Today’s tickers: V, MA, JPM, COF, EEM, STX, MDC, DPS, MYL & LEN
V – Visa, Inc. – Shares of the world’s largest payments network are down sharply by 7.75% to stand at $68.92 as of 2:55 pm (ET) after Senator Sheldon Whitehouse (D – RI) suggested Monday that the U.S. should cap interest rates on credit cards. Other credit card companies such as MasterCard and Capital One Financial Corp. are also suffering significant share price erosion this afternoon. Bearish options investors flooded the May contract with pessimistic plays, while more optimistic traders appear to be positioning for a rebound in Visa’s share price by June expiration. Investors bracing for continued bearish movement in the price of the underlying stock picked up 3,600 now in-the-money puts at the May $70 strike for an average premium of $1.15 apiece. Buying interest spread to the lower May $65 strike where 1,400 puts were purchased at an average premium of $0.36 each. Finally, uber-bearish traders scooped up 1,290 puts at the May $60 strike – the lowest strike price currently available in the front month – for an average premium of $0.16 apiece. Investors long the May $60 strike puts make money if Visa’s shares plummet 13.15% from the current value of $68.92 to breach the average breakeven point to the downside at $59.84 by expiration on Friday. Bearish traders also ravaged May contract calls, selling roughly 7,000 lots at the May $75 strike to take in an average premium of $0.71 per contract. Investors also shed 2,000 calls at the May $70 strike to receive an average premium of $2.47 apiece. Call sellers retain the full premium received today as long shares of the underlying stock do not exceed $70.00 ahead of expiration. Finally, optimistic options investors are positioning for a rebound in the credit card company’s shares by purchasing 1,800 calls at the June $70 strike for an average premium of $4.71 each. Shares must rally 8.4% over the current price of the stock before June $70 strike call buyers start to make money above the average breakeven price of $74.71. Bullish call buying activity spread to the higher June $72.5 strike where 2,500 calls were picked up for an average premium of $3.64 per contract. Investor uncertainty, as measured by the overall reading of options implied volatility, is net up on Visa today with volatility rising 16.5% to 52.68% as of 3:10 pm (ET).
MA – MasterCard, Inc. – Investors long shares of the second-largest payments network have watched MasterCard’s price per share drop 6.25% during the trading session to arrive at the current price of $197.59 as of 3:10 pm (ET). Bearish options investors anticipating further share price erosion ahead of May expiration purchased 1,800 now in-the-money puts at the May $200 strike for an average premium of $3.03 each. More pessimistic individuals scooped up 1,000 put options at the lower May $195 strike for an average premium of $2.15 apiece. Lower-strike put buyers profit if MasterCard’s shares fall another 2.4% to breach the average breakeven point on the puts at $192.85 by expiration day. Other bearish players shed 1,000 calls at the May $210 strike to pocket an average premium of $2.32 per contract. Call sellers keep the full premium received today as long as MasterCard’s shares trade below $210.00 through expiration on Friday. Options implied volatility is up 11.1% to 50.96% as of 3:15 pm (ET).
JPM – JPMorgan Chase & Co. – Despite the 2.35% decline in JPMorgan’s shares to $38.94 this afternoon some bullish players initiated contrarian options strategies to take advantage of richer put premium on the stock. Investors expecting shares of the underlying stock to rebound by June expiration sold approximately 31,000 now in-the-money puts at the June $39 strike to take in an average premium of $1.59 per contract. Put sellers at this strike keep the full premium pocketed on the transaction as long as JPM’s shares rally above $39.00 by expiration day next month. The short selling of the put contracts indicates investors are happy to have shares of the underlying stock put to them at an effective price of $37.41 each if the put options land in-the-money at expiration. The overall reading of options implied volatility on JPMorgan Chase & Co. is up 12.8% to 46.28% as of 3:22 pm (ET), with more than 194,000 option contracts traded on the stock thus far in the session.
COF – Capital One Financial Corp. – One pessimistic options strategist initiated a three-legged bearish combination play using both call and put options on the credit card and financial services provider today with shares of the underlying stock down 2.75% to $41.44 as of 12:00 pm (ET). The investor responsible for the transaction is perhaps expecting Capital One’s share price to continue lower ahead of May expiration due to U.S. Senate passage of curbs on debit fees. It looks like the bearish individual sold out-of-the-money call options to finance the purchase of put options. The trader shed 10,000 calls at the May $44 strike for a premium of $0.24 each, and sold another 10,000 calls at the lower May $43 strike for a premium of $0.63 apiece. The sale of the calls was spread against the purchase of 5,000 puts at the May $41 strike for $0.45 in premium each. The investor pockets a net credit of $1.29 per contract, and keeps the full amount received as long as Capital One’s shares trade below $43.00 through expiration day. Additional profits accumulate on the long put stance should shares slip beneath $41.00 by May expiration. The options strategist receives the $1.29 net credit in exchange for bearing the risk that shares rally sharply ahead of expiration day. In the worst case scenario, the trader is obliged to deliver a maximum of 2,000,000 shares of COF stock at $43/$44 each should the call options land in-the-money by expiration.
