Today’s tickers: VMED, EWZ, HAL, FMCN, VIX, SEED, GLD, CMCSA, SEED, LDK & USG
VMED – Virgin Media, Inc. – Virgin-bulls banked profits and established new positions on the telecommunications company this afternoon amid a 1% increase in shares to $16.54. One investor initiated the closing purchase of 10,000 put options that were originally sold short for an average premium of 68 cents apiece back on October 16, 2009. Today the trader closed out the position by buying the puts for just 15 cents each. Net profits on the trade amount to 53 cents per contract for a total of $530,000. The same investor is likely responsible for putting on a similar bullish strategy in the March 2010 contract. The March 15 strike had 10,000 puts sold short for one dollar per contract. The sale of the put options implies the trader expects shares of VMED to remain above $15.00 through expiration in March. Finally, optimism spread to the March 17.5 strike where 2,685 calls were purchased for an average premium of 1.45 apiece. Call-buyers amass profits if shares of VMED rally another 15% over the current price to breach the breakeven point at $18.95 by expiration day in March. Option implied volatility is currently 8.5% lower to 42.40%.
EWZ – iShares MSCI Brazil Index ETF – A bullish risk reversal on the EWZ in the January 2010 contract indicates investors are positioning for a rally in shares over the next couple of months. Shares of the fund are trading 1.5% higher to $76.28 this afternoon. Traders sold 5,500 puts at the January 77 strike for an average premium of 4.90 apiece in order to finance the purchase of 5,500 calls at the same strike for 3.35 each. The bullish reversal yields a net credit of 1.55 per contract. Investors retain the full 1.55 credit if shares of the Brazil Index ETF trade above $77.00 by expiration in January. Additional profits accumulate to the upside above the $77.00 breakeven price. The 1.55 credit also acts as a buffer against losses to investors in case shares fail to rise up to the strike price described. Investors short the put options stand ready to have shares of the underlying stock put to them at an effective price of $75.45 each if the put options land in-the-money by expiration.
HAL – Halliburton Co. – Near-term bearish option plays on the oil and gas company belie the more than 2% rally in shares to $30.49 during the session. Investors sold 3,500 calls at the nearly at-the-money December 31 strike for an average premium of 92 cents apiece. Call-sellers apparently do not expect shares to continue much higher by expiration in December. Additional pessimism took the form of a bearish risk reversal. It appears 1,500 calls were sold for 94 cents each at the December 31 strike to partially offset the cost of buying 1,500 puts at the same strike for 1.35 apiece. The net cost of the reversal play amounts to 41 cents per contract. Option implied volatility on HAL collapsed from an opening reading of 38.60% to an intraday low of 34.93%.
FMCN – Focus Media Holding ADR – In March shares at Focus Media, the Chinese out-of-home advertising media company were trading at below $5.00. Today, its shares are a little higher at $13.16, which leaves us at a loss to explain what looks like a rather large bearish position initiated using options expiring in April at the 5.0 strike. Shares would need to slide by 62% to reach the strike. The premium of 20 cents appears to have been paid today by one investor – we mused at first that this could be sold puts to take in a wasting premium, but the trade was executed to the asking price. The trade covers about 2 million shares in the underlying with a $26.3 million face value. We don’t currently see a catalyst on this trade although it’s not impossible that this isn’t married put protection against a long stock position. But why buy shares in a company you expect to fall so far? No, this looks like the work of someone who might knows the inner workings of Focus Media far better than we do. Option implied volatility is marginally higher at 715 today.
VIX – CBOE Vix Index – Never say never. That seems to be the motto of one hardened equity bear today it would appear. An investor appears to have taken advantage of the rally in equity prices and consequent decline in volatility to get long of the Vix index using a cost-free combination using December call options. The trade implemented at zero cost combines twice as many written calls at the 60 strike against bought calls at the 45 strike price. Some 28,000 calls were bought expiring in around one month for an 8 cent cost, which was fully offset by the premium received from writing 56,000 calls at the 60 strike. The trader is now long volatility, except that the CBOE Vix index is 4.6% lower today at 21.19. Even when the market got messy a couple of weeks ago and a large volatility bid came back into the market, the Vix had trouble staying above an index level of 30 for too long. Still, a near-term downer for the market would certainly serve as portfolio insurance for this investor perhaps. Any out-of-the-ordinary events that did conspire to boost market fear might also widen the spread out for this investor, enough to make more than pocket change in that case.
