Today’s tickers: EBAY, RCL, RAI, VLO, VRSN, USU, JAS, NUAN, TIVO & DNR
EBAY – eBay, Inc. – Two different options strategies employed on online auction-house, eBay, Inc., today indicate conflicting medium-term sentiment on the stock. One trader is positioning for a significant rally in the price of the underlying, while another individual anticipates shares will remain range-bound through July expiration. EBAY’s shares increased 3.35% during the current session to stand at $24.58. The uber-bullish stance taken on the stock involved the purchase of 10,000 call options at the July $30 strike for a premium of $0.22 per contract. The investor holding the calls stands ready to amass profits should shares of the underlying stock surge 22.95% from the current price to surpass the effective breakeven point on the calls at $30.22 by expiration in five months time. In contrast, the other options player initiated a sold strangle, which yields maximum benefits only if shares trade within a specified range through expiration. The investor sold 3,500 calls at the July $26 strike for a premium of $1.10 apiece in combination with the sale of the same number of puts at the lower July $21 strike for a premium of $0.58 each. Gross premium enjoyed on the trade amounts to $1.68 per contract. The investor keeps the full amount of premium if shares trade between $21.00 and $26.00 through expiration. However, losses accrue on the position if EBAY’s shares trade above the upper breakeven point at $27.68, or if shares slip beneath the lower breakeven price of $19.32 by expiration day. If the call-buying optimist ends up accurately predicting EBAY’s future share movements, the strangle seller will lose out big time. But, if shares do remain range-bound, the call-buyer only ever risks losing $0.22 per contract, or the price paid to take ownership of the call contracts.
RCL – Royal Caribbean Cruises Ltd. – The cruise operator received an upgrade to ‘neutral’ from ‘sell’ with a target share price of $27.00 at Goldman Sachs Group yesterday, and today nearly reached the target price amid a 2.60% rally in the price of the underlying shares to $29.70. Option trading in the June contract today is likely the work of a bullish trader investing in married put options. It appears the investor purchased shares of the underlying stock for about $29.36 apiece in conjunction with the purchase of approximately 39,000 puts at the June $25 strike for a premium of $1.07 apiece. The trader is hoping Royal Caribbean’s shares will continue to rally, but opted to get long downside protection in the form of put options in case the stock falters ahead of June expiration. Downside protection kicks in if RCL shares plummet 19.45% from the current price of $29.70 to breach the breakeven point at $23.93 by expiration day.
RAI – Reynolds American, Inc. – Investors sent up bearish smoke signals on the manufacturer of cigarettes and tobacco products today despite the 0.65% rally in the price of Reynolds’ shares to $54.51. Long-term pessimistic trading occurred in the August contract where approximately 6,500 put options were purchased outright at the August $50 strike for a premium of $1.91 apiece. Put-buyers are perhaps anticipating significant share price erosion ahead of expiration in six months. Investors start to accumulate profits if Reynolds’ shares slip nearly 12% from the current price to breach the breakeven point on the puts at $48.90 ahead of expiration day. RAI-shares last traded below $48.90 on November 6, 2009.
VLO – Valero Energy Corp. – The owner of refineries that produce gasoline and jet fuel attracted bullish options investors today amid a more than 3% rally in its share price to $19.39. Optimistic individuals picked up nearly 4,000 call options at the June $21 strike for a premium of $0.58 apiece. Call-buyers stand ready to accrue profits if Valero’s shares rally another 11.30% from the current price of the stock to surpass the effective breakeven point at $21.58 by expiration in June. Shares last traded above $21.00 back on October 26, 2009. Investors populating the options field on Valero today exchanged more than 2 call options for each single put in play thus far in the session.
VRSN – VeriSign, Inc. – Shares of the provider of internet infrastructure services rallied 1% during the session to attain a new 52-week high of $26.52. One options strategist, however, expects shares to remain range-bound through expiration day in June. The investor initiated a short strangle to take in option premium by selling an equal number of call and put options. The strangle was enacted through the sale of approximately 7,000 puts at the June $25 strike for a premium of $0.95 apiece, in conjunction with the sale of about the same number of calls at the higher June $27 strike for $1.35 each. Gross premium pocketed on the transaction amounts to $2.30 per contract. The investor keeps the full amount of premium if VeriSign’s shares trade within the boundaries of the strike prices described through expiration. Potentially devastating losses accumulate should shares of the underlying stock trade above the upper breakeven price of $29.30, or if the stock falls below the lower breakeven point at $22.70, ahead of expiration day in June.
