Today’s tickers: DO, GAP, RIG, WMS, IMA, BAX, IGT, CAT, CCJ, CVS & WM
DO – Diamond Offshore Drilling, Inc. – Shares of the world’s largest U.S. deep-water oil driller fell as much as 7.6% to an intraday low and new 52-week low of $54.70 after businessinsider.com reported the firm’s Ocean Saratoga rig is leaking crude into the Gulf of Mexico. Goldman Sachs’ ratings cut of Diamond Offshore shares to ‘sell’ from ‘neutral’, as well as a downgrade to ‘underperform’ from ‘market perform’ with a 12-month target share price of $54.00 at FBR Capital Markets, also helped drive the stock lower today. Bearish options investors populated the stock with pessimistic plays, buying near-term put options and selling calls in the June contract. Traders expecting Diamond’s shares to continue to decline purchased 1,200 now in-the-money puts at the June $58.63 strike for an average premium of $4.07 apiece. Investors holding these contracts profit if shares trade beneath the average breakeven price of $54.56 by June expiration. Buying interest spread to the lower June $54.88 strike where 1,100 puts were picked up for an average premium of $2.26 each. Another 1,100 puts were purchased at the June $53.63 strike for a premium of $1.82 per contract. Finally, uber-bearish players coveted 1,600 put options at the lower June $49.88 strike by paying an average premium of $0.92 apiece. Shares of the underlying stock must plunge 10.5% from the current intraday low of $54.70 before June $49.88 strike put buyers start to garner profits beneath the average breakeven price of $48.96. Investors not expecting Diamond’s shares to rally ahead of June expiration sold short 1,300 calls at the June $61.75 strike to pocket an average premium of $0.61 per contract. The premium is safe in call-sellers’ wallets as long as shares of the underlying stock trade below $61.75 through expiration day. Options implied volatility on Diamond Offshore Drilling is up 15.1% to 59.94% as of 3:10 pm (ET). Earlier implied volatility surged roughly 18% to 61.42%, DO’s highest reading of volatility in at least one year.
GAP – Great Atlantic & Pacific Tea Co., Inc. – Investors bought put options on the operator of conventional supermarkets, combination food and drug stores and discount food stores today with shares of the underlying stock trading lower by 4.45% to stand at $4.08 as of 2:38 pm (ET). Pessimistic traders expecting GAP’s shares to continue to decline purchased approximately 1,400 put options at the January 2011 $2.5 strike – the lowest strike price available – for an average premium of $0.375 per contract. Put buyers stand prepared to profit if GAP’s shares plummet 48% from the current price of $4.08 to breach the average breakeven point to the downside at $2.125 by expiration day in January. The demand for put options on Great Atlantic & Pacific Tea Co., Inc. today lifted the stock’s overall reading of options implied volatility 7.5% to 92.55% just before 2:50 pm (ET).
RIG – Transocean Ltd. – Bearish traders rigged up pessimistic plays on Transocean Ltd. throughout the trading session with shares of the drilling services provider down as much as 10.4% to an intraday- and new 52-week low of $44.05 in morning trading. Currently Transocean shares are down 7.00% to stand at $45.73 as of 3:17 pm (ET). Near-term bears expecting RIG’s share price to continue to falter sold 5,400 calls at the June $50 strike for an average premium of $1.08 apiece. Call-sellers keep the premium received on the transaction as long as RIG’s shares trade below $50.00 through June expiration. More pessimistic players sold 3,500 now in-the-money calls at the June $45 strike at an average premium of $3.01 each. Investors short the June $45 strike calls walk away with the full premium pocketed today if shares of the underlying stock do not exceed $45.00 at expiration. Longer-term bearishness appeared at the August $40 strike where it looks like one investor purchased roughly 7,100 puts for an average premium of $3.19 per contract. RIG’s shares must decline at least 16.4% from the stock’s new 52-week low of $44.05 in order for the put buyer to garner profits beneath the effective breakeven price of $36.81 by August expiration day.
