Today’s tickers: SMH, X, WMT, SYMC, MOS, SKS, GE, GENZ, DVN & ADBE
SMH – Semiconductor HOLDRS Trust – Massive bearish positioning on the Semiconductor HOLDRS Trust, which holds shares of common stock issued by 20 different companies engaged in the semiconductor business, indicates shares of the underlying stock may be set to tumble lower ahead of expiration day next month. Shares of the SMH are down 2.40% to $27.92 with thirty minutes remaining in the trading session. It appears one investor purchased 50,000 put options at the April $27 strike for an average premium of $0.41 per contract. Such a large stake in bearish put options suggests the purchaser is perhaps paying for the privilege of securing downside protection on a long underlying stock position. If this is the case, the put contracts yield protection should shares of the SMH trade beneath the effective breakeven price of $26.59 ahead of expiration. Of course, it is also possible the trader does not currently own shares of the SMH. In this scenario the investor makes money if shares fall another 4.75% below the current price to breach the breakeven point on the puts at $26.59. The sudden flurry of options activity on the Semiconductor HOLDRS Trust lifted the overall reading of options implied volatility 7.8% to 26.35%. SMH-investors exchanged more than 131,900 contracts this afternoon, which represents nearly 72% of total existing open interest of 183,473 contracts.
X – United States Steel Corp. – Shares of iron and steel producer, United States Steel Corp., rallied 0.65% during afternoon trading to $63.75. Bullish traders anticipating continued share price appreciation for U.S. Steel purchased out-of-the-money call options in the October contract. Nearly 5,600 calls were coveted at the October $75 strike for an average premium of $4.68 apiece. Investors holding these call contracts stand ready to accrue profits if shares of the underlying stock surge 25% to surpass the effective breakeven share price of $79.68 ahead of expiration day in October. We note that U.S. Steel’s share price last traded above $80.00 during the final days of September 2008.
WMT – Wal-Mart Stores, Inc. – The largest retailer on the planet experienced a slight pullback in the value of its shares this afternoon perhaps on news the firm may sell $2 billion of 5- and 30-year senior notes. Shares edged 0.40% lower during the session stand at $55.68. Options traders expecting lower volatility in the price of the underlying shares through expiration in May sold strangles on the stock today. Approximately 2,200 puts were shed at the May $52.5 strike for an average premium of $0.50 each in combination with the sale of about the same number of call options at the higher May $57.5 for $0.58 apiece. Gross premium enjoyed by strangle-sellers amounts to $1.08 per contract. Investors keep the full premium if Wal-Mart’s shares trade within the range specified by the strike prices above through May expiration day. Otherwise, stranglers face potentially devastating losses beyond the effective breakeven points at $58.58 to the upside, and at $51.42 to the downside.
SYMC – Symantec Corp. – Large-volume options combination plays on the provider of security, storage and systems management solutions that aid consumers and businesses with information management, indicate at least one investor expects shares of the underlying stock to trade within a specified range through expiration in October. Symantec’s shares edged 0.60% lower during the first half of the trading day to stand at $16.95. It looks like one trader initiated a short strangle on Symantec by selling approximately 26,000 put options at the October $15 strike for a premium of $0.65 apiece, and by shedding about 26,000 calls at the higher October $19 strike for $0.63 each. Gross premium pocketed by the strangle-seller amounts to $1.28 per contract. The investor responsible for the transaction keeps the full premium if Symantec’s shares trade within the range of the strike prices specified above through expiration. However, the trader is vulnerable to losses should shares rally through the upper breakeven price of $20.28, or if shares slip beneath the lower breakeven point at $13.73 ahead of expiration day.
MOS – The Mosaic Co. – Bullish options traders flooded phosphate and potash crop nutrients manufacturer Mosaic Company today amid a 2.85% rally in its share price to $60.84. Investors positioned for continued upward movement in the price of the underlying shares by scooping near-term call options on the stock. Approximately 2,100 in-the-money call options were picked up at the April $60 strike for an average premium of $2.34 apiece. Investors holding these contracts stand ready to accrue profits if Mosaic’s shares rally above the effective breakeven price of $62.34 by April expiration day. Buying interest continued at the higher April $65 strike where 4,400 calls were purchased for an average premium of $0.95 each. Uber-bullish individuals paid an average of $0.33 per contract to secure 3,500 long calls at the higher April $70 strike price. The April $70 strike call options will expire worthless at expiration unless the potash producer’s shares rally at least 15% from the current price to exceed $70.00 by expiration. Investors long the contracts do not accrue profits unless shares breach the effective breakeven price of $70.33 ahead of expiration day.
