Today’s tickers: GS, BA, RHT, DTG, DELL, ISLN & WHR
GS – Goldman Sachs Group, Inc. – A three-legged bullish options combination play initiated on Goldman Sachs this afternoon indicates one strategist is positioning for a sharp rebound in the price of the underlying stock by October expiration. GS shares, unable to hold onto gains realized earlier in the session, are currently down 0.65% to arrive at $147.27 just after 3:30 pm ET. It looks like the options optimist sold puts in order to partially finance the purchase of a debit call spread. The investor shed approximately 2,000 puts at the October $135 strike for an average premium of $2.74 each, purchased roughly the same number of calls at the October $150 strike for an average premium of $5.46 apiece, and sold about 2,000 calls at the higher October $160 strike at a premium of $1.89 a-pop. The average net cost of the transaction is reduced to just $0.83 per contract. Thus, the options player responsible for the trade is positioned to make money as long as Goldman’s shares rally 2.4% over the current price of $147.27 to surpass the average breakeven price of $150.83 by October expiration day. The trader may accumulate profits of up to $9.17 per contract if GS shares surge 8.6% to trade above $160.00 at expiration in a couple of months. Goldman Sachs’ shares last traded above $160.00 back on April 29, 2010.
BA – Boeing Co. – The second-largest U.S. satellite maker attracted the attention of one bullish options player this afternoon perhaps on news the firm expects to receive a minimum of $2 billion of orders for military communications satellites from a Defense Department contract announced in the previous week. Boeing’s shares slipped 1.95% to $63.34 in late afternoon trading, but the price erosion did not deter one trader from initiating a bullish risk reversal on the stock. It looks like the investor sold 7,000 puts at the October $60 strike for an average premium of $1.83 each in order to buy the same number of calls at the higher October $70 strike for premium of $0.95 apiece. The risk reversal was tied to the purchase of some 371,000 shares of the underlying at a price of $63.94 each. The responsible party received a net credit of $0.88 per contract on the reversal play. The investor is long the stock, short put options and long calls, which paints an optimistic picture, at least in this trader’s view, of the potential for Boeing’s share price to appreciate in the next couple of months to expiration.
RHT – Red Hat, Inc. – Renewed takeover speculation inspired increased investor demand for near-term call options on the software company and fueled a 15.9% increase in the stock’s overall reading of options implied volatility to an intraday high of 38.40% in morning trading. Red Hat’s shares are currently up 0.50% at $32.70 just before 2:00 pm ET, but earlier its shares jumped 2.95% to an intraday peak of $33.50. Investors hoping RHT’s shares will continue to increase ahead of September expiration picked up approximately 1,200 calls at the September $35 strike for an average premium of $0.59 per contract. Call buyers at this strike stand ready to profit should Red Hat’s shares surge 8.8% over the current price of $32.70 to first exceed the current 52-week high of $33.99, and ultimately surpass the average breakeven point to the upside at $35.59, by expiration day next month. Bulls also purchased roughly 1,000 call options at the higher September $36 strike for an average premium of $0.33 a-pop. Investors long the calls make money if RHT’s shares jump 11.1% in the next several weeks to trade above the effective breakeven price of $36.33 by September expiration. Red Hat’s overall reading of options implied volatility has tapered off slightly, but still stands 11.5% higher on the day at 36.84%, as of 2:05 pm ET.
DTG – Dollar Thrifty Automotive Group, Inc. – A put butterfly spread, purchased on Dollar Thrifty within the first half hour of the trading session, is identical to one initiated on Friday afternoon. Perhaps the same investor is beefing up on the bearish position ahead of DTG’s September 16 meeting in which the firm’s shareholders are scheduled to vote on the proposed buyout of the company by Hertz Global Holdings. Today’s transaction could otherwise be the work of a like-minded investor hedging the possibility the deal may fall through for some reason. Dollar Thrifty’s shares are currently up 0.2% to stand at $48.25 as of 12:40 pm ET. The put butterfly spreader picked up 5,000 in-the-money puts at the October $50 strike for an average premium of $4.00 each [wing 1], sold 10,000 puts at the October $45 strike at a premium of $1.60 apiece [body], and purchased 5,000 puts at the October $40 strike at a premium of $0.65 a-pop [wing 2]. Net premium paid to enact the spread amounts to $1.45 per contract. Thus, the responsible party is poised to profit should DTG’s shares trade below the effective breakeven price of $48.55 by expiration day in October. Maximum available profits of $3.55 per contract pad the trader’s wallet if the car rental company’s shares fall 6.7% from the current price of $48.25 to settle at $45.00 at expiration. DTG’s overall reading of options implied volatility is up 6.7% at 36.06% as of 12:45 pm ET.
