Today’s tickers: FXI, CDNS, UTX, GS, DGX, GDP & MRK
FXI – iShares FTSE/Xinhua China 25 Index Fund – Shares of the FXI, an exchange-traded fund that seeks investment results that correspond to the price and yield performance of the FTSE/Xinhua China 25 Index, which is an index consisting of 25 of the largest and most liquid Chinese companies, fell 1% during the trading day to stand at $41.88. The slight decline in the price of the underlying shares did not, however, deter one options investor from initiating a large bullish transaction in the August contract. It looks like the trader enacted a plain-vanilla debit call spread to position for a sharp rally in the fund’s share price by expiration. The investor purchased 10,000 calls at the August $45 strike for a premium of $1.38 each, and sold the same number of calls at the higher August $50 strike for $0.40 apiece. Net premium paid for the spread amounts to $0.98 per contract. Therefore, the bullish player stands ready to accrue maximum potential profits of $4.02 per contract in the event that shares of the FXI rally more than 19.3% to exceed $50.00 by expiration day in August. The trader starts making money if the China fund’s shares surpass the effective breakeven share price of $45.98 in the next several months to expiration.
CDNS – Cadence Design Systems, Inc. – Cadence Design Systems, a firm which licenses software, sells or leases hardware technology and provides engineering and education services, experienced a 1% rally in the value of its shares to $7.18 during the trading day. The increase in the price of the underlying shares enticed bullish investors to populate November contract options on the stock. It looks like one investor initiated a bullish stance on Cadence Design Systems by selling short 7,000 in-the-money put contracts at the November $7.5 strike for an average premium of $0.975 apiece. The put seller keeps the full amount of premium pocketed on the transaction if CDNS shares rally above $7.50 by expiration day in November. The trader is apparently happy to have shares of the underlying stock put to him at an effective price of $6.525 each should the put contracts remain in-the-money at expiration. Options implied volatility is down 10.1% to 36.15% as of 3:20 pm (ET). Cadence is slated to report its first-quarter results next week after the closing bell on April 28, 2010.
UTX – United Technologies Corp. – The maker of high technology products and services to the building systems and aerospace industries attracted bullish options investors today following news the firm’s Sikorsky Aircraft unit is teaming up with Lockheed Martin to bid on a new contract for a fleet of Marine One helicopters. UTX shares are up 0.15% to $73.80 in late afternoon trading. One options trader initiated an optimistic stance on the stock by selling put options in order to finance the purchase of call contracts. The investor shed 5,000 puts at the May $65 strike for a premium of $0.28 each, and picked up the same number of calls at the higher May $80 strike for $0.16 apiece. The trader pockets a net credit of $0.12 per contract on the transaction, which he keeps as long as United Technologies’ shares trade above $65.00 through expiration in May. Additional profits are available to the investor should UTX shares surge 8.4% over the current price, surpass the current 52-week high on UTX of $74.97, and exceed the effective breakeven price of $80.00 ahead of expiration day next month.
GS – Goldman Sachs Group, Inc. – Skipping over near-term noisy options activity on Goldman Sachs Group, which is no doubt fueled by continued concern regarding the Securities & Exchange Commission’s suit, as well as reports of new investigations by the U.K., possibly by Germany, and the EU, it appears there is long-term optimistic positioning in call options on the firm. Goldman’s shares are currently down 0.90% to $159.26 as of 12:55 pm (ET). Optimistic individuals engaged in plain-vanilla call spreading in the January 2011 contract to position for an eventual turnaround in Goldman’s fortunes. It looks like roughly 9,000 call contracts were purchased at the January 2011 $180 strike for an average premium of $10.72 apiece, while the same number of calls were shed at the higher January 2011 $210 strike for about $3.51 each. Net premium paid for the call spread amounts to $7.21 per contract. Call-spreaders are prepared to make money as long as Goldman Sachs’ share price exceeds the effective breakeven point at $187.21 ahead of expiration day in January. Maximum available profits of $22.79 are available to traders should the price of the underlying stock jump 31.85% from the current value of $159.26 to surpass $210.00 by January expiration.
DGX – Quest Diagnostics, Inc. – Call options on the largest clinical laboratory testing business in the United States are active today ahead of the firm’s first-quarter earnings report scheduled for release ahead of the opening bell on Wednesday. Quest Diagnostics’ shares are up 2.75% to $59.87, while investor uncertainty, as measured by options implied volatility, is soaring 26% higher to 26.83% as of 12:20 pm (ET). Bullish players expecting DGX shares to continue to appreciate purchased 2,800 calls at the May $65 strike for an average premium of $0.36 apiece. Call-buyers stand ready to accrue profits in the event that Quest’s shares surge 9.2% to exceed the average breakeven price of $65.36 ahead of May expiration. Bullish sentiment spread to the June $65 strike where optimistic options players picked up 1,300 calls for an average premium of $0.48 each. Investors long the call contracts make money only if DGX shares trade above $65.48 by expiration day in June. Positioning in May/June $65 strike call options on DGX today suggests some traders expect that the price per share may reach a new 52-week high in the next couple of months given the current 52-week high of $62.83 on the stock attained back on December 16, 2009.
GDP – Goodrich Petroleum Corp. – Bullish and bearish investors populated the options field on the independent oil and gas company during the first half of the trading session. Shares of the underlying stock dipped 2% to $17.80 as of 12:40 pm (ET). Pessimistic players initiated a plain vanilla put spread by purchasing 1,000 lots at the May $17.5 strike for an average premium of $0.91 apiece, marked against the sale of the same number of puts at the lower May $15 strike for $0.17 each. Net premium paid for the bearish transaction amounts to $0.74 per contract. Therefore, the spread yields maximum potential profits of $1.76 per contract should Goodrich Petroleum’s share price plummet 15.75% from the current price to $15.00 ahead of May expiration. Investors start to make money as long as GDP’s share price falls beneath the effective breakeven point on the spread at $16.76 by expiration. Conversely, bullish investors engaged May contract call options to position for a rebound in the price of the underlying shares. Traders purchased 1,500 in-the-money calls at the May $17.5 strike for an average premium of $1.51 each. Goodrich Petroleum shares must rally 6.8% over the current price of $17.80 before in-the-money call buyers start to make money above the average breakeven point on the calls at $19.01. Uber-optimists purchased 1,300 calls at the higher May $20 strike for an average premium of $0.66 apiece. Higher-strike call buyers stand prepared to accrue profits should GDP’s shares surge 16% to exceed the breakeven price of $20.66 ahead of expiration day next month. Options implied volatility on the stock is up 13.6% to 57.03% as of 12:50 pm (ET).
MRK – Merck & Co. – The global health care company’s shares are down slightly by 0.25% to $35.63 as of 1:05 pm (ET), but options activity on the stock suggests one investor expects a significant resurgence in the price of the underlying stock by expiration in January 2011. It appears the bullish player enacted a buy-write strategy by selling 7,800 calls at the January 2011 $40 strike for a premium of $1.30 each, marked against the purchase of a large position in MRK shares. Shares at the time of the transaction were trading at $35.71. Thus, the trader effectively took ownership of the underlying shares at $34.41 each. The short position in call options serves as an effective exit strategy for the trader should Merck’s shares trade above $40.00 ahead of expiration day. The parameters of the buy-write transaction dictate maximum potential gains of 16.25% for the investor should the January 2011 $40 strike call options land in-the-money at expiration.
