Today’s tickers: GS, WU, DSW, MGM, WMT, BAC, EEM, WLP, HD & MMM
GS – Goldman Sachs Group, Inc. – Goldman-optimists are once again employing bullish butterfly spreads on the stock in order to efficiently position themselves to profit from an eventual rebound in the investment banking firm’s share price. Goldman Sachs, one of the top tickers on our ‘most active by options volume’ market scanner, glowed green amid a sea of red today as its shares inched up 1.75% to $154.69 as of 3:20 pm (ET). The bullish butterfly spread initiated on GS this afternoon yields maximum benefits to the investor responsible for the transaction if shares of the underlying stock jump back up to $175.00 by October expiration. The parameters of this spread are a bit different than the larger-volume butterfly spread we reported on Monday afternoon, which prepared an investor to reap maximum profits should Goldman’s shares rally up to $160.00 by expiration day. Today’s transaction involved the purchase of 2,000 calls at the October $160 strike for an average premium of $12.80 apiece [wing 1], and the purchase of another 2,000 calls at the higher October $190 strike for $3.90 each [wing 2]. The body of the butterfly was established at the central October $175 strike where 4,000 calls were sold for $7.20 a-pop. Net premium paid for the spread amounts to $2.30 per contract. The net cost of the trade pales in comparison to maximum available profits of $12.70 per contract, which the trader pockets if Goldman’s shares surge 13% over the current price to settle at $175.00 at expiration. The butterfly-spreader starts to make money as long as shares of the underlying stock increase 4.9% to surpass the breakeven point to the upside at $162.30 ahead of October expiration.
WU – Western Union Co. – Shares of the world’s largest money-transfer business surged 9.25% to an intraday high of $19.57 after the firm posted first-quarter earnings of $0.30 per share, which satisfied average analyst forecasts. A couple of analysts raised target share price estimates for Western Union following the positive earnings report. WU’s target price was bumped up to $23 from $19 at Susquehanna, in addition to the move up to $21 from $18 at D.A. Davidson today. Western Union’s current CEO, Christina Gold, is also reportedly handing over the reins to the current COO, Hikmet Ersek, on September 1, 2010. One Western Union options optimist was properly positioned to benefit from the current rally. It looks like the investor originally purchased 5,000 calls at the May $17.5 strike for a premium of $0.75 apiece back on April 7, 2010, when shares of the underlying stock were trading at $17.37. Today the trader reeled in net profits of $1.00 per contract by selling all 5,000 call options for $1.75 each. Finally, the same individual initiated a fresh bullish stance on Western Union by purchasing 5,000 calls at the higher June $20 strike for $0.38 per contract. The investor makes money on the new position if WU’s shares trade above the effective breakeven price of $20.38 ahead of expiration day in June. In general, options traders all but ignored the put side of the playing field today as evidenced by the current call-to-put ratio of more than 12-to-1 on the stock. Investors exchanged more than 46,700 contracts on Western Union during the session. Options implied volatility plummeted 27.5% to 23.80% following the firm’s first-quarter earnings report.
DSW – DSW Inc. – Shares of the specialty retailer of brand name footwear and accessories jumped 18% to a new 52-week high of $32.73 today after raising its full-year earnings and sales forecasts. The shoe retailer reportedly expects to earn $1.65 to $1.75 per share in 2010, which is substantially higher than their previous estimate of $1.45 a share. One options investor rejoiced in DSW’s share price rally by rolling a long call stance up to a higher strike price. The bullish player sold 1,700 now deep-in-the-money calls at the May $25 strike for an average premium of $6.10 per contract in order to buy the same number of fresh in-the-money May $30 strike calls for $2.08 each. It is difficult to discern how much the investor initially paid to purchase the May $25 strike calls. But, today’s transaction – in isolation – yields net profits of $4.02 per contract. Options implied volatility on the stock is up 10.1% to 42.28% as of 3:00 pm (ET).
MGM – MGM Mirage, Inc. – Bearish investors dominated options activity on the operator of casino resorts today with shares of the underlying stock suffering a 6% decline in value to stand at $15.65 as of 12:15 pm (ET). Trading traffic is heaviest in September contract put options where it looks like a plain-vanilla put spread initiated by one individual spurred additional interest in puts during the first half of the trading day. The investor responsible for the substantial spread purchased approximately 17,900 puts at the September $15 strike for a premium of $1.98 each, and sold the same number of puts at the lower September $10 strike for $0.54 apiece. Net premium paid for the bearish transaction amounts to $1.44 per contract. Thus, the put-spreader is prepared to amass maximum potential profits of $3.56 per contract should MGM’s shares plummet 36.1% from the current price to breach $10.00 by expiration day in September. The trader starts to make money as long as shares of the underlying stock decline 13.35% to slip beneath the average breakeven price on the spread at $13.56 in the next several months to expiration.