SKS – Saks, Inc. – Shares of the operator of luxury fashion retailer Saks Fifth Avenue attained a new 52-week high of $9.57 yesterday after Saks was raised to ‘overweight’ from ‘neutral’ and given a 9-month target share price of $11.00 at JPMorgan. Saks’ shares surrendered much of the prior day’s rally to close at $8.96, but recovered partially today to stand 1.55% higher to $9.10. Investors initiated bullish positions on the clothing and accessories retailer by picking up call options in the April contract. Optimistic traders expecting continued bullish movement in the price of the underlying stock bought 3,000 calls at the April $10 strike for a premium of $0.15 apiece. Call-buyers profit if Saks’ shares increase 11.5% over the current price to breach the effective breakeven point at $10.15 by expiration day next month.
GE – General Electric Co. – Options trading by one investor on General Electric today suggests the diverse conglomerate’s share price may remain range-bound through May expiration. Other investors were quick to put on bullish plays as GE’s shares surged 1.95% on the day to reach a new 52-week high of $18.69. The strangle strategist shed 2,500 puts at the May $17 strike for a premium of $0.24 apiece and sold the same number of calls at the higher May $20 strike for $0.31 each. The investor keeps the gross premium of $0.55 per contract if shares of the underlying stock trade within the $17.00 to $20.00 range through expiration day in May. Perhaps the strangle-seller is taking advantage of inflated options premium stemming from the 8% increase in options implied volatility on the stock today. The investor is probably expecting implied volatility to come off ahead of expiration, which may allow him to take profits by buying back the short strangle for less than the premium received on today’s sale.
GENZ – Genzyme Corp. – Options players took advantage of the sharp increase in options implied volatility on the world’s largest producer of enzyme-replacement therapies this morning by selling strangles in the May contract. Implied volatility on Genzyme jumped on news the U.S. Food and Drug Administration is mandating additional inspection of the firm’s facilities following contamination at its Allston Landing plant last June. The FDA is likely to require a third party inspection and review of the biotechnology company’s operations as well as possible payments to the government according to statements released by the firm. Genzyme’s shares are trading 5.10% lower as of 10:35 am (ET) to stand at $56.09. Short strangles dominated options trading patterns on the stock this morning as investors positioned for shares to trade within a specified range, and positioned to benefit from subsequent declines in options implied volatility, ahead of expiration in May. Investors sold approximately 5,000 puts at the May $52.5 strike for an average premium of $0.95 apiece in combination with the sale of about 5,000 calls at the higher May $60 strike for an average premium of $1.37 each. Gross premium pocketed by strangle-sellers amounts to $2.32 per contract. Investors keep the full amount of premium if Genzyme’s shares trade within the $52.50 to $60.00 range through expiration. Traders may also choose to walk away with profits at an earlier date if options implied volatility collapses lower and drags down premiums on both calls and puts. Stranglers can take advantage of subsequent declines in options implied volatility by buying back the strangle for less than the original amount of premium received today. Options implied volatility on Genzyme increased 18.57% to 29.14% in early trading.
DVN – Devon Energy Corp. – Call options on the independent energy company are in high demand this morning with options investors trading more than 14.5 call contracts for each single put option in play thus far in the session. Shares of the underlying stock are up 1.45% to $65.92 as of 10:45 am (ET). Traders purchased roughly 2,400 in-the-money call options at the April $65 strike for an average premium of $2.19 per contract. Devon’s shares must rally above the effective breakeven price of $67.19 before in-the-money call buyers start to accrue profits. Trading traffic is heaviest at the April $70 strike where 14,700 call options changed hands. It looks like investors purchased about 7,300 of the call options for an average premium of $0.78 apiece. Bullish traders holding these contracts profit if shares surge 7.4% from the current price to breach the breakeven point at $70.78 ahead of expiration day next month. Finally, super-bullish traders shelled out an average of $0.31 per contract to get long 1,400 calls at the higher April $75 strike. The spike in investor demand for options on Devon Energy boosted the reading of overall options implied volatility on the stock 8.2% to 31.93% as of 10:50 am (ET).
ADBE – Adobe Systems, Inc. – Shares of the world’s largest producer of graphic-design programs are trading 4.65% higher to $36.86 in the first half of the trading day. There are a number of catalysts for the current rally. Adobe’s forecast for second-quarter sales exceeded average analyst expectations, which followed the firm’s announcement it will introduce a new version of its most profitable software on April 12, 2010. Options implied volatility plummeted 19.7% to 24.94% on the news and investors populating the options field on the stock traded more than 2 call options for each single put in action. More than 19,000 contracts change hands on Adobe in the first 90 minutes of the trading session.
