Today’s tickers: VLO, NTRI, EFA, BAX & WFC
VLO – We can explain in part the activity in the September 20 strike call options, which is due to expire at the weekend. That’s straight forward. It’s now in the money following a 9% share price gain to $20.97. Investors have possibly built up a substantial short position at the start of August in the expectation that share would remain below $20 as they have since they collapsed on June 2. Selling short the calls means they stand to retain the premium if the stock price remains south of the border. We see little news to set off today’s enthusiasm for Valero, but the rally that has put the calls into the money has the potential to spark a significant amount of short covering. Options open interest here is around 33,000 while today’s volume is at around 29,000. Expiration Friday tomorrow should be fun. – Valero Energy Corp. –
NTRI – The weight management products and services firm, which offers portion-controlled pre-packaged meals that can apparently satisfy ex-NFL quarterback Dan Marino’s appetite, edged onto our ‘hot by options volume’ market scanner this morning. Shares of NTRI have surged more than 6% today to $15.84, inspiring bullish options action in the October contract. It appears some 3,200 calls were purchased at the October 17.5 strike for an average premium of 25 cents per contract. Investors will begin to accumulate profits if shares of the weight management company rally 12% higher to breach the breakeven point at $17.75 by expiration next month. The rise in demand for options on NTRI helped fuel the 24% burst in option implied volatility on the stock from an intra-day low of 41% to a high of 51%. – NutriSystem Inc. –
EFA – Shares of the exchange traded fund representing stocks from Europe, Australasia, and the Far East have come off slightly today to stand less than 0.25% lower at $55.78. Perhaps fearing further bearish movement in the stock, investors coveted approximately 25,000 puts at the October 53 strike for an average premium of 73 cents apiece. Traders picking up the put options may currently hold long positions in the underlying stock meaning a 6% decline for shares of the EFA would be protected by put option exposure and that would kick in beneath the breakeven price of $52.27. – iShares MSCI EAFE Index ETF –
BAX – “Swine Flu” vaccine-maker, Baxter International saw its share price rally to a fresh 52-week peak one day after announcing improved yields on its vaccine. However, it’s unknown as to whether a single shot would be totally effective against the officially named H1N1 virus. Option premiums jumped as shares rallied to $58.45 offering nice gains for one investor who appeared to close a bullish call spread established on May 21 using November expiration options. An 8,000-lot order traded between the 52.5 and 60 strikes for a net 4.65 premium with the initial cost tracked back in May at around 1.75. We also saw the sale of a further 8,000 calls at the nearby October 60 calls, which might be the same investor attempting to call a top after today’s share price rally. – Baxter International –
WFC – A massive bearish ratio put spread was initiated in the October contract this morning amid a slight 1% decline in shares of WFC to $29.13. It appears one investor, who likely holds a long position in the underlying stock, purchased 27,500 puts at the now in-the-money October 30 strike for an average premium of 1.95 each. The purchase was spread against the sale of 55,000 puts at the lower October 27 strike for 65 cents premium apiece. The net cost of establishing the ratio spread amounts to 65 cents per contract. Shares of Wells Fargo would need to decline approximately 22 cents lower before downside protection kicks in beneath the breakeven point at $29.35. The ratio of 2 short options to each long option leaves the investor vulnerable to having shares of the underlying put to him at $27.00 in the event that the October 27 puts land in-the-money by expiration. This suggests that the trader responsible does not think it likely that shares will fall beneath $27.00 by October 16, 2009. – Wells Fargo & Co. –