WMS – WMS Industries, Inc. – Long-term bullish options trading on the maker of gaming machines is nearly identical to the optimism observed on International Game Technology (for analysis of IGT activity please see below). One investor enacted a three-legged options combination play on WMS today despite the nearly 3% decline in the value of its shares to $41.91 as of 1:33 pm (ET). The trader partially financed the purchase of debit call spread by selling short put options in the January 2011 contract. It looks like the bullish individual picked up 1,000 calls at the January 2011 $45 strike for a premium of $5.10 each, and sold the same number of calls at the higher January 2011 $55 strike for $1.50 apiece. Finally, the trader shed 1,000 puts at the January 2011 $35 strike for a premium of $2.60 a-pop. The net cost of the transaction is reduced to $1.00 per contract. Therefore, the optimistic trader is prepared to profit should WMS Industries’ share price increase at least 9.75% to exceed the effective breakeven point to the upside at $46.00 by expiration day. Maximum potential profits of $9.00 per contract are attainable as long as shares of the underlying stock jump 31.2% from the current price of $41.91 to exceed $55.00 by January 2011 expiration.
IMA – Inverness Medical Innovations, Inc. – News that Inverness Medical Innovations slashed its 2010 earnings forecast by 10% sent shares of the manufacturer of rapid medical tests into free-fall. Shares plunged 18.96% to an intraday- and new 52-week low of $27.60 this afternoon. Investor uncertainty, as measured by the overall reading of options implied volatility, went through the roof, rising 49.5% to 50.24% just before 1:00 pm (ET). IMA’s CEO, Ron Zwanziger, stated the firm’s EPS for the year will be $2.60, which is less than the previous earnings forecast of $2.90 per share. Options investors flocked to the June contract on Inverness to exchange both call and put options on the surge in implied volatility. Put players dominated the scene, exchanging more than 2.4 put contracts to each single call option in action thus far in the session. Bearish players expecting shares to continue to decline purchased 2,800 puts at the June $25 strike for an average premium of $0.22 apiece. Put buyers make money if IMA’s shares fall another 10.2% to breach the average breakeven price of $24.78 by June expiration. Optimistic investors did the opposite by selling 3,500 puts at the June $25 strike to receive an average premium of $0.22 apiece at the June $25 strike price. Put sellers keep the premium pocketed on the sale as long as shares exceed $25.00 through expiration day. Finally, options players expecting shares to rebound in the next couple of weeks purchased at least 1,600 calls at the June $30 strike for an average premium of $1.06 per contract. Call buyers make money if, by expiration, shares of the underlying stock are trading higher by roughly 12.5% to exceed the average breakeven price of $31.06.
BAX – Baxter International, Inc. – Medical supplies manufacturer, Baxter International, Inc., received a long-term vote of confidence by one bullish options investor today despite the 0.70% decline in the price of its shares to $40.70. It looks like the optimistic individual purchased a plain-vanilla debit call spread, buying 10,000 calls at the January 2011 $45 strike for a premium of $2.15 each, and selling 10,000 calls at the higher January 2011 $50 strike for $0.90 apiece, in order to position for a sharp rally in Baxter’s shares by expiration. The net cost of the bullish transaction amounts to $1.25 per contract. Thus, the investor responsible for the trade is prepared to make money as long as BAX shares surge 13.6% to surpass the effective breakeven price of $46.25 by January 2011 expiration day. Maximum potential profits of $3.75 per contract, for total gains of $3.750 million, are available to the call spreader should Baxter’s shares jump 22.85% to exceed $50.00 by expiration next year. The medical supplies maker’s shares last traded above $50.00 back on April 23, 2010, when the stock touched an intraday high of $51.56.
IGT – International Game Technology – Long-term bullish trading activity took place on the manufacturer of electronic gaming equipment and systems today despite the 0.60% decline in the price of the underlying shares to $18.56 as of 12:45 pm (ET). One optimistic options strategist enacted a three-legged combination play involving both calls and puts to position for a sharp rebound in IGT’s shares by January 2011 expiration. The investor purchased 2,000 calls at the January 2011 $20 strike for a premium of $1.80 apiece, and sold the same number of calls at the higher January 2011 $25 strike for a premium of $0.45 each. Additional financing for the bullish strategy was provided by the sale of 2,000 puts at the January 2011 $15 strike for $1.20 per contract. The net cost of the transaction is reduced to just $0.15 per contract. Thus, the options combo-player is positioned to make money as long as IGT’s shares rally 8.6% to exceed the effective breakeven price of $20.15 by expiration in January. Maximum potential profits of $4.85 per contract pad the investor’s wallet if International Game Technology’s shares surge 34.7% over the current price of $18.56 to surpass $25.00 by January 2011 expiration day.
