Today’s tickers: MEE, CSTR, SMH & RTP
MEE – Massey Energy Corp. – News the coal producer is being looked at by the Federal Bureau of Investigation following the tragic explosion at one of the firm’s mines in West Virginia on April 5, 2010, fuelled bearish options trading activity today and pushed Massey’s shares down 5.9% to $38.90 as of 12:45 pm (ET). Earlier in the session Massey’s shares declined 9% to an intraday low of $37.43. Shares of the underlying stock are currently down 31% since April 5, 2010, when the stock touched a new 52-week high of $54.80 before falling on news of the mining accident. Investors piled into put options on Massey today, with trading traffic heaviest in out-of-the-money puts in the May contract. The May $35 strike attracted the most volume with more than 12,600 puts changing hands at that strike by 12:50 pm (ET). It looks like at least 6,700 puts were purchased there for an average premium of $0.97 apiece. Put-buyers make money if Massey’s shares fall another 12.5% from current price of $38.90 to breach the average breakeven point to the downside at $34.03 by May expiration. News of the FBI’s involvement, coupled with investors’ voracious appetite for puts on the stock today, boosted Massey’s overall reading of options implied volatility 22.5% to 64.53% as of 12:55 pm (ET).
CSTR – Coinstar, Inc. – Shares of the provider of diverse services, such as self-service coin counting and Redbox $1-a-day movie-rental dispensaries, are up more than 21.5% to $46.44 as of 12:10 pm (ET). Earlier in the session Coinstar’s shares surged 32% over Thursday’s closing value of $38.21 to attain a new 52-week and intraday high of $50.35. One options player reeled in hefty profits by selling a previously established long call position in the May contract. It looks like the investor initially purchased 600 in-the-money calls at the May $35 strike for an average premium of $2.83 apiece back on Monday April 26, 2010, when shares of the underlying stock were trading at a volume-weighted average price of $36.51. Today the trader sold the calls for $14.40 each, banking average net profits of $11.57 per contract. Perhaps expecting continued bullish movement in the price per Coinstar share, the investor established a fresh optimistic stance on the stock by purchasing 600 calls at the May $50 strike for an average premium of $2.20 apiece. The trader makes money on the new position if Coinstar’s shares trade above the effective breakeven price of $52.20 ahead of expiration day in May.
SMH – Semiconductor HOLDRS Trust – Put activity on the Semiconductor HOLDRS indicates investor pessimism on the fund through June expiration. Shares of the fund are trading 3% lower on the day at $29.15 perhaps inspiring one options player to purchase a plain-vanilla debit put spread. The investor purchased 6,900 now in-the-money puts at the June $30 strike for a premium of $1.51 apiece, and sold the same number of puts at the lower June $27 strike for $0.41 each. Net premium paid for the spread amounts to $1.10 per contract. Maximum potential profits of $1.90 per contract are available to the put player should shares of the SMH decline another 7.4% to $27.00 ahead of expiration day in June. The investor starts to make money as long as Semiconductor HOLDRS’ shares trade beneath the effective breakeven price of $28.90 by expiration.
RTP – Rio Tinto PLC – The mining company’s shares slipped 4.7% to $51.45 today “on concern a possible increase in Australian mining taxes may hurt profits” according to an article by Jesse Riseborough at Bloomberg. Options investors wary of continued bearish movement in the price of the underlying stock piled into near-term put options. Roughly 4,500 puts were picked up at the May $50 strike for a premium of $1.40 per contract. Put-buyers may be scrambling to secure downside protection on long underlying stock positions. Alternatively, the put activity could be the work of investors looking to amass profits to the downside should RTP’s share price continue to erode ahead of expiration next month. Options players long the puts and without an underlying stock position make money if Rio Tinto PLC shares decline another 5.5% to breach the breakeven price on the puts at $48.60 by May expiration.
