software in October. Shares are currently trading higher by more than 2.5% to $3.67. Call buyers coveted more than 35,000 calls at the October 4.0 strike price for an average premium of 20 cents per contract. Investors long the calls will start to amass profits if shares rally 14% from the current price to surpass the breakeven point at $4.20 by next month’s expiration. – Sprint Nextel Corp. –
