Today’s tickers: WERN, MDVN, GT, XRX, SLE, AMGN, ESI, EBAY, FFIV & SLE
WERN – Werner Enterprises, Inc. – The truckload freight services firm edged onto our ‘hot by options volume’ market scanner due to bearish trading in the June contract. Shares of WERN slipped 0.5% lower this afternoon to $20.22. One investor initiated a ratio put spread by purchasing 6,000 put options at the June 20 strike for 2.25 apiece, and by simultaneously selling 12,000 puts at the lower June 17.5 strike for 1.10 each. The net cost of the trade is reduced to just one nickel per contract. The trader is probably aiming to protect the value of a long position in shares of WERN through expiration. Downside protection will kick in if shares decline more than 27 cents from the current price given the effective breakeven point on the trade at $19.95.
MDVN – Medivation, Inc. – Long-term bearish activity in the June 2010 contract suggests one investor may be bulking up on downside protection in case shares of biopharmaceutical company, Medivation, Inc., continue to decline. The stock is currently trading less than 0.5% lower to stand at $26.51. A put spread was established through the purchase of 10,000 puts at the June 22.5 strike for 7.80 apiece, marked against the sale of 10,000 puts at the lower June 12.5 strike for 1.87 each. The net cost of the pessimistic play amounts to 5.93 per contract. The spread was most likely initiated by an investor holding a long position in the underlying shares. Putting on the protective stance shields the investor from losses beneath the breakeven point at $16.57. However, if the trader is in fact long the stock, he will suffer a 38% decline in the value of MDVN before downside protection kicks in at the breakeven price described. An alternate scenario is that the investor does not hold a long position in MDVN. If this is the case, the trader is uber-bearish and expects to garner profits from significant declines in Medivation through expiration in June.
GT – The Goodyear Tire & Rubber Co. – Option traders populated the November contract on GT with bullish plays this afternoon. Shares added more than 2.5% during the session to arrive at the current price of $17.83. Some investors targeted the now in-the-money November 17.5 strike to purchase 3,800 calls for an average premium of one dollar apiece. Other traders looked to the higher November 20 strike where 5,900 calls were coveted for about 20 cents each. Shares of Goodyear must rise 4% to $18.50 before call-buyers at the lower strike breakeven. More optimistic investors buying the higher strike calls may amass profits if shares of GT rise 13% to surpass the breakeven price of $20.20 by expiration next month.
XRX – Xerox Corp. – The largest producer of high-speed color printers popped up on our ‘hot by options volume’ market scanner this morning due to bullish options activity in the December contract. Shares of XRX are trading 3.5% higher to $7.99 today after the firm raised its 2011 profit forecast to $1.05 per share from 95 cents. Xerox posted third-quarter profits of 14 cents per share, surpassing average expectations of 12 cents per share, ahead of the opening bell today. Option traders appear to be making bullish bets on XRX by engaging in a couple of strategies. Plain-vanilla call buying in the amount of 2,500 contracts took place at the December 8.0 strike for 50 cents apiece. Investors long the calls may profit if shares rally 6% over the current price to surpass the breakeven point at $8.50 by expiration. Other investors put on bullish risk reversals. It looks like 3,700 puts were sold at the December 7.0 strike for 10 cents apiece to partially offset the cost of buying the same number of calls at the December 8.0 strike for 40 cents each. The sale of the puts lowers the effective breakeven point to $8.30. A 31 cent increase in shares to $8.30 would allow reversal players to breakeven by December’s expiration day.
SLE – Sara Lee Corp. – Reports that Proctor & Gamble is in talks to purchase portions of SLE’s international household products unit pushed shares of Sara Lee up about 0.5% to $11.50 today. Option traders hoping to see further bullish movement in the price of the underlying picked up calls in the November contract. It appears more than 6,000 calls were purchased at the November 12.5 strike for an average premium of 25 cents apiece. Call-buyers are now positioned to accumulate profits if the stock increases by 11% to breach the breakeven point at $12.75. Such a move would push shares of Sara Lee to a new 52-week high over the current high of $12.00 attained on November 4, 2008.
AMGN – Amgen, Inc. – Bullish investors took advantage of the 5% decline in shares of the world’s largest biotechnology company today by initiating option plays at reduced premiums. Shares of AMGN slipped 5% to $56.43 after the firm revealed third-quarter sales declined and U.S. regulators requested additional studies on its experimental bone drug. Option players jumped at the opportunity to trade calls toting premiums that have more than halved (in some cases) since yesterday. Near-term bullish sentiment took the form of a call spread. It appears investor purchased 2,000 calls at the November 55 strike for an average premium of 2.68 apiece, and simultaneously sold 2,000 calls at the higher November 60 strike for 57 cents each. The net cost of picking up the in-the-money calls amounts to 2.11 per contract. Maximum potential profits of 2.89 apiece are available to call-spreaders if shares recover back to the $60.00-level by expiration. One long-term optimist put on a ratio call spread in the April 2010 contract. It seems the investor purchased 1,000 calls at the April 55 strike for 6.05 apiece, and sold 2,000 calls at the higher April 65 strike for 1.96. The net cost of the call options shrinks to 2.13 per contract given the ratio of 2 calls sold to each purchased contract. This individual stands to accrue maximum profits of 7.87 apiece if AMGN rises 15% to $65.00 – and no higher – by expiration in April.
ESI – ITT Educational Services Inc. – Despite what might appear to be a glowing report card at the operator of for-profit technology-oriented schools, investors were disappointed on account of an increasing amount of cash put to one side to cover the expense of bad debts. Thanks to still-tight credit conditions the company is making more loans to students, which have the potential to increase the burden on profits. ITT says that as a percentage of sales, bad debts rose to 6.8% from 5% a year ago. Shares in the company declined 6.4% to $103.46 but option traders employed bullish strategies possibly reflecting growing revenues, enrollments and profits. The November 105/110 call spread appears to have been bought while put selling was noted in the lower 90 and 100 strikes. Option implied volatility took a 21% dive after earnings and after shares picked up from a $97 intraday low.
EBAY – eBay, Inc. – Shares of the online marketplace are trading more than 4% lower this morning to $23.94 despite the fact that the firm’s third-quarter earnings of 38 cents per share exceeded analyst expectations by a penny. Bearish movement in the price of shares today is likely due to disappointing forecasts by the company for the fourth-quarter. Option implied volatility dissipated following earnings, falling 24.40% to 22.08% as of 10:10 am (EDT). Meanwhile, option traders exchanged upwards of 60,000 contracts within the first 40 minutes of the trading session.
FFIV – F5 Networks, Inc. – Shares of the telecommunications equipment company are soaring 14.25% higher to $47.41 following yesterday’s positive earnings report. Earnings per share rose to 36 cents from the previous year’s 29 cents, while fourth-quarter revenue jumped 11% over the prior year to $175.1 million. Option traders are taking fresh positions in both calls and puts on the stock this morning. Volatility fell to 34% from 46.5% at the start of this week.
SLE – Sara Lee Corp. – A chunk of call options traded at the out-of-the-money November 12.5 strike amid a 0.7% rally in shares to $11.54. Investors may be positioning for a continued rally in the cake-maker. The spike in option implied volatility on SLE this morning points to greater uncertainty in the price of the stock going forward. Volatility surged 20% to 41.97% from an opening reading of 34.87%.
