Today’s tickers: GE, XLE, DOW, BP, SKX, IYR, ZION, RIG, AA & NTRI
GE – General Electric Co. – Shares of diverse conglomerate, General Electric Company, slipped 3.85% during afternoon trading to stand at $18.52 with one hour remaining in the session. Although a great deal of bearish activity took place on GE today, there was one sizeable contrarian options play on the stock that stuck out like a sore thumb. One investor, who apparently does not anticipate an all-out collapse in the price of the underlying stock, shed 19,000 puts at the December $14 strike to pocket a premium of $0.52 per contract. The trader keeps the full amount of premium received on the put sale, which adds up to a grand total of $988,000.00, as long as GE’s shares trade above $14.00 through expiration day in December. The investor receives the premium in exchange for bearing the risk that shares of the underlying stock do not exceed $14.00 through expiration. If the December $14 strike puts land in-the-money at expiration, the trader is apparently willing to have 1.9 million GE shares put to him at an effective price of $13.48 apiece. Shares would need to plummet 27% from the current price of $18.52 before the put-seller starts to amass losses beneath the breakeven share price of $13.48. Options implied volatility on General Electric Co. is up 15% to 31.94% ahead of the closing bell.
XLE – Energy Select Sector SPDR ETF – Two options strategies representing opposing sentiment on future share price moves for the XLE were enacted today in the June contract. One of the transactions, a ratio call spread, is bullish and positions one investor to benefit should shares of the underlying fund rally sharply by expiration. The other trade, a short straddle, yields maximum benefits to the responsible party if shares settle at $59.00 by expiration. Shares of the XLE, an exchange-traded fund that seeks investment results which correspond to the price and yield performance of the Energy Select Sector of the S&P 500 Index, fell 2.75% to $58.93 as of 3:15 pm (ET). The bullish trader responsible for the ratio call spread purchased 3,500 calls at the June $61 strike for an average premium of $1.36 apiece, and sold 7,000 calls at the higher June $64 strike for roughly $0.49 apiece. The net cost of the ratio spread amounts to $0.38 per contract, and thus positions the options player to amass maximum potential profits of $2.62 per contract should shares of the underlying fund rally up to $64.00 by expiration day in June. The investor holding the spread makes money if shares of the XLE exceed the average breakeven price of $61.38 ahead of expiration. In contrast to the directional play, another options investor established a short straddle by selling roughly 6,000 calls at the June $59 strike for an average premium of $2.18 each, in combination with the sale of about 6,000 now in-the-money puts at the same strike for $2.55 a-pop. Average gross premium pocketed on the straddle amounts to $4.73 per contract. The trader keeps the full premium received on the sale if shares of the XLE settle at $59.00 at expiration. The straddle-seller may simply be taking advantage of the 14.9% increase in options implied volatility on the XLE to 29.17% today because he expects implied volatility to come crashing back to earth at some point ahead of expiration. Reduction in the overall reading of options implied volatility drags down premium on both call and put options – as a general rule – and thus such circumstances are beneficial to the straddle-player in this case because he may choose to buy back the options combination trade for less than received on today’s sale. Short positions in both calls and puts expose the options trader to potentially devastating losses should shares swing dramatically in either direction about the June $59 strike price. Losses accumulate if shares rally above the upper breakeven price of $63.73, or if shares slip beneath the lower breakeven point at $54.27, by expiration day.
DOW – Dow Chemical Co. – The largest U.S. chemical manufacturer enticed bearish options investors this afternoon with the price of its underlying shares trading 6% lower to $29.53 as of 1:45 pm (ET). Dow’s shares are suffering along with the broader market, but are perhaps experiencing added downward pressure after the firm reported an ethylene leak at its Plaquemine plant in Louisiana on Monday. One pessimistic options player is bracing for additional share price erosion for the chemical maker by acquiring a plain-vanilla put spread in the June contract. The investor purchased roughly 4,000 now in-the-money puts at the June $30 strike for a premium of $1.68 apiece, and sold about the same number of puts at the lower June $27 strike for an average premium of $0.66 each. Net premium paid for the put spread amounts to $1.02 per contract. The transaction positions the investor to accrue maximum potential profits of $1.98 per contract should shares of the underlying stock trade below $27.00 ahead of expiration day in June. The individual responsible for the spread makes money as long as Dow Chemical’s shares breach the effective breakeven point to the downside at $28.98 by June expiration. The overall reading of options implied volatility on DOW is up 21.3% to 42.80% as of 1:50 pm (ET).
