Today’s tickers: RIMM, CAT, MGM, F, SLM, FRX, FXI, MWW & AIG
RIMM – Research in Motion Limited – Blackberry maker, Research in Motion, attracted bearish options strategists even though the firm’s target share price was upped to $100.00 this morning from $95.00 at Canaccord Adams. RIMM opened the session higher, but slipped slightly in afternoon trading by 0.05% to $70.85. One bearish tactic employed today was the use of a plain-vanilla put spread in the March contract. The trader responsible for the transaction purchased 4,400 puts at the March $65 strike for a premium of $0.54 apiece and sold the same number of puts at the lower March $60 strike for $0.20 each. The net cost of the spread amounts to $0.34 per contract. Maximum potential profits of $4.66 per contract are available to the investor if RIMM’s share price slumps 15.30% beneath the current value to $60.00 by expiration. We note that the mobile device manufacturer’s shares last traded below $60.00 on December 4, 2009. The bearish risk reversal is another pessimistic tactic utilized today. One trader sold 5,000 calls at the April $75 strike for a premium of $2.66 each in order to purchase 5,000 puts at the lower April $70 strike for $3.80 apiece. The net cost of the reversal play amounts to $1.14 per contract. The investor stands ready to accrue profits to the downside if shares of the underlying stock trade beneath the effective breakeven point at $68.86 by expiration in April.
CAT – Caterpillar, Inc. – February marked the seventh consecutive month of manufacturing expansion in the United States; this fact, coupled with today’s jump in equities’ prices, inspired bullish options trading on machine-maker, Caterpillar. CAT’s shares rallied 1.50% during the session to $57.92 after its earnings forecast through the year 2012 were increased by analysts at Morgan Stanley. MS maintains an ‘overweight’ rating on CAT and a $70 share price target, at present. Bullish options activity appeared on the put side of the field where one investor established a credit spread. The trader sold roughly 16,300 puts at the April $55 strike for a premium of $1.38 apiece, and purchased the same number of puts at the lower April $50 strike for $0.47 each. The investor pockets a net credit of $0.91 per contract, and keeps the full amount as long as Caterpillar’s share price remains above $55.00 through expiration day in April. The parameters of the credit spread dictate maximum potential loss exposure of $4.09 per contract should shares of the underlying stock decline 13.70% from the current price to $50.00 ahead of expiration.
MGM – MGM Mirage, Inc. – Options traders coveted call options on casino and resort operator, MGM Mirage, today as shares of the underlying stock increased 1.50% to $10.70. Investors placed nearer-term bullish bets at the April $14 strike where 2,200 calls were picked up for an average premium of $0.09 per contract. Call-buyers paid nine pennies per contract to position for a potential hail-Mary share price rally by expiration. Traders accrue profits only if MGM’s shares surge 31% to breach the breakeven point at $14.09 by expiration day in April. Bullish activity in long-dated options caught our eye, as well. It looks like one trader purchased 18,800 calls at the January 2012 $20 strike for a premium of $1.65 apiece. The investor holding these contracts is positioned to profit if MGM’s share price jumps a staggering 101.60% to surpass the breakeven point at $21.65 by expiration day in January 2012.
F – Ford Motor Co. – Shares of the automaker jumped 5% during the session to a new 52-week high of $12.34 after increasing its production target in Europe for the first-quarter on higher-than-expected sales of its Fiesta and Ka models. Bullish options trading ensued during the session as some individuals ramped up optimistic positions on the stock. One investor rolled a long call position to a higher strike price and augmented the size of the position to extend bullish sentiment to the April contract. The trader sold 5,000 now in-the-money calls at the March $12 strike for a premium of $0.40 apiece in order to buy 10,000 calls at the higher April $13 strike for an average premium of $0.25 each. The net cost of the transaction amounts to $0.10 per contract on account of the ratio nature of the combination and positions the investor to amass profits above a breakeven price of $13.10 by expiration in April. Traders exchanged more than 144,000 option contracts on Ford Motor Company in the first half of the trading day.
