Today’s tickers: GE, EEM, SLV, F, VALE, FCX, M, ABX & C
GE – The more than 3% decline in shares of GE today inspired bearish options activity to unfold in the November contract. One investor chose to employ a put spread by purchasing 5,500 puts at the November 16 strike for 67 cents apiece, spread against the sale of the same number of contracts at the lower November 13 strike for 14 cents each. The net cost of the pessimistic play amounts to 53 cents per contract. If the investor is long shares of the underlying stock, downside protection on the put play will kick in if shares decline beneath the breakeven price of $15.47 by expiration day. The strike prices selected by the trader indicate that while he is bracing for further declines in the stock, he does not expect GE to decline much beneath $13.00 in the next few months. – General Electric –
EEM – The EEM jumped higher on our ‘most active by options volume’ market scanner following bullish options action in the January contract. Shares of the ETF are currently down 2% to $37.85. The investor responsible for the transaction looked to the January 38 strike to purchase 6,500 calls for an average premium of 2.78 apiece. The calls were spread against the sale of 6,500 in-the-money puts at the same strike for which the trader received 2.91 each. The risk reversal results in a net credit of 13 cents to the investor. The credit is retained by the trader if shares settle at $38.00 by expiration day. Additional profits will accumulate if shares of the ETF rally through $38.00. – iShares MSCI Emerging Markets Index –
SLV – Large-volume chunks of calls traded on the silver exchange-traded fund today by one investor who appears to be taking a bullish stance in the face of a more than 3.5% decline in shares to $15.96. The trader looked to the near-term October 16 strike to purchase 30,000 calls for an average premium of 65 cents apiece. The purchase was spread against the sale of the same number of calls at the January 2011 18 strike for a premium of 2.35 each. The transaction results in a net credit of 1.70 to the investor. Perhaps this individual expects the near-term calls to land in-the-money by expiration. If this occurs, he may exercise the options and take delivery of the underlying stock for approximately $14.30 apiece because of the credit received today. The short call position in the January 2011 contract provides the trader with an effective exit strategy if shares of the SLV surpass $18.00. Assuming this is the plan, the investor has essentially established a covered call on the fund. Maximum gains of 26% would be realized by the trader if the SLV breaches $18.00 and the shares are called away from the investor by expiration in 2011. – iShares Silver Trust ETF –
F – Call buyers expecting shares of the car company to rebound targeted the November contract today despite the 1% decline in the stock to $7.27. Perhaps bullish sentiment stems from yesterday’s introduction of Ford’s new Figo, a small car aimed at expanding the firm’s presence in the Asia-Pacific region. Investors purchased more than 5,400 calls at the November 10 strike for 11 pennies per contract. Shares must rally approximately 39% from the current price in order for call-buyers to breakeven at $10.11 by expiration. – Ford Motor Co. –
VALE – Shares of the world’s largest iron ore miner fell nearly 3% during the trading session to $22.39, despite the fact that Goldman Sachs raised its 2010 profit estimates for the firm today. Nearer-term bearish bets by option traders were evident in the November contract through meager sales of calls and paltry put purchases. Approximately 1,700 puts were picked up for 57 cents each at the November 20 strike, while 1,400 calls were shed at the higher November 24 strike for 96 cents apiece. But, the real action occurred in the December contract where one bullish investor made his mark. Expecting shares to rebound by expiration at the end of 2009, the trader purchased 4,000 calls at the December 24 strike for a premium of 1.21 each, and simultaneously shed 12,000 calls at the higher December 27 strike for 43 cents per contract. The ratio call spread results in a net credit of 8 pennies. Additional profits are available in the event that shares of VALE rally 7% from the current price to breach the breakeven point at $24.00 by expiration. Maximum potential profits of 3.08 per contract will be realized if shares surge about 21% higher to $27.00. – Vale SA –
FCX – The more than 3.5% decline in shares of the metals and mining company to $68.50 today did not deter the long-term bullish stance taken by one investor observed populating the May contract. The investor appears to have established a risk reversal by shedding 2,000 puts for 9.30 each at the May 65 strike to purchase 2,000 calls at the May 75 strike for 8.80 apiece. The transaction results in a net credit of 50 cents per contract for the trader, which he will retain in full as long as shares of FCX remain higher than $65.00 through expiration. Additional profits will begin to accumulate if the stock increases 9% from the current price to $75.00 over the next eight months. FCX has traded beneath $75.00 since September 4, 2008, but shares came within 1.57 of the $75-level when the stock reached its current 52-week high of $73.43 just 2 days ago on September 22, 2009. – Freeport-McMoran Copper & Gold, Inc. –
M – Put activity on the second-largest department store chain drove Macy’s ticker symbol onto our ‘most active by option volume’ market scanner this morning amid a more than 2% decline in shares to $18.02. Earlier this week the stock rallied to its highest price in a year after Citigroup analysts raised the shares to ‘buy’ from ‘hold’ on expectation for revenue growth in 2010. One investor appears near-term bearish on the stock given the protective put positioning he has employed today. The trader partially financed the purchase of 5,000 puts at the nearly in-the-money October 18 strike for 82 cents premium apiece, by selling short 5,000 puts at the lower November 16 strike for 70 cents each. The net cost of the transaction amounts to 12 cents per contract. The investor is likely long shares of the underlying stock. Thus, the put positions initiated today provide downside protection in the event that shares slip beneath the breakeven point to the downside at $17.88 by expiration in October. The short put position in the November contract will not be problematic for the trader unless shares take a big hit. By maintaining the short position, the investor bears the risk of having shares of the underlying put to him at $16.00 if the stock slips 11% lower to breach the $16.00-level by expiration in November. – Macy’s, Inc. –
ABX – Bullish traders purchased call options in the November contract on ABX today, perhaps after the firm’s target price was raised to $50 from $49 at Scotia Capital, and increased to $52 from $47 at RBC Capital Markets. Shares are currently off approximately .5% to $36.31. It appears some 5,000 calls were scooped up at the November 37 strike for an average premium of 2.70 per contract. Investors coveting these options are hoping shares of ABX rally at least 9% from the current price to the breakeven point at $39.70 by expiration in November. We note that shares of Barrick Gold breached $40.00 this month on September 4, 2009. – Barrick Gold Corp. –
C – Trading in Citi options was once again heavy and characterized by greater bullish wagers as opposed to bearish ones. Its shares are down a little at $4.50. In the January contract one trader placed an intriguing trade. Some 10,000 puts appear to have been bought at the 4.0 strike at 42 cents, while the 6.0 calls appear to be sold at 25 cents today. This could be a trader getting long Citi shares and buying downside protection at the same time – don’t forget, they’d only reach the strike price by rallying 33%. Yet he could be simply bearish and looking for calls to decay and puts to appreciate on any fresh decline in the underlying. Option implied volatility continues to run at 294%. – Citigroup –
