Today’s tickers: BP, MOT, JPM & SWY
BP – BP Plc – ADR – Continuing to buck the broader market shares in BP are again in the green with a 2.4% gain at $37.02 while the S&P 500 is resigned to trading off weakness in manufacturing data. Options strategies continue to appear on the most actively traded scanner and today’s pick is a bullish ratio call spread play in the January 2011 contract. An investor bought 1,000 $45 strike calls and sold 2,000 $50 strike calls for a net credit of 20 cents. The investor clearly expects the rally to continue and has a $50 target in mind. Up until that point he has a free ride, actually taking in a $40,000 credit for the trade up front, while the position wouldn’t turn sour until $55 when profits grown from above $45 are equally offset by losses growing at twice the rate at a share price above $50. Implied options volatility continues to indicate that investors are more comfortable with the outlook and has dipped 7% to stand today at around 63%.
MOT – Motorola Inc. – It took three months for shares in the cellphone-maker to recover from a slide to almost $6.00 back up to $7.75. And of course the next quarter was spent undoing the gains yielding a near-perfect channel for traders to mark their entries. Today shares once again hit the top of the range after a three-day killing streak propelled them almost 15% higher. A bearish strategy seems to be coincident with today’s movement and involves the curious trade-in of deeply in-the-money puts at the $12.50 strike January 2012 expiration in exchange for sold calls at the same expiration $7.50 strike. The near 5,000 calls traded at an average price of $1.48 while the puts traded at $5.25. This trade is curious today to see the least and one explanation is that the recent revival of Motorola’s fortunes may have been enough to inspire an exit from this bearish position, which initially would have been long calls and short puts.
JPM – JPMorgan Chase & Co. – The earnings warm-up show failed to last the course this morning and a pre-market gain for the company surpassing estimates was quickly lost in the muddy waters of a slowing economy. Its shares are now lower on the day at $39.46 with investors eager to take advantage of the borderline intrinsic nature earlier. Volume at the soon-to-expire $40-strike calls bulged to 24,000 throughout the morning with sellers driving prices in early activity. More than half of today’s volume was driven by sellers hoping that these calls will expire worthless at the weekend. Commanding 95 cents right out of the gate this morning, these hot-cakes quickly turned cold as investors sold calls all the way down to 18 pennies. Right now they hold no value should the share price prevail through Friday’s closing bell.
SWY – Safeway Inc. – Grocer Safeway has had a nasty reversal of fortunes, at least as reflected in the performance of its share price having marched to above $27 in mid-April. Since then, however, its share price has slumped to $19.47 at the beginning of this month. During the last several days put open interest appears to be on the rise specifically at the $20 strike expiring next month. If today’s put-selling is anything to go by it seems that some investors are calling for an end to the slide. A couple of notable chunks of puts were traded inspired by sellers today and we reckon that tomorrow’s reading of open interest will reveal additional bullish sentiment building. The puts are trading at around 70 cents per contract implying that losses would accrue on a break even basis beneath $19.30.
