Today’s tickers: JPM, MNKD, CHK, BIDU, PFE, FXE, AA, SHFL, IBB & INTC
JPM – JPMorgan Chase & Co. – Profit-taking measures employed on the banking institution today show keen foresight by one investor who walked away from the table today with a nice chunk of change in his pocket. Shares of JPMorgan are currently trading 1.80% lower this afternoon to $43.89 even though the firm posted fourth-quarter earnings of $0.40 per share, which exceeded average analyst expectations by a margin of $0.13 a share. It looks like the investor banked gains on a previously established short put position in the February contract today by buying back the contracts at a discounted premium. The trader originally sold 20,000 puts at the February $42 strike for an average premium of $1.02 per contract this past Wednesday January 13, 2010. Today the same individual appears to have purchased-to-close the position by paying a lesser premium of $0.67 per contract. Net proceeds on the transaction amount to $0.35 apiece. The decline in shares of the underlying today certainly cut into the trader’s available profit, but the significant reduction in option implied volatility perhaps benefited the investor by weighing down option premiums. Option implied is 17.94% lower to stand at 25.13% – the lowest level since October of 2007 – as of 2:45 pm (EDT).
MNKD – MannKind Corp. – Shares of the biopharmaceutical company increased 7% in the first half of the trading day, but reversed direction in afternoon trading, falling 2.5% to stand at $10.10. Options activity in the May contract indicates lower volatility in the price of the underlying through expiration. It appears one investor initiated a short straddle play on the stock by selling 5,000 calls at the May $10 strike for a premium of $2.41 apiece, in combination with the sale of 5,000 puts at the same strike for $3.22 each. The straddle-seller pockets a gross premium of $5.63 per contract, which he keeps if MNKD’s shares settle at $10.00 by expiration. The transaction could be the work of an investor selling volatility. Implied volatility is currently up 8.4% to 122.16% with 90 minutes remaining in the session. The investor need not hold the short straddle through expiration in order to profit. Perhaps the trader is looking for a reduction in option implied volatility, which would likely result in lower premiums on both the calls and the puts. Lower option premiums allow the trader to buy back the short position for less than he received on the initial transaction.
CHK – Chesapeake Energy Corp. – Natural gas and oil exploration and development company, Chesapeake Energy Corp., attracted near-term bullish investors to the February contract throughout the session. It looks like traders are bulking up on out-of-the-money call options despite slight share price declines of 0.25% today to $27.60. Nearly 18,000 calls were coveted at the February $30 strike for an average premium of $0.67 per contract. Call-buyers amass profits if shares of the underlying stock rally more than 11% and surpass the breakeven price of $30.67 by expiration next month. Option implied volatility on Chesapeake is up 7% to 45.85%.
BIDU – Baidu, Inc. – Bullish investors continue to trade January contract calls and puts on the Chinese language internet search provider today even with expiration close at hand. News reports today indicate some at Credit Suisse anticipate Google may exit the Chinese market as soon as February. Disbanding Google operations in China could allow Baidu to swoop in and procure one third of the U.S. company’s market share there. Shares are trading 0.75% higher to $467.86. Baidu-bulls bought roughly 3,200 calls at the January $470 strike for an average premium of $2.08 apiece. These contracts will expire out-of-the-money and worthless unless shares rally above the $470-level. Investors long the calls breakeven if the stock rallies up to $472.08 before the contracts expire. Additional buying interest appeared as high as the January $480 strike where 2,000 calls were picked up for an average premium of $0.48 per contract. Perhaps traders buying these out-of-the-money contracts hope to enjoy short-swing profits by selling the lots by the end of the day for more than the average premium paid. Optimism is apparent on the put side, as well. Investors sold 3,400 puts at the January $460 strike to take in premium of $2.35 each. Another 1,900 puts were shed at the in-the-money January $470 strike for an average premium of $5.85 per contract. In-the-money put sellers are happy to have shares of the underlying stock put to them at an effective price of $464.15 each if BIDU’s share price trades below the $470 strike price through expiration.
