Today’s tickers: POT, EWZ, USO, C, NTRI, GFI, AUY, AA, & WYE
POT – Shares of the Canadian producer of potash rallied more than 5% during the trading session to break through the $90.00-level. The stock tempered this afternoon, however, and stands just 2.5% higher for the day at $87.89. We observed interesting bullish plays take place in the December contract. One investor established a 2,000-lot buy-write strategy, also known as a covered call. The covered call involved the purchase of shares of the underlying stock for approximately $90.74, and the simultaneous sale of 2,000 call options at the December 110 strike for a premium of 1.80 per contract. The cost of buying the stock is reduced by the value of the premium received on the sale of the calls, resulting in an effective price per share of $88.94. Additionally, the short call position serves as an exit strategy for the trader if shares of POT trade above $110.00 by expiration. If the December 110 strike calls land in-the-money, the investor will likely have the underlying shares called from him, and he will be left with net profits of 24% on the rally in the stock. The other strategy employed by POT-lovers this afternoon was a call spread. Investors purchased 5,000 calls at the December 115 strike for 1.25 each, and sold 5,000 calls at the higher December 120 strike for 85 cents premium apiece. – Potash Corp. of Saskatchewan, Inc. –
EWZ – Shares of the Brazil exchange-traded fund are slightly higher this afternoon by less than 0.5% to stand at $69.58. Option traders expecting continued bullish movement in the price of the fund initiated optimistic plays across several contracts. One nearer-term indication of bullish sentiment is a call spread in the November contract. The trade likely involves the purchase of 2,000 calls at the November 71 strike for a premium of 3.23 apiece, spread against the sale of 2,000 calls at the higher November 77 strike for one dollar each. The net cost of the transaction amounts to 2.23 per contract. Thus, maximum potential profits of 3.77 are available in the event that shares of the EWZ rally 11% to $77.00 by expiration next month. Plain-vanilla call buying is another tactic employed by bullish investors today. Some 2,500 calls were purchased at the March 2010 80 strike for a premium of 2.70 each. Finally, 1,000 calls were coveted by a long-term bull at the January 2011 75 strike for 8.90 per contract. – iShares MSCI Brazil Index ETF –
USO – Options activity of note on the U.S. Oil Fund came in the form of a bullish risk reversal in the November contract. Shares of the fund are currently trading 0.5% higher at $36.38. The reversal involved the sale of 3,000 puts at the November 35 strike for 1.43 each, spread against the purchase of 3,000 calls at the nearly in-the-money November 37 strike for 2.20 apiece. The net cost of getting long the calls amounts to just 77 cents per contract. Shares of the USO must increase 4% from the current price in order to reach the breakeven point on the trade at $37.77 by expiration. Finally, plain-vanilla bulls paid 35 cents per contract to buy 3,000 calls at the higher November 44 strike. – United States Oil Fund LP –
C – January 2011 calls with buying rights at a fixed $5.0 price traded 230,000 at a premium of 1.25 with shares in Citi trading at around $4.75 at the time. The sheer size of this trade is an eye-opener yet a peek at the current open interest shows that investors have already amassed positions of twice this magnitude. Open interest stands at a gargantuan 603,854 lots according to our data. Some of this open interest could represent established synthetic trades placed in hectic times earlier in the year. We think the calls were bought according to one source, although we’re seeing a ‘sold’ time print on the time and sales report. – Citigroup, Inc. –
NTRI – Shares of the provider of weight management products and services are soaring 21% higher today to $18.26, after news reports on Monday revealed its 14-day Starter Program will be offered through 3,200 Wal-Mart stores. NutriSystems opened at a new 52-week high of $18.50 this morning, a 25 cent improvement over the old high of $18.25 attained back on September 22, 2009. Option traders hoping to catch the wave of bullish momentum on NTRI demanded call options in the November contract. Increased call activity and greater investor uncertainty over the future price of NutriSystems sent implied volatility on the stock up 14% to an intraday high of 68%. Approximately 1,500 calls were picked up at the November 20 strike for an average premium of 88 cents apiece. Investors holding the calls are hoping shares of NTRI rally another 14% from the current price to the breakeven point at $20.88 by expiration next month. Shares have not traded higher than the breakeven price since May 19, 2008, when the stock was at $21.08. – NutriSystems, Inc. –
GFI – The rise to a record spot price of gold at above $1,035 per ounce today has call options in several gold mining companies in demand. Today’s push higher comes on account of a London-based newspaper article that predicts the dollar’s role in crude oil pricing will have vanished by 2018. The story is prompting short-selling of the already uncomfortable dollar and creating a vacuum in commodity prices adding upwards momentum to an already jittery gold market, concerned that the role of the dollar is set to diminish. In turn that promotes the value of hard assets. Gold Fields shares are trading at $14.88 and higher by 6.7% today. Meanwhile options on the company are trading at more than six-times the average turnover and a call-to-put ration of 24 clearly indicates that bullish plays are the order of the day. The most commonly populated target today is at the January 17.5 strike where so far more than 23,000 calls have changed hands at premiums valued of 1.00. While Gold Fields is today trading at its best price since April 2008, the 17.5 strike price was last reached in January 2008. We also see some selling of higher strike call options possibly used to help fund bullish purchases at lower strikes. – Gold Fields Ltd. ADR –
AUY – The gold producer’s estimates for total production of gold equivalent ounces for the third-quarter came in at record 314,200, boosting shares sharply higher by 9.5% to $11.39 today. One bullish investor reeled in profits on an existing position, and subsequently reestablished an optimistic stance on Yamana using call options. It appears the trader originally purchased 5,000 calls for 60 cents apiece at the October 10 strike price on September 2, 2009, when shares of AUY were trading at $10.19. Today he sold the calls for 1.17 each and pocketed profits of approximately 57 cents for a total of $285,000. Next, the investor doubled the number of call options and initiated a fresh bullish stance in the November contract. It appears he purchased 10,000 calls at the November 12 strike for about 60 cents premium apiece. Additional profits are available to the trader if shares of AUY climb through the breakeven price of $12.60 by expiration. – Yamana Gold, Inc. –
AA – Option traders heavily favored call options on the U.S. producer of aluminum, ahead of the firm’s third-quarter earnings results scheduled for release on Wednesday. Shares continued to add to yesterday’s 5% rally by climbing about 4% during today’s session to $13.95. According to a poll conducted by Thomson Reuters, analysts expect third-quarter profits to come in at a loss of 11 cents per share on revenue of $4.5 billion. Investors, who are perhaps expecting earnings to beat estimates, purchased more than 6,700 calls at the November 15 strike for an average premium of 78 cents per contract. Traders with a less optimistic view targeted the same strike to receive 78 cents premium on the short sale of 7,000 call options. Short-sellers retain the full 78 cents if shares of Alcoa fail to rally through $15.00 by expiration day. Conversely, investors long the call options are hoping shares jump at least 13% to breach the breakeven price of $15.78. Implied volatility rose 8% during the week to the current high of 65% as investors eagerly await tomorrow’s earnings report. – Alcoa, Inc. –
WYE – The New Jersey-based pharmaceuticals company jumped to the top of our ‘most active by options volume’ market scanner today after one investor rolled a massive chunk of calls forward to the January 2010 contract. Shares of WYE are currently trading 1.25% higher to stand at $48.86. The option contracts traded to the middle of the market, but it seems likely that the investor sold 50,000 calls at the in-the-money October 47.5 strike for a premium of 1.70 apiece, and next purchased the same number of calls at the January 47.5 strike for 2.25 each. It is unclear how much the investor paid to initially purchase 50,000 calls. – Wyeth –