USU – USEC Inc. – The supplier of low enriched uranium for commercial nuclear power plants realized a 0.95% increase in the value of its shares to $5.29 during the first half of the trading session. A plain-vanilla debit put spread in the April contract suggests one investor is bracing for a potential pullback in the price of the underlying by expiration next month. The trader purchased 5,000 puts at the April $5.0 strike for a premium of $0.25 apiece, spread against the sale of 5,000 puts at the lower April $4.0 strike for $0.05 each. The net cost of the pessimistic play amounts to $0.20 per contract. Maximum potential profits – assuming no underlying share position is held by this individual – amount to $0.80 per contract should USEC’s shares plummet 25% from the current value of the stock to $4.00 by expiration day in April. The jump in options activity on the stock today lifted options implied volatility roughly 5% to 54.69%.
JAS – Jo-Ann Stores, Inc. – Shares of the Ohio-based fabric and craft retailer, with stores operating in forty-seven states around the country, rallied 2.15% to a new 52-week high of $40.45 today. Options trading on Jo-Ann Stores was dominated by one investor’s short straddle employed in the April contract. The total of 7,000 contracts involved in the transaction exceeds total existing open interest on the stock of 5,819 lots. The investor sold 3,500 in-the-money calls at the April $40 strike for a premium of $1.90 apiece, and shed 3,500 puts at the same strike for a premium of $1.60 each. Gross premium enjoyed by the trader amounts to $3.50 per contract. The total premium is safe in the investor’s wallet if Jo-Ann’s shares settle at $40.00 at expiration. The premium received on the trade provides limited protection against potential losses should shares move significantly in either direction. Losses do accumulate, however, if shares of the underlying stock trade above the upper breakeven price of $43.50, or if shares slip beneath the lower breakeven point at $36.50 ahead of expiration day.
NUAN – Nuance Communications, Inc. – The 7% rally in Nuance’s shares to $15.91 this morning inspired plain-vanilla call buying action in the March and April contracts. Bullish traders scooped up at least 4,000 in-the-money calls at the March $15 strike for an average premium of $0.55 apiece in the first hour of the trading session. Early bird call-buyers paid just $0.55 for the calls, whereas investors now face an asking price of $1.00 per contract as of 10:45 am (ET) for the same contracts. More than 8,400 call options changed hands at the March $15 strike, which trumps existing open interest of just 962 contracts at that strike. The higher April $17.5 strike attracted bullish traders who purchased 1,700 calls for $0.18 apiece. Premium on these call options is up 600.00% on the day, and late-comers to the party face an asking price of $0.40 as of 10:50 am (EDT). The surge in demand for option contracts on Nuance Communications lifted options implied volatility 33.38% to 41.63%. More than 18,000 options have traded on NUAN thus far in the session, which is more than 50% of total existing open interest on the stock of 35,901 lots.
TIVO – TiVo, Inc. – Options on the digital video recording services firm continue to be a hot ticket following yesterday’s U.S. court appeals victory. Shares are up 3.65% to $17.13 with roughly 90 minutes behind us in the trading session. One keen investor banked ridiculous profits today by striking before the iron was hot yesterday. It looks like the trader purchased 5,000 calls at the April $11 strike for a premium of $1.40 apiece yesterday morning at 10:08 am (ET) when shares of the underlying stock were trading at around $10.32. The subsequent 74% rally in TiVo’s shares lifted premium on the April $11 strike calls by at least 357%. Thus, the investor was able to sell the 5,000 contracts for a premium of $6.40 this morning. Net profits on the transaction amount to $5.00 apiece for total gains of $2.5 million.
DNR – Denbury Resources, Inc. – Bullish investors dominated options trading on Denbury Resources this morning with shares of the oil and natural gas exploration and production company trading 1.75% higher at $15.19. Traders initiated bullish risk reversals on the stock in the April contract to position for continued upward movement in the price of the underlying shares by expiration next month. It looks like investors sold roughly 2,400 put options at the April $15 strike for a premium of $0.77 apiece in order to buy about the same number of calls at the higher April $17.5 strike for $0.21 each. Reversal players pocket an average net credit of $0.56 per contract on the transaction, which they keep if Denbury’s shares trade above $15.00 through expiration day. Additional profits accumulate should shares surge 15.20% from the current price to surpass the $17.50-level by April expiration.