BP – BP PLC – A large-volume bullish bet on oil and gas company, BP PLC, today indicates one big options player is posturing for a significant rebound in the price of the underlying stock by October expiration. BP’s shares are trading 1.65% higher on the day at $51.02 as of 12:00 pm (ET). The investor initiated a ratio call spread on BP by purchasing 20,000 calls at the October $55 strike for a premium of $2.34 apiece, marked against the sale of 40,000 calls at the higher October $60 strike for $1.06 in premium a-pop. The net cost of the transaction amounts to just $0.22 per contract due to the greater number of sold contracts utilized in the spread. The trader responsible for the ratio call spread makes money on transaction as long as BP’s shares rally above the breakeven point to the upside at $55.22 ahead of October expiration. Shares must increase roughly 8.25% from the current value of $51.02 before the optimistic investor starts to make money. Maximum available profits of $14.78 per contract accumulate should shares of the underlying stock surge 27.40% to $65.00 by expiration day. It is unlikely the investor expects shares to accomplish the dynamic shift required to amass maximum available profits given the risks inherent in having a greater proportion of short calls at the October $65 strike price. However, the transaction is certainly a bullish bet that BP’s shares could rebound sharply once the horrors of the deep-water oil leak currently stymieing its share price start to fade into distant memories.
SKX – Sketchers USA, Inc. – Shares of the footwear and apparel designer and manufacturer slipped 4.15% lower during the first half of the session to $38.06 less than one week after the firm posted better-than-expected first quarter earnings. The decline in the price of the underlying stock inspired one near-term bullish player to throw in the towel on May optimism, and instead assume a long-term bullish stance on the stock. It looks like the investor originally purchased 9,000 calls at the May $40 strike for an average premium of $1.55 apiece back on April 1, 2010, when SKX shares were trading at a volume-weighted average price of $36.99 each. Today the trader sacked the position, taking an average net loss of $0.75 per contract by selling all 9,000 calls for just $0.80 per contract. Next, the eternal optimist looked forward to the October contract to try his hand at a new bullish strategy. It looks like the investor purchased a plain-vanilla call spread on SKX, buying 9,000 calls at the October $40 strike for a premium of $4.40 each, and selling the same number of calls at the higher October $50 strike for $1.35 each. Net premium paid for the new spread amounts to $3.05 per contract. The parameters of the transaction position the investor to amass maximum potential profits of $6.95 per contract should Sketchers’ share price explode 31.35% to the upside to exceed $50.00 by expiration day in October. The investor starts to make money only if shares of the underlying stock blow right through the current 52-week high of $42.40 on SKX and surpass the effective breakeven point to the upside at $43.05 ahead of expiration.
IYR – iShares Dow Jones U.S. Real Estate Index ETF – Shares of the IYR, an exchange-traded fund that seeks investment results that correspond to the price and yield performance of the Dow Jones U.S. Real Estate Index – an index that tracks the performance of the real estate sector of the U.S. equity market – declined 2.05% to $53.48 as of 12:30 pm (ET). September contract options activity by one bearish individual point perhaps to continued erosion in the price of the underlying fund through expiration. It looks like the investor was properly positioned to benefit from bearish movement in the price per IYR share. The trader appears to have originally purchased 9,000 puts at the September $51 strike for an average premium of $2.77 apiece back on April 23, 2010, when shares of the fund were trading at $53.40 each. Today, the investor sold the puts for a premium of $3.40 apiece, thus raking in average net profits of $0.63 per contract. The story does not end here; it looks like the same options strategist initiated a new bearish stance on the fund by purchasing a plain-vanilla put spread. The investor picked up 9,000 puts at the September $53 strike for $4.40 each, and sold the same number of puts at the lower September $41 strike for a premium of $1.00 apiece. Net premium paid for the new position amounts to $3.40 per contract. Maximum potential profits of $8.60 per contract are available to the pessimistic player should shares of the underlying fund plummet 23.2% from the current value to $41.00 ahead of expiration day in September. The investor starts to make money as long as shares of the IYR trade below the effective breakeven price of $49.60 by expiration.
