Today’s tickers: JCI, LEA, X, LFT, TS, MU, LULU, DLB & RRC
JCI – Johnson Controls, Inc. – A long strangle enacted on the maker of batteries for automobiles and hybrid electric vehicles this afternoon implies the firm’s share price could swing dramatically ahead of May expiration. Johnson’s shares gained 0.72% in late afternoon trading to stand at $33.35. Earlier in the session shares of the underlying stock reached a new 52-week high of $33.60. The investor responsible for the long strangle play is expecting to profit if JCI’s shares trade outside of a specified range ahead of expiration day. The volatility player purchased roughly 10,000 puts at the May $32 strike for an average premium of $0.89 apiece and picked up 10,000 calls at the higher May $34 strike for $1.14 each. The net cost of the strangle amounts to $2.03 per contract. Shares must trade above the upper breakeven price of $36.03, or trade beneath the lower breakeven point at $29.97, in order for the strangler to amass profits ahead of May expiration.
LEA – Lear Corp. – Bullish options activity on the manufacturer of automotive seat systems suggests at least one investor is preparing for shares to trade at a significantly higher price by expiration in September. Lear’s shares increased 0.85% to $80.37during the current session to trade just $0.53 below the current 52-week high on the stock of $80.90. The optimistic options strategist initiated a debit call spread by purchasing 2,500 calls at the September $85 strike for a premium of $5.40 apiece, and by selling the same number of calls at the higher September $95 strike for $2.10 each. Net premium paid for the transaction amounts to $3.30 per contract. Thus, the trader stands ready to accrue maximum potential profits of $6.70 per contract if Lear’s shares surge 18.20% from the current price to $95.00 by expiration day in September.
X – United States Steel Corp. – Bullish options trading on U.S. Steel Corp. today follows news reports that steelmakers are set to hike prices globally as the economic recovery drains inventory levels and boosts demand and prices for raw materials. The price of steel, according to a Bloomberg News article, increased 9.1% in the U.S. during the month of February. U.S. Steel’s shares rallied 2% during the first half of the trading session to stand at $64.77, and earlier this morning traded up to an intraday high of $65.34. One medium-term bullish individual initiated a ratio call spread in the July contract to position for continued gains in the price of the underlying stock through expiration. The investor bought 2,000 calls at the July $70 strike for a premium of $4.67 apiece, and sold 4,000 calls at the higher July $80 strike for an average premium of $1.95 each. The net cost of the transaction amounts to just $0.77 per contract. Thus, the trader stands ready to accrue maximum potential profits of $9.23 per contract if the steel maker’s shares explode 23.5% higher to $80.00 ahead of expiration day.
LFT – Longtop Financial Technologies Ltd. – A bullish risk reversal employed on Longtop Financial Technologies Ltd., a firm that focuses on providing software and information technology services to the financial services industry in China, indicates one investor expects shares to appreciate significantly by September expiration. Longtop’s shares increased 5% during the current trading session to $32.14. The reversal player shed 4,682 put options at the September $25 strike for a premium of $1.40 apiece in order to partially offset the cost of purchasing 4,682 calls at the higher September $35 strike for $3.30 each. The net cost of the bullish transaction amounts to $1.90 per contract. In the six months remaining to expiration, Longtop’s shares must increase at least 14.80% from the current price before the trader breaks even on the spread at $36.90. Technically unlimited profits are available to the upside should the IT provider’s shares burst through the breakeven point described. Note that shares traded up as high as $41.77 – the current 52-week high on the stock – as recently as January 11, 2010.
TS – Tenaris S.A. – The global steel pipe manufacturer attracted bearish options traders despite the 0.60% rally in its underlying share price to $43.64 today. Perhaps pessimism stems from the downgrade initiated at UBS where analysts cut their rating on Tenaris from ‘buy’ to ‘neutral’ yesterday. One bearish investor established a debit put spread on the world’s largest producer of seamless pipes used to extract oil and gas. The trader purchased 4,500 puts at the June $40 strike for a premium of $1.38 each, spread against the sale of 4,500 puts at the lower June $35 strike for $0.33 apiece. Net premium paid by the pessimistic player amounts to $1.05 per contract. The trade yields the investor maximum potential profits of $3.95 per contract if shares of the underlying stock sink 19.80% from the current day’s price to $35.00 by expiration day in June.
MU – Micron Technology, Inc. – The manufacturer of semiconductor devices used in a variety of consumer electronic products realized a 2% increase in the value of its share price to stand at $10.64. Investors anticipating continued bullish movement in the price of the underlying stock through May expiration shelled out premium to secure out-of-the-money call options. It looks like optimists purchased approximately 6,700 calls at the May $12 strike for an average premium of $0.35 per contract. Call-buyers make money if Micron’s shares jump 16% from the current price to surpass the effective breakeven price of $12.35 by expiration day. We note that Micron Technology’s shares have not exceeded $12.00 in at least five years.
LULU – Lululemon Athletica, Inc. – Yoga and athletic clothing and accessories retailer Lululemon Athletica’s shares are trading at their highest level since January of 2008 today after the Canadian company posted fourth-quarter profits of $0.40 cents per share, which blew right past average analyst estimates of $0.29 a share. Shares surged more than 13% over yesterday’s closing value of $36.03 to reach an intraday high of $40.79 this morning. Options trading traffic is heaviest at the April $40 strike where more than 6,000 in-the-money calls changed hands by 10:30 am (ET). It looks like some traders may be taking profits by selling 2,100 of the calls, while other bullish players are buying into the rally by picking up 2,600 lots for an average premium of $1.46 apiece. Investors initiating long call positions stand ready to accrue profits if LULU’s shares rally above the average breakeven price of $41.46 ahead of expiration day next month. The overall reading of options implied volatility on Lululemon is down 21.1% to 37.60% with one hour behind us in the trading day.
DLB – Dolby Laboratories, Inc. – A plain-vanilla debit put spread enacted on entertainment technology innovator, Dolby Laboratories, suggests one investor may be bracing for a pullback in the firm’s shares by June expiration. Shares of the underlying stock are up 1.25% today to $59.40. The seemingly bearish investor initiated the spread by purchasing 4,146 puts at the June $55 strike for an average premium of $1.55 apiece, marked against the sale of the same number of puts at the lower June $50 strike for $0.55 each. The net cost of the transaction amounts to $1.00 per contract. The trader starts to make money on this venture if Dolby’s shares slump 9% lower to breach the breakeven point at $54.00. Maximum available profits of $4.00 per contract are attainable if shares plummet 15.80% from the current price to $50.00 ahead of June expiration day.
RRC – Range Resources Corp. – Shares of the Texas-based independent oil and gas exploration and development company surrendered 1.00% of their overall value during morning trading to stand at $46.94. Despite the decline in the price of the underlying shares, options investors appear to be making near-term bullish bets on the stock. Traders purchased approximately 2,000 in-the-money calls at the April $45 strike for an average premium of $3.38 per contract. In-the-money call buyers make money if Range’s shares rally above the effective breakeven price of $48.38 ahead of expiration day. Other optimistic individuals picked up 1,400 calls at the April $50 strike for $0.86 apiece. Finally, uber-bullish investors coveted nearly 2,000 call options at the April $52.5 strike for an average premium of $0.42 each. These traders profit only if Range Resources’ shares surge 12.75% over the current price to exceed the average breakeven point on the calls at $52.92 ahead of expiration day next month.
