Today’s tickers: VLO, SU, EEM, MRVL, PWR, IMAX & AMED
VLO – Valero Energy Corp. – New ratings coverage of ‘equal weight’ by analysts at Morgan Stanley today sent option traders into a call buying frenzy on the oil refining company. Shares of VLO are currently soaring 6.5% higher to stand at $20.03. Call-volume surged at the October 20 strike where more than 16,100 contracts were purchased for an average premium of 8 pennies apiece. The October 20 strike is now in-the-money by 3 cents, allowing investors to exercise their right to buy shares of the underlying stock for an effective price of $20.08 each. Traders may also decide to accumulate short term gains if shares rally through the breakeven point at $20.08 ahead of expiration tomorrow.
SU – Suncor Energy, Inc. – A couple of bullish calendar rolls caught our attention this afternoon on Suncor Energy. Shares of the Canada-based energy firm slipped nearly 1% lower to stand at $38.99. The first of the two calendar rolls involved 2,000 calls at the December 32 strike which were originally purchased for 3.50 apiece on September 9, 2009, and sold today for 7.50. Net profits on the sale amount to 4.00 per contract. The trader expanded the size of the new call position at the January 47.5 strike by buying 3,000 lots for about 75 cents apiece. The larger of the two transactions involved a larger number of call options. Approximately 11,000 calls were originally bought for a maximum of 2.30 each on September 8, 2009. Today the position was closed by the investor who sold the calls for 5.05 per contract. Net profits on the transaction amount to an average 2.75 per contract. Again, the calls were rolled to the January contract but this time the investor paid 1.85 to buy 18,000 calls at the January 42.5 strike. Profit-taking aside, the investor or investors responsible for the calendar rolls are expecting shares of SU to rise by expiration in January.
EEM – iShares MSCI Emerging Markets Index ETF – Shares of the emerging markets fund fell 0.5% this afternoon to $41.32. We observed bullish transactions take place on the stock despite the decline in shares. One investor banked gains by rolling a bullish call position forward in the December contract. It appears the trader originally purchased 10,000 calls at the now December 42 strike for 1.08 apiece on October 7, 2009. Today he closed out the position by selling the calls for 1.77 each. Net profits on the sale amount to 69 cents per contract. Next, the investor reestablished a long call position by buying 10,000 calls at the higher December 47 strike for an average premium of 34 cents each. Profit potential on the position depends on whether shares of the EEM can rally 15% to breach the breakeven price of $47.34 by expiration in December.
MRVL – Marvell Technology Group Limited – Shares of the semiconductor company are nearly 3.5% lower today to $15.85. Bearish investors braced for continued downside movement in the stock by picking up November contract put options. One trader purchase 10,000 puts at the now in-the-money November 16 strike, for an average premium of 85 cents each, out of a total 11,200 put options exchanged at the same strike thus far in the session. Perhaps the investor is long the stock and looking to beef up on downside protection in case MRVL continues to decline through expiration in November. If this is the case, protection will kick in if shares decline through the breakeven point at $15.15.
PWR – Quanta Services, Inc. – A long-term bullish play on the provider of specialty contracting services today caught our attention amid a more than 1% rally in shares to $22.00. The bullish reversal we observed in the January 2011 contract suggests at least one investor expects Quanta Services to move higher by expiration. The reversal involved the sale of 4,671 puts at the January 20 strike for a premium of 3.30 apiece, spread against the purchase of 4,671 calls at the higher January 25 strike for 3.10 each. The transaction results in a net credit of 20 pennies per contract. The full credit is retained by the investor as long as shares of PWR remain higher than $20.00 through expiration. Additional profits are available if the stock rises above the effective breakeven point at $25.00. We note that Quanta’s shares last traded up to $25.09 on September 11, 2009.
IMAX – Imax Corp. – The motion picture technologies and large-format film presentation company appeared on our ‘hot by options volume’ market scanner due to bullish options action in the November contract. Shares of IMAX are currently up 1.5% to $10.82. Approximately 3,800 call options were purchased at the now in-the-money November 10 strike for an average premium of 1.25 apiece. Investors holding these contracts may accrue profits if shares rise 43 cents from the current price to breach the breakeven point at $11.25 by expiration. Increased options activity on the stock lifted implied volatility by 35% from and opening reading of 40% to an intraday high of 54%. Traders exchanged 7,198 contracts thus far today, which represents 44% of total existing open interest on the stock of 16,422 lots.
AMED – Amedisys, Inc. – Shares of the provider of home health care and hospice services are down 5.5% to $42.40 today. The firm is scheduled to reveal its third-quarter earnings before the market opens on Tuesday, October 27, 2009. One investor made bullish moves in the November contract this morning despite the decline in share price. It appears the trader established a call spread by purchasing 2,000 calls at the November 45 strike for an average premium of 2.23 apiece, marked against the sale of 2,000 calls at the higher November 50 strike for 60 pennies each. The net cost of the optimistic play amounts to 1.63 per contract. Profits on the transaction will begin to accumulate if shares of AMED rally 10% over the current price to surpass the breakeven price of $46.63. Maximum potential profits of 3.37 per contract are available to the investor if shares surge 18% to $50.00 by expiration next month.