PFE – Pfizer, Inc. – It looks like one investor rolled a large chunk of now in-the-money call options in the January contract on the global pharmaceutical company forward to a higher strike price in the February contract today. Shares slipped slightly lower during the session, falling 0.25% to $19.31. The January $19 strike had approximately 62,000 calls sell for an average premium of $0.43 per contract, spread against the apparent purchase of about the same number of calls at the higher February $20 strike for a premium of $0.28 each. The calendar roll results in a net credit to the investor of about $0.15 per contract. It is unclear how much the trader initially paid for the January contract calls, but looking at the trade in isolation, this individual pockets $0.15 per contract on the transaction. Elsewhere, traders attempted to lock in recent share price gains on the stock by buying 7,700 in-the-money puts at the February $20 strike for a premium of $1.06 apiece. The put contracts provide protection to traders in case Pfizer’s shares slip beneath the breakeven point at $18.94 by expiration next month.
FXE – CurrencyShares Euro Trust – With the euro under pressure today as Greek bond yields rise indicative of rising Eurozone tensions, it appears that one investor sold February call options at the $1.50 strike to reduce the outlay for the same strike put options. By doing so the investor bearish on the euro reduced the cost of downside exposure for the euro by 2.2%. Elsewhere another investor appeared to buy a substantial amount of 5,000 put options expiring in June at the $1.10 strike. If such a decline in the euro was to play out, since it’s currently trading at $1.4380, would be indicative of a huge slide of confidence in the Eurozone.
AA – Alcoa Inc. – Medium-term optimism on the largest producer of aluminum took root in the July contract today despite the 1.5% decline in the value of the underlying shares to $15.58. It looks like one investor purchased 20,000 calls on the stock at the July $20 strike for a premium of $0.51 per contract. The large bullish stance positions the trader to amass profits if Alcoa’s shares surge more than 31.5% over the current price to surpass the breakeven point at $20.51 by expiration in six months. Option implied volatility is down 7.17% on the day to stand at 38.05%.
SHFL – Shuffle Master Inc. – Shares of the gaming supply company, which provides casino clients with utility and entertainment products, are up more than 2.5% to $9.25 this morning following earnings. The firm posted fourth-quarter earnings of $0.12 per share on a 2% increase in revenue to $54.6 million. Shares traded as high as $9.75 in early trading on the positive earnings report. Option traders took to the May contract to sell approximately 2,500 calls at the May $10 strike for an average premium of $0.85 apiece. Perhaps sellers are initiating covered calls on the stock. Option implied volatility contracted 32.37% to 38.93% thus far today.
IBB – iShares NASDAQ Biotechnology Index Fund – The biotechnology ETF, which generally mirrors the price and yield performance of the Nasdaq Biotechnology index, attracted option bears right out of the gate this morning. Shares of the underlying slipped 1% to $84.24 by 10:25 am (EDT). Investors sold call options in the February contract, suggesting little optimism that shares will rebound by expiration. Roughly 2,000 calls were shed at the February $85 strike for an average premium of $1.35 apiece. Another 1,000 calls were sold at the higher February $90 strike for about $0.20 each. The paltry open interest levels at both strikes imply the calls were likely sold short in outright bearish bets that shares are set to trade below $85.00 through expiration. Option implied volatility surged 18.5% from an opening reading of 14.91% to an intraday high of 17.67%.
INTC – Intel Corp. – Option implied volatility on chipmaker giant, Intel Corp., plummeted 22.40% to 25.95% as of 10:30 am (EDT). The contraction in volatility follows Intel’s fourth-quarter earnings report in which the company posted profits of $0.40 per share, which exceeded average analyst expectations of $0.30 per share. The positive earnings report did not lift shares higher, however, and the stock is down 1.5% this morning to $21.14. Option traders exchanged more than 160,000 contracts on the stock within the first 60 minutes of the trading session.