ZION – Zions Bancorp. – Bearish options activity developed on Zions Bancorporation in the earliest hours of the current trading session with shares of the stock trading 3.50% lower to $27.98 as of 12:45 pm (ET). One pessimistic player ditched one near-term bearish stance on the stock to engage a different bearish strategy in the July contract. The investor purchased 10,000 puts at the May $25 strike for an average premium of $1.375 apiece back on April 15, 2010, when shares of the underlying stock were trading at a volume-weighted average price of $26.39 each. Zions’ share price has not fallen significantly enough for the investor to garner any semblance of profits on the position. Therefore, the trader took what premium was available on the puts today by selling all 10,000 contracts for a premium of $0.39 apiece. The investor suffers an average net loss of $0.985 per contract by selling-to-close the long put stance. Despite the losses experienced on the original bearish position, the investor enacted a new pessimistic play on the stock, but this time reduced net cost by purchasing a ratio put spread. The options investor purchased 5,000 puts at the July $25 strike for a premium of $1.67 each, and sold 10,000 puts at the lower July $20 strike for $0.55 apiece. The net cost of the transaction is reduced to $0.57 per contract. The trader makes money if Zions’ share price slips beneath the effective breakeven point on the spread at $24.43 ahead of expiration day in July. Maximum potential profits of $4.43 per contract are available to the investor should shares of the underlying stock plummet 28.5% from the current price to $20.00 by expiration.
RIG – Transocean Ltd. – Contrarian bullish activity on the international provider of offshore contract drilling services for oil and gas wells indicates one optimistic options player expects RIG’s share price to rebound by June expiration. The investor appears to be taking advantage of cheapened premium on June contract calls stemming from the stock’s nearly 25% decline in value since April 20, 2010, by initiating a butterfly spread in early morning trading. Transocean’s shares are currently down 2.25% to $71.27 as of 10:50 am (ET). The options player enacted the butterfly spread by purchasing 5,000 calls at the June $75 strike for a premium of $3.70 apiece [wing 1], in combination with the purchase of 5,000 calls at the higher June $85 strike for $0.90 each [wing 2]. Finally, the trader shed 10,000 calls representing the body of the butterfly at the central June $80 strike to take in a premium of $1.90 a-pop. Net premium paid for the spread amounts to just $0.80 per contract. The parameters of the butterfly strategy dictate maximum potential profits in this case of $4.20 per contract if RIG’s share price surges 12.25% from the current price of $71.27 to settle at $80.00 by expiration. The investor responsible for the bullish transaction is poised to make money as long as shares of the underlying stock trade above the breakeven price of $75.80 ahead of June expiration. Maximum potential losses of $0.80 per contract – the price paid to establish the spread – pales in comparison to maximum potential profits. The trader shelled out just $0.80 per contract but stands ready to accrue 5.25 times that amount should Transocean’s shares rebound sharply by June expiration day.
AA – Alcoa, Inc. – A large chunk of put options were picked up on aluminum maker, Alcoa, Inc., in morning trading as shares of the underlying stock crumbled 4.25% lower to stand at $12.59 as of 11:00 am (ET). It looks like one individual investor enacted a long-term protective stance on the stock by purchasing 25,000 puts at the January 2012 $12.5 strike for an average premium of $2.65 per contract. The large-volume put play, likely initiated by a trader holding a sizeable long underlying stock position, yields downside protection should Alcoa’s shares plummet 21.75% from the current price to breach the effective breakeven point on the puts at $9.85 ahead of expiration in January 2012. Options implied volatility on Alcoa is up 13.9% to 42.81% as of 11:10 am (ET).
NTRI – NutriSystem, Inc. – Shares of the provider of weight management products and services are up 20.00% in the first half of the trading session at $22.20 after the firm posted first-quarter earnings of $0.15 a share, beating average analyst estimates of $0.12 a share. NutriSystem received an upgrade to ‘buy’ from ‘hold’ at Lazard Capital this morning where analysts have a target share price of $25 on the stock. Investors anticipating continued share price appreciation for the weight management firm picked up roughly 1,000 calls at the May $23 strike for an average premium of $0.65 apiece. Call-buyers stand ready to accrue profits if NTRI’s share price exceeds $23.65 ahead of May expiration. The overall reading of options implied volatility on the stock collapsed 20.8% lower to 57.48% following earnings.