EEM – iShares MSCI Emerging Markets Index ETF – Shares of the EEM, an exchange-traded fund that seeks to provide investment results that correspond to the price and yield performance of the MSCI Emerging Markets Index – an index used to measure equity market performance in the global emerging markets, commenced the trading session higher, but slipped 0.20% lower to $39.17 as of 12:25 pm (ET). One bullish options investor expecting shares of the underlying fund to rebound by September expiration established a ratio call spread. The trader purchased 6,250 calls at the September $41 strike for an average premium of $2.28 each, and sold 12,500 calls at the higher September $45 strike for an average premium of $0.89 apiece. Net premium paid for the spread amounts to $0.50 per contract. Thus, the optimistic options investor stands ready to accrue maximum potential profits of $3.50 per contract if shares of the fund rally 14.9% over the current price to settle at $45.00 at expiration. The trader starts to make money as long as shares surpass $41.50 – the average breakeven point on the spread – by expiration day in September. Additional bullish activity on the fund involved the sale of 6,850 puts for a premium of $2.03 apiece at the September $36 strike price. The put seller may be closing out a previously established long stance in puts at that strike, or could be initiating a new outright bet that shares are set to exceed $36.00 through September expiration day.
STX – Seagate Technology – The manufacturer of various computer hardware components such as rigid disc drives suffered a 4% decline in the price of its shares to stand at $17.12 as of 12:45 pm (ET). Bearish options investors littered Seagate with pessimistic plays, implying doubts the stock will recover by September expiration. Near-term bears sold call options and purchased puts. Approximately 1,000 in-the-money calls were shed at the May $17 strike for an average premium of $0.52 each, while nearly 2,000 now in-the-money puts were picked up at May $18 strike for a premium of $0.78 apiece. Pessimism spread to the June $16 strike where 3,500 in-the-money calls were sold for an average premium of $1.67 each. Another 1,600 out-of-the-money calls were sold at the higher June $18 strike for an average premium of $0.52 a-pop. Finally, uber-bearish players shed 1,450 deep in-the-money calls at the September $15 strike for a premium of $3.20 apiece. Investors short these contracts retain the full $3.20 per contract if Seagate’s shares decline another 12.4% to trade below $15.00 by September expiration day.
MDC – M.D.C. Holdings, Inc. – Put options on the homebuilding and financial services firm are in demand today although shares of the underlying stock are up 1% to $32.20 as of 12:30 pm (ET). Perhaps put buyers are bracing for potential share price erosion for MDC due to the sharp 11.5% decline in new building permits in April. In contrast, maybe the firm’s share price is currently net up on news the construction of new homes increased more than expected last month. Options investors expecting significant share price declines over the next several months purchased put options in the June and September contracts. Nearer-term pessimists picked up roughly 2,300 puts at the June $30 strike for an average premium of $0.76 apiece. Investors long the put options make money if shares of the underlying stock decline 9.2% from the current price to breach the average breakeven point on the puts at $29.24 by June expiration day. Buying interest in put contracts spread to the September $30 strike where another 2,200 lots appear to have been purchased at an average premium of $2.20 per contract. Investors holding the September $30 strike put options profit if shares fall 13.65% to slip beneath the average breakeven price of $27.80 by expiration day in September.
DPS – Dr Pepper Snapple Group, Inc. – Shares of the manufacturer of a variety of non-alcoholic beverages rallied 2.45% at the start of the trading session, briefly touching a new 52-week high of $38.93. Bullish options players thirsty for continued appreciation in the price of the underlying stock purchased out-of-the-money call options in the May and June contracts. Near-term optimists picked up 1,300 calls at the May $40 strike for an average premium of $0.25 apiece. Investors long the calls make money if DPS shares jump 3.4% over the new 52-week high of $38.93 to surpass the average breakeven price of $40.25 by May expiration day. Buying interest spread to the June $40 strike where another 1,200 call options were purchased at an average premium of $1.14 per contract. Shares of the beverage maker must rally another 5.7% in order for June $40 strike call coveters to amass profits above the effective breakeven point at $41.14 by expiration day in June. The sharp increase in demand for call options on the stock lifted the overall reading of options implied volatility on DPS some 37.5% to 43.18% as of 10:45 am (ET).
MYL – Mylan, Inc. – Put options on the global pharmaceutical company engaged in manufacturing and distributing branded and generic drugs are in demand this morning with shares of the underlying stock lower by 1.50% to $20.29. Pessimistic options players anticipating continued share price erosion through June expiration purchased 6,000 in-the-money puts at the June $21 strike for an average premium of $1.00 each. Investors make money on the long put stance should Mylan’s shares slip beneath the average breakeven price of $20.00 ahead of expiration. Options investors picked up another 1,800 puts at the lower June $20 strike for an average premium of $0.65 apiece. Lower-strike put purchasers profit if shares of the drug distributor decline 4.6% to breach the average breakeven point to the downside at $19.35 by expiration day in June. Options implied volatility on Mylan is up sharply by 15.8% to 38.30% as of 10:50 pm (ET).
LEN – Lennar Corp. – Early morning options activity on homebuilding company, Lennar Corp., appears to be the work of an investor taking profits off the table by closing out a bearish stance on the stock. Lennar’s shares are up 0.15% to $18.45 as of 10:50 am (ET). It looks like the options trader originally sold roughly 15,000 calls at the August $22.5 strike for a premium of $1.20 each back on May 4, 2010, when Lennar’s shares were trading at a volume-weighted average price of $19.88. Today, the investor decided to close out the short call position by buying back all 15,000 contracts for an average premium of $0.95 apiece. Net profits on the closing purchase amount to an average of $0.25 in premium per contract.
