Today’s tickers: F, GNW, VRSN & OCR
F – Ford Motor Co. – A massive bullish transaction involving 300,000 call options on the auto manufacturer today indicates one big player is increasingly optimistic that Ford’s shares are likely to stay their upward trajectory through September expiration. The price of the auto maker’s shares rallied 2.90% to $13.14 by 12:30 pm ET on news Chinese automaker, Zhejiang Geely Holding Group Co., completed its purchase of Volvo Cars from Ford by shelling out $1.3 billion in cash and issuing a $200 million note for the acquisition. Ford’s credit rating was also raised two levels by Standard & Poor’s today on optimism the firm will remain profitable, and due to improved investor and consumer perception of the Dearborn, MI-based company. The enormous bullish trade on Ford appears to be the work of an investor booking profits by first selling a previously established long call position, and next initiating a fresh more-bullish stance on the stock. It appears the investor originally purchased 150,000 calls at the September $12 strike for an average premium of $0.41 each back on July 9, 2010, when Ford’s shares closed at $10.85. The subsequent rally in the price of the underlying stock boosted premium on the September $12 strike calls, allowing the trader to sell all 150,000 now in-the-money contracts at an average premium of $1.40 apiece. Net profits on the sale of the call options amounts to $0.99 per contract. Next the investor purchased 150,000 fresh in-the-money calls at the September $13 strike for an average premium of $0.75 per contract. Profits start to accumulate on the new position if Ford’s shares rally another 4.65% over the current price of $13.14 to surpass the effective breakeven point to the upside at $13.75 by expiration day next month.
GNW – Genworth Financial, Inc. – A three-legged bullish options combination play initiated on the insurance company today suggests one strategist expects Genworth’s shares to rally significantly ahead of expiration day in December. GNW’s shares inched up during morning trading, but later slipped 0.30% lower to stand at $13.54 by 12:50 pm ET. The investor appears to have sold put options in order to offset the cost of buying a debit call spread. To establish the spread the trader sold 4,000 puts at the December $12 strike for an average premium of $1.04 each, purchased 4,000 calls at the December $15 strike for an average premium of $1.14 apiece, and sold 4,000 calls at the higher December $18 strike for an average premium of $0.38 a-pop. The investor receives a net credit of $0.28 per contract on the transaction, and keeps the full amount as long as Genworth’s shares exceed $12.00 through December expiration. The short stance in December $12 strike puts implies the trader is willing to have shares of the underlying stock put to him at an effective price of $11.72 each should the puts land in-the-money at expiration. The investor is prepared to make money over and above the $0.28 net credit should GNW’s shares surge 10.8% over the current price of $13.54 to surpass the effective breakeven point to the upside at $15.00 by expiration day in December. Maximum available profits of $3.28 per contract pad the investor’s wallet if the insurance company’s shares jump 32.9% to trade above $18.00 by December expiration. Genworth’s shares last exceeded $18.00 back on May 10, 2010.
VRSN – VeriSign, Inc. – Options traders are picking up put options on the provider of Internet infrastructure products and services today ahead of the firm’s second-quarter earnings report scheduled for release after the closing bell this evening. VeriSign’s shares are currently flat on the day at $28.15 as of 1:05 pm ET. Investors are perhaps hedging an earnings disappointment by purchasing approximately 1,100 put options at the August $28 strike for an average premium of $0.98 each. Put buyers make money if VRSN’s shares fall 4.00% to breach the average breakeven point on the downside at $27.02 by August expiration day.
OCR – Omnicare, Inc. – Shares of the geriatric pharmaceutical services company fell as much as 10.10% at the start of the trading session to touch down at an intraday low of $22.14, but managed to claw their way back up, and currently stand just 1.35% lower on the day at $24.30 as of 1:10 pm ET. Omnicare’s shares dropped sharply on news its president and CEO, Joel F. Gemunder, retired. The CEO’s exit music coupled with increased demand for options on Omnicare inspired a more than 29.1% increase in the overall reading of options implied volatility on the stock to 48.64% this afternoon. The initial plunge in the price of the underlying shares fueled demand for near-term bearish put options. Traders scooped up 1,700 puts at the August $22.5 strike for an average premium of $0.84 each. Meanwhile, it looks like one trader rolled a previously established long put stance on the stock down to a lower strike price, selling 1,000 in-the-money puts at the August $25 strike for an average premium of $2.05 each, in order to buy the same number of contracts at the lower August $20 strike at an average premium of $0.33 a-pop. Options investors exchanged more than 14,600 contracts on Omnicare by 1:15 pm ET, which exceeds overall previously existing open interest on the stock of 13,347 lots.