SEED – Origin Agritech Ltd. – The third-largest seed producer in China received “final approval for commercial approval of the world’s first genetically modified phytase corn”, according to a Bloomberg article on Saturday. Shares surged more than 81% to $9.38 at times during the trading session, the biggest intraday price gain in the firm’s history. Origin Agritech also received an upgrade to ‘outperform’ from ‘market perform’ at Rodman & Renshaw. Option traders appear to be selling covered calls in the December contract. Approximately 21,000 calls were sold at the December 10 strike for an average premium of 40 cents per contract. Investors retain shares of the underlying stock as well as the 40 cents premium on the sale if shares of SEED remain below $10.00 through expiration. Covered-call sellers appear happy to have shares called away at $10.00 should the call options land in-the-money by expiration. Finally, some traders purchased the December 10 strike calls as 3,700 lots were picked up for approximately 40 cents per contract. Option implied volatility is sky-high at 107.5% over the opening reading of 73.18%.
GLD – SPDR Gold Trust ETF – Bullish options activity in the June 2010 contract on the gold exchange-traded fund suggests significant upside potential for the price of gold bullion. Shares of the GLD are up 1.35% to a new record high of $114.47. One investor established a call spread on the fund. The trader bought 10,000 calls at the June 124 strike for an average premium of 5.90 apiece, spread against the sale of 10,000 calls at the higher June 152 strike for 1.94 each. The net cost of the transaction amounts to 3.96 per contract and yields maximum potential profits of 24.04 apiece if shares sky-rocket to $152.00 by expiration in June. The investor breaks even on the trade if shares of the GLD rise to $127.96, a 12% increase over the current price of the fund. The trader may realize maximum potential profits of 24.04 per contract if shares of the underlying jump 33% to $152.00 in the next seven months. And while this would put the spot price of gold above $1,500 a dollar in decline and seemingly record prices for gold daily, who are we to argue?
CMCSA – Comcast Corp. – Shares of the U.S. cable company are down more than 1% to $14.84 today, inspiring greater demand for near-term put options on the stock. Traders purchased 10,000 put options at the now in-the-money December 15 strike for an average premium of 50 cents apiece. Investors picking up the puts are likely long shares of the underlying stock. If this is the case, downside protection kicks in if shares of CMCSA decline beneath the breakeven price of $14.50 by expiration day. The spike in demand for put options on Comcast could be related to the continued “haggling” over the value of Vivendi SA’s 20% stake in NBC Universal, which General Electric plans to unload onto Comcast Corp. The deal between GE and CMCSA is nearly complete, but Comcast may not take control of NBC Universal until terms of payment for Vivendi are ironed out.
SEED – Origin Agritech Ltd. – Shares of the technology-focused crop seed company skyrocketed 50% higher to a new 52-week high of $7.84 this morning. Option traders exchanged nearly 14,000 contracts on the stock by 10:20 am (EDT) on total previous existing open interest of just 2,634 lots. Stay tuned for more information, but it looks like traders are selling December 10 strike covered calls. Option implied volatility is up a whopping 53.60% to 90.93%.
LDK – LDK Solar Co. Ltd. – The manufacturer of solar wafers posted third-quarter earnings of 27 cents per share, which blew average analyst expectations of a loss of 13 cents per share, straight out of the park. Shares of LDK are currently up 8% to $8.65. Option implied volatility contracted 15.35% to 79.09% following earnings.
USG – USG Corp. – Fresh call buying activity took place on the manufacturer of building materials this morning. Shares are trading more than 4.5% higher to $14.74. More than 4,200 calls traded as high as the December 17.5 strike by 10:30 am (EDT).