WMT – Wal-Mart Stores, Inc. – Retail giant, Wal-Mart Stores, Inc., experienced a slight 0.05% decline in the value of its shares to $54.01 today, but activity in longer-dated options on the stock paint a rosier picture going forward. It appears one options optimist enacted a short straddle on Wal-Mart in the expectation of improved share price by expiration in January 2011. The investor sold 7,000 in-the-money puts at the January 2011 $55 strike for a premium of $4.15 apiece, in combination with the sale of 7,000 calls at the same strike for $2.80 each. Gross premium pocketed by the investor amounts to $6.95 per contract. The straddle-player keeps the full amount of premium received on the transaction if Wal-Mart’s shares rally up to- and settle at- $55.00 at expiration. Short positions in both call and put options expose the investor to losses should shares of the retail-giant fail to center at $55.00. However, the premium received today acts as a limited insurance policy against losses stemming from potential shifts in the price per share in either direction away from the strike price. The trader will experience potentially devastating losses should Wal-Mart’s shares rally above the upper breakeven price of $61.95, or should shares slip beneath the lower breakeven point at $48.05, ahead of expiration day in January.
BAC – Bank of America Corp. – Investors appear to be bracing for continued bearish movement in the price of Bank of America’s shares by picking up June contract put options. Shares of the underlying stock slipped 2.6% lower during the first half of the trading session to arrive at $17.58. It looks like the majority of some 28,000 put contracts exchanged at the June $17 strike were purchased at an average premium of $0.51 each. Investors long the puts stand ready to accumulate profits to the downside in the event that Bank of America’s shares decline 6.2% from the current price of $17.58 to breach the average breakeven point at $16.49. Put buying action continued at the lower June $16 strike where approximately 6,500 contracts were coveted for an average premium of $0.39 apiece. Pessimists purchasing the lower-strike put options are perhaps hoping to make money if shares of the underlying stock shed 11.2% to trade beneath the average breakeven price of $15.61 by expiration day in June. Options implied volatility is up sharply by 15.5% to 36.82% as of 12:30 pm (ET).
EEM – iShares MSCI Emerging Markets Index ETF – Shares of the EEM, an exchange-traded fund that tracks the price and yield performance of the MSCI Emerging Markets Index – an index designed to measure equity market performance in global emerging markets, are down more than 3.15% to $41.70. The decline in the price per share of the underlying fund inspired bullish options activity in the September contract. One trader purchased a ratio put spread, picking up 3,000 puts at the September $40 strike for $2.10 each, and selling 6,000 puts at the lower September $31 strike for $0.42 apiece. Net premium paid for the ratio spread amounts to $1.26 per contract. The parameters of the transaction indicate maximum potential profits of $7.74 per contract are available to the responsible party should the EEM’s share price plummet 25.65% to $31.00 ahead of expiration day in September. Profits start to amass if the emerging markets’ shares slip beneath the effective breakeven point on the spread at $38.74 by expiration. Options implied volatility is soaring 24% higher to stand at 27.84% as of 12:35 pm (ET).
WLP – WellPoint, Inc. – Shares of the health benefits company are up 0.55% to $56.87 as of 11:00 am (ET), but the actions of one bullish individual suggest the stock may be poised to appreciate significantly in the next several months. The early-bird bull bought 12,500 calls at the September $60 strike for a premium of $3.05 per contract. The investor makes money on the call acquisition should WellPoint’s shares surge 10.9% from the current price to exceed the breakeven price of $63.05 by September expiration. We note that the health firm’s shares traded above $63.20 as recently as April 8, 2010.
HD – Home Depot, Inc. – The provider of various building materials and home improvement supplies received a vote of confidence by one near-term bullish investor this morning despite the 1.6% decline in the value of its shares to $35.90. The optimistic options player appears to have purchased 10,000 in-the-money call options at the May $35 strike for a premium of $1.70 per contract in order to position for a rebound in the price of the underlying stock by expiration next month. Profits start to accumulate for the investor if HD’s shares rally 2.2% from the current price to surpass the effective breakeven point on the calls at $36.70 ahead of May expiration. Options implied volatility is up 7.6% to 26.15% as of 11:00 am (ET).
MMM – 3M Company – The manufacturer and marketer of a diverse collection of products ranging from Post-Its to medical supplies posted an 80% increase in first-quarter earnings and raised its full-year forecast, sending its share price up 2.15% in the first half of the trading session to a new 52-week high of $89.33. Out-of-the-money call options in the May contract were very active in late afternoon trading on Monday as traders scrambled to get into position ahead of earnings. Some bullish individuals preparing for a positive earnings report were perhaps purchasing May $90 strike calls yesterday evening for an average premium of $1.19 per contract. Today, traders appear to be selling the calls for an average premium of $1.74 apiece, taking profits on the subsequent rally in the price of the underlying stock. New bullish stances were initiated at the higher May $95 strike where approximately 1,300 calls were purchased this morning for an average premium of $0.39 each. Options implied volatility collapsed 23.4% to 20.59% following 3M’s earnings report.