SLM – SLM Corp. – Bearish investors bombarded the student loan facilitator, familiarly known as Sallie Mae, today as shares slipped 2% lower to stand at $10.95 each. April contract put options are in demand, with the current day’s volume at the April $9 and $10 strikes exceeding existing open interest levels at those strikes. Investors purchased nearly 8,000 puts at the April $9 strike for an average premium of $0.19 apiece. Put-buyers are perhaps anticipating continued bearish movement in the price of the underlying stock through expiration next month. The puts yield profits to the downside if SLM shares plummet at least 19.5% to breach the breakeven price of $8.81 by expiration. Options traders also picked up about 3,500 puts at the April $10 strike for a premium of $0.33 each. These contracts yield profits beneath a breakeven share price of $8.67 through expiration in April.
FRX – Forest Laboratories, Inc. – Bullish investors dominated options trading activity on the pharmaceuticals firm today with shares of the underlying stock up 1% to $30.18. FRX shares are up perhaps on news the Food and Drug Administration has rescheduled a meeting to review the firm’s Daxas lung treatment on April 7, 2010. Optimistic traders initiated bullish positions on FRX in the April contract to prepare for potential share price improvement following the FDA meeting in April. Investors purchased 3,600 in-the-money calls at the April $30 strike for an average premium of $1.35 apiece. Forest’s shares must trade above the breakeven price of $31.35 by April expiration for in-the-money call buyers to amass profits. Bulls targeted the higher April $32.5 strike as well, buying 4,100 call options for an average premium of $0.36 each. Investors long these contracts profit if shares of the underlying rally at least 8.90% from the current value of the stock to breach the breakeven point at $32.86 by expiration day. Options implied volatility is up sharply by 32.80% to 29.25% on FRX due to increased demand for options on the stock and greater uncertainty ahead of the FDA meeting next month.
FXI – iShares FTSE/Xinhua China 25 Index Fund – Shares of the China exchange-traded fund, which invests in twenty-five of the largest and most liquid Chinese companies, are up 2.75% to $40.68. One options transaction on the fund, however, suggests the current rally may be short-lived. The so-called bearish risk reversal enacted on the FXI indicates one investor expects shares of the underlying fund to fall by April expiration. The investor sold 8,100 calls at the April $44 strike for an average premium of $0.45 apiece in order to buy the same number of put options at the lower April $36 strike for $0.46 each. The net cost of the reversal play amounts to just one penny per contract. Perhaps the trader is long shares of the underlying fund and is securing cheap downside protection in case the price per share declines ahead of April expiration. The short call position used to finance the put purchase suggests the trader is willing to have shares called from him if the FXI’s price per share exceeds $44.00 ahead of expiration day next month.
MWW – Monster Worldwide, Inc. – Shares of the global online employment company are up 1.25% to $14.12 in morning trading. The rally in the price of the underlying stock inspired bullish options activity on Monster. Investors picked up approximately 1,700 calls at the March $15 strike for an average premium of $0.31 apiece. Call-coveters are positioned to accumulate profits by March expiration if Monster’s shares trade above the effective breakeven price of $15.31. The rise in demand for options on the stock lifted the overall reading of options implied volatility by 20.85% to 49.75% in the first hour of the session.
AIG – American International Group, Inc. – Two-way trading traffic in out-of-the-money call options on insurance company, American International Group, is apparent in morning trading. AIG’s shares are up sharply by 8.65% to $26.91 thus far in the session. Bullish players picked up roughly 2,500 calls at the March $35 strike for a premium of $0.13 apiece. Investors long the calls are cherry-picking higher-strike contracts for relatively inexpensive premium to position for continued upward momentum in share price ahead of March expiration. On the flip side, nearly 5,000 calls at the same strike were shed for $0.13 each. Perhaps call sellers do not expect AIG’s shares to rally above $35.00 by expiration day. Call-sellers keep the premium received on the sale of the contracts as long as AIG-shares trade under $35.00 through expiration in a few weeks.
