Today’s tickers: CSX, VALE, ERTS, JNPR, BRCD & ORCL
CSX – The supplier of rail-based transportation services attracted option optimists to the November contract today amid a 2.5% rally in shares to $42.68. Bullishness was expressed through put selling as investors appear to expect CSX to continue to thrive through expiration in November. Approximately 7,300 puts were sold short at the November 40 strike for an average premium of 2.03 apiece. Traders selling these contracts retain the full credit as long as shares of CSX remain higher than $40.00 through expiration next month. Investors shorting the puts pocket the 2.03 credit in exchange for bearing the risk that shares decline beneath $40.00. If the puts land in-the-money by expiration, traders short the puts will have shares of the underlying stock put to them at price of $40.00 apiece. Therefore, losses begin to accumulate if shares fall 11% from the current price and breach the breakeven point to the downside at $37.97. – CSX Corp. –
VALE – Investors in the Brazilian metals and mining company enjoyed a more than 3% rally in shares to $23.63. The current share price represents a new 52-week high for the stock, which is one nickel greater than the previous 52-week high of $23.58, attained back on September 23, 2009. We observed bullish sentiment in the November contract where one investor established a risk reversal by shorting puts to finance the purchase of calls. The optimistic play involved the sale of 8,000 puts at the November 21 strike for a premium of 60 cents apiece, spread against the purchase of 8,000 calls at the higher November 25 strike for an average premium of 71 cents per contract. The net cost of assuming a long call position amounts to 11 pennies apiece. Shares of Vale must rise another 6% by expiration for the investor to begin to accumulate profits above the breakeven point at $25.11. – Vale SA –
ERTS – Shares at the game-maker are higher by 3% at $18.89 today making the options action a little curious. An investor appears to be writing nearby in-the-money puts in exchange for buying those at out-of-the-money strikes at later expiries. An investor sold 13,700 November puts at the 19 strike for a 1.50 premium, meaning he’d have shares put to him if they remain below the strike in seven weeks time. In the meantime he insures worried ERTS traders and takes in a healthy premium. At the lower 16 and 17 strikes expiring one week ahead of Christmas Day in the December contract the investor paid a 60 and 90 cent premium to insure against a decline in the share price as he bought 6,850 contracts at each strike price. The reading of implied volatility is constant between expiration months at approximately 50%, which likely leaves a straight-forward rationale for making this trade. The investor likely believes that near-term gain comes at the expense of longer-term pain for ERTS. Perhaps the premise is that sales will turn out to be limp by the holiday shopping season. – Electronic Arts Inc. –
JNPR – The provider of products and services to the telecommunications services industry has experienced a 1.5% rally during the trading session to $26.29. Juniper Networks edged onto our ‘hot by options volume’ market scanner after one investor extended a previously established bullish position on the stock. The trader originally purchased 5,000 calls at the October 24 strike price for approximately 1.32 apiece back on August 25, 2009. In order to remain bullish on the stock the investor initiated a calendar spread to roll the long call position to a higher strike price. The sale of the original 5,000-lot position in the October contract yields a premium of 2.55 apiece. Net profits on the closing sale amount to an average of 1.23 per contract. Next, the trader rolled the bullish stance forward to the January 26 strike where he paid 2.75 in premium for each of the 5,000 call options. Additional profits are available to this individual if shares of JNPR rally at least 9% from the current price to surpass the breakeven point at $28.75 by expiration in January. – Juniper Networks, Inc. –
BRCD – The California-based data-storage and networking company put itself up for sale, according to a Wall Street Journal report, sending shares higher by more than 17.5% to $9.00 today. Speculation that Hewlett-Packard Co. and Oracle Corp. are perhaps interested in acquiring the company, helped fuel the 23% surge in option implied volatility from 53% to the current intraday high of 65%. Bullish options traders exchanged more than 10 call options to each put contract in play during the session, generating a call-to-put ratio of more than 10-to-1 on the stock. Investors picked up nearly 5,000 calls at the November 9.0 strike for 75 cents per contract. The higher November 10 strike calls were also in demand with nearly 6,000 contracts picked up for an average premium of 50 cents apiece. Shares of BRCD must shatter the current 52-week high of $9.02, and rally 17%, in order for higher strike call-buyers to begin to accumulate profits at the breakeven price of $10.50 by expiration. – Brocade Communications Systems, Inc. –
ORCL – As one of the names in the frame for a potential acquisition of Brocade Communications, one might expect to see shares at the software applications-maker lower in today’s trade. However, shares are currently a little higher at $20.41 and the major option market action was on the call side where an investor paid 25 cents for exactly 10,000 calls expiring in November at the 22 strike. Typically the shares of the buyer in a merger decline, and so perhaps we’re witnessing an investor use the options market as his way of pouring cold water on this topic. In addition we note that during the last four weeks, shares at Oracle have fallen from $22.95 to today’s price on softness in its key markets. This investor sees either little chance of a Brocade buyout or that it would only serve to boost Oracle’s numbers for the better. Option implied volatility is a little higher at 32.5% today. – Oracle Corp. –