CAT – Caterpillar, Inc. – Shares of the machinery maker are up 0.75% to $56.25 perhaps after Caterpillar reaffirmed its target of $8.00 to $10.00 profit per share for 2012. CAT popped onto our ‘most active by options volume’ market scanner in the first half of the trading session due to put activity in the August contract. It appears one options player booked profits on the sale of a previously established long put stance in order to double the size of the put position at a more bearish strike price. The trader likely purchased 18,000 put options at the August $65 strike for a premium of $4.05 to $4.40 per contract back on April 22, 2010, when shares of the underlying stock were trading at a volume-weighted average price of $66.72. The August $65 strike puts are now deep in-the-money due to the decline in Caterpillar’s share price since the initial purchase. It looks like the investor sold all 18,000 puts today for a premium of $10.60 apiece to take in net profits of $6.20 to $6.55 per contract. Next, the put player, who is likely hedging a long underlying stock position, doubled the size of the protective stance by purchasing 36,000 puts at the lower August $50 strike for a premium of $2.65 per contract. The new position yields downside protection if Caterpillar’s shares plunge 15.8% from the current price of $56.25 to breach the effective breakeven point to the downside at $47.35 by August expiration.
CCJ – Cameco Corp. – Buying interest in call options on Canadian uranium producer, Cameco Corp., suggests some investors are positioning for a rally in the price of the underlying shares ahead of June expiration. Cameco’s shares are currently trading 0.60% higher on the day at $22.72 just before 10:55 am (ET). Bullish traders purchased roughly 2,475 calls at the June $24 strike for an average premium of $0.33 apiece. Investors long the calls make money if, by expiration, the firm’s shares rally 7% over the current price of $22.72 to exceed the average breakeven point to the upside at $24.33. Cameco’s shares traded above $24.33 as recently as June 3, 2010, when the stock touched an intraday high of $24.34. The uranium producer’s current 52-week high is $33.74. The demand for call options on the stock lifted CCJ’s overall reading of options implied volatility 4.5% to 42.11% just before 11:00 am (ET).
CVS – CVS Caremark Corp. – Optimistic options players are positioning for a rebound in the value of CVS’s shares by July expiration despite yesterday’s announcement by Walgreen Co. that it will no longer participate in CVS Caremark’s pharmacy networks plan. CVS Caremark Corp.’s shares were up slightly in the first hour of the trading session, but slipped 0.25% to stand at $30.96 as of 11:02 am (ET). Investors itching for a near-term rebound in the price of the underlying stock purchased approximately 4,000 calls at the July $32 strike for an average premium of $1.07 apiece. Call-buyers are prepared to accrue profits if CVS’s shares rally 6.80% over the current price of $30.96 to surpass the average breakeven price on the calls at $33.07 by June expiration day.
WM – Waste Management, Inc. – Shares of the provider of integrated waste services in North America increased 0.15% to $31.42 just before 11:15 am (ET), but one bearish options strategist populating the October contract does not expect Waste Management’s shares to appreciate further in the next several months to expiration. It looks like the pessimistic player initiated a bearish credit call spread by selling roughly 2,200 calls at the October $32.5 strike for an average premium of $1.48 apiece, and by purchasing about the same number of calls at the higher October $35 strike for an average premium of $0.68 each. The investor pockets a net credit of $0.80 per contract, and keeps the full amount received as long as shares of the underlying stock trade below $32.50 through October expiration. The trader responsible for the transaction is exposed to maximum potential losses of $1.70 per contract should Waste Management’s share price surge 11.4% to rally through $35.00 by expiration day in October.