DELL – Dell, Inc. – Bearish investors are sticking it to the personal computer manufacturer today after tech giant Hewlett-Packard made a far more aggressive $24.00 a share bid for 3Par, Inc., which overshadows the $18.00 a share bid for the data storage provider that Dell announced last week. DELL shares fell as much as 1.7% today to touch down at an intraday low of $11.86. Pessimistic players threw in the towel on Dell, adding to previously established short call open interest, by selling some 3,700 calls at the September $12 strike at an average premium of $0.38 per contract. Call sellers keep the premium received on the transaction as long as the September $12 strike calls fail to land in-the-money at expiration. Investors short the calls technically faced unlimited losses, unless they are long the stock, if Dell’s shares rally above $12.38 ahead of expiration day next month. Other bearish traders shed 1,100 calls at the higher September $15 strike to pocket a penny per contract. Pessimism spread to the November contract where investors sold 1,600 in-the-money calls at the November $11 strike for an average premium of $1.35 each, shed 1,600 lots at the November $12 strike for $0.69 premium apiece, and sold another 1,500 calls at the November $13 strike for an average premium of $0.28 a-pop. In-the-money call sellers are perhaps expecting DELL’s shares to fall another 7.25% by November expiration. If this occurs, traders short the November $11 strike calls walk away with the full $1.35 premium per contract pocketed on the sale as long as Dell’s shares fail to rebound above $11.00 by expiration day.
ISLN – Isilon Systems, Inc. – Shares of the provider of storage systems for file-based data rallied as much as 12.7% during the first half of the trading day to secure an intraday and new 52-week high of $20.10 on news Hewlett-Packard put Dell’s $18.00 a share offer for 3Par, Inc. to shame by submitting a $24.00 a share bid for the same company. A number of other enterprise storage companies are experiencing sharp share price increases following HP’s aggressive bid for PAR. Isilon Systems popped up on our ‘hot by options volume’ market scanner, however, after one contrarian player purchased a plain-vanilla debit put spread in the December contract. Perhaps the transaction is an outright bearish bet initiated by an investor expecting ISLN’s shares to decline significantly by December expiration. Alternatively, the spread may be the work of a cautiously optimistic individual establishing downside protection to hedge a long position in ISLN shares. Regardless of the true motivation behind the transaction, the spread involved the purchase of 3,000 puts at the December $17.5 strike for an average premium of $1.80 each, and the sale of the same number of puts at the lower December $12.5 strike for premium of $0.25 apiece. The net cost of the spread amounts to $1.55 per contract. If the put player is initiating an outright bearish stance on the stock, profits start to accumulate if Isilon’s shares plunge 20.65% from today’s high of $20.10 to breach the effective breakeven point to the downside at $15.95 by expiration day in December. Maximum potential profits of $3.45 per contract in that scenario are available to the investor if ISLN’s shares collapse 37.8% lower to trade beneath $12.50 ahead of December expiration. The put spread, assuming the responsible party maintains the position through expiration, may also be helpful if the company’s October 21 third-quarter earnings report is disappointing.
WHR – Whirlpool Corp. – Call options on the manufacturer of home appliances and products are in high demand today with the firm’s shares rallying as much as 3.9% this morning to touch an intraday high of $80.63. WHR’s shares surrendered the majority of earlier gains, but are still up 1.20% to stand at $78.51 as of 1:15 pm ET. Near-term bullish players itching for shares in Whirlpool to extend gains picked up approximately 1,000 calls at the September $80 strike for an average premium of $2.79 each. Investors long the calls are prepared to make money should the appliance maker’s shares increase 5.45% over the current price of $78.51 to surpass the average breakeven point to the upside at $82.79 by expiration day next month. Bullish sentiment spread to the higher September $90 strike where traders paid an average premium of $0.50 per contract to take ownership of some 1,700 call options. Call buyers at this strike rake in the dough as long as Whirlpool’s shares jump more than 15.25% to exceed the effective breakeven price of $90.50 ahead of September expiration. WHR shares traded above $90.50 as recently as July 20, 2010.
