Today’s tickers: XHB, DHI, NVDA, RL, BSX, GCI, XRT & AMR
XHB – SPDR S&P Homebuilders ETF – Long-term bullish trading in call options on the homebuilders sector jumped today on news housing starts in the U.S. rebounded in August. Shares of the XHB, an exchange-traded fund designed to track the performance of the S&P Homebuilders Select Industry Index, increased as much as 1.6% this afternoon to touch an intraday high of $15.83 as of 2:40 pm ET. One bullish trader expecting the price of the underlying fund to appreciate substantially over the next 16 months scooped up approximately 50,000 calls at the January 2012 $16 strike for an average premium of $2.56 apiece. The call options position the investor to accrue profits should shares surge 17.25% over today’s high of $15.83 to surpass the effective breakeven price of $18.56 by expiration day. Shares last traded above $18.56 back on May 13, 2010.
DHI – D.R. Horton, Inc. – In contrast to the outright bullish trading observed in XHB LEAPs, homebuilding company, D.R. Horton, received nearer-term bearish bets that shares are set to decline ahead of expiration in January 2011. DHI’s shares rallied as much as 2.6% on the positive new housing starts data to secure an intraday high of $11.34 this morning. But, by midday, a put option feeding frenzy initiated by traders who appear to expect shares to reverse course had already gained momentum. It looks like traders bought roughly 30,000 puts at the January 2011 $10 strike at an average premium of $0.73 a-pop. Put buyers are poised to profit should shares of the underlying stock plummet 18.25% from today’s high of $11.34 to slip beneath the average breakeven point to the downside at $9.27 by January 2011 expiration.
NVDA – NVIDIA Corp. – Shares of the manufacturer of chips used in computer graphics cards jumped 7.1% this afternoon to reach an intraday high of $11.47 as of 2:50 pm ET after analysts with Pacific Crest Securities said NVDA’s shares are likely to rally up to $13.00 as inventory declines and demand stabilizes. Investors hoping to see the bullish momentum continue purchased some 6,150 calls at the October $12 strike for an average premium of $0.32 per contract. Call buyers make money if the price of the underlying stock increases another 8.65% over today’s high of $11.34 to trade above the average breakeven point on the calls at $12.32 by October expiration. NVDA’s shares last exceeded $12.32 back on June 21, 2010.
RL – Polo Ralph Lauren Corp. – The maker and designer of clothing, accessories, fragrances and home furnishings popped up on our ‘hot by options volume’ market scanner just before 12:00 pm ET after one cautious investor donned bearish put options in the November contract. Ralph Lauren’s shares edged 1.5% lower in early afternoon trading to stand at $88.47 as of 12:40 pm ET. The investor initiated a ratio put spread, perhaps to hedge results of the firm’s second-quarter earnings report, which is scheduled for release ahead of the opening bell on November 3, 2010. The put player purchased 2,000 in-the-money puts at the November $90 strike at a premium of $5.75 apiece, and sold 4,000 puts at the lower November $85 strike at a premium of $3.45 each. The options strategist receives a net credit of $1.15 per contract on the transaction. Maximum potential profits, including the net credit, of $6.15 per contract are available to the ratio-spreader should Polo’s shares fall another 3.9% from the current price of $88.47 to settle at $85.00 at expiration. The net credit received on the trade extends the buffer zone shielding the trader from losses in the event that shares decline more than expected by November expiration. Without the net credit, the profile of the trade dictates a lower breakeven price of $80.00. But, the net credit pushes the effective breakeven price at which losses start to amass down to $78.85. The clothing designer’s shares would need to plunge 10.9% lower in order for the trader to start losing money beneath the effective breakeven point at $78.85 by November expiration.
BSX – Boston Scientific Corp. – Call options on the medical devices maker are active this morning on news one of the company’s stents has received regulatory approval for additional uses in Europe. Boston Scientific’s PROMUSElement Everolimus-Eluting Coronary Stent System was given CE Mark approval for use in patients suffering from diabetes and for use in those patients experiencing a heart attack. BSX shares reacted by rallying 4.7% to an intraday high of $5.80 as of 12:00 pm in New York trading. Options investors scooped up call options in the October and November contracts, exchanging more than 4.5 calls on the stock for each single put option in play thus far in the session. Traders purchasing the calls could be initiating fresh bullish stances or buying-to-close previously established short call positions. Call volume is heaviest at the October $6.0 strike where some 8,300 calls changed hands versus existing open interest of 6,482 lots. It looks like roughly 4,800 of those calls were purchased at an average premium of $0.13 apiece. If investors are buying the calls outright to position for shares to continue higher ahead of October expiration then profits start to accumulate should BSX shares rally another 5.7% to trade above the average breakeven price of $6.13. Another 3,300 calls were picked up at the November $6.0 strike for an average premium of $0.33 each. The sharp increase in demand for BSX calls lifted the stock’s overall reading of options implied volatility as much as 25.5% this morning to an intraday high of 50.07%. Implied volatility has come off significantly and currently stands 9.5% higher on the day at 43.67% as of 12:20 pm ET.
GCI – Gannet Co., Inc. – Shares of the USA Today publisher fell as much as 3.2% to touch down at an intraday low of $13.07 in the first half of the trading session after the firm was rated new ‘neutral’ with a target share price of $13.00 at UBS. Gannet’s shares are steadily heading towards the $13.00 level as of 11:40 am ET. Investors wary the news and information company’s shares are set to extend losses picked up put options in the April 2011 contract. Long-term pessimists purchased approximately 1,700 calls at the April 2011 $13 strike for a premium of $2.00 apiece. Traders holding these contracts make money if GCI shares plunge 15.8% lower to breach the effective breakeven point to the downside at $11.00 by expiration day. Bearish sentiment spread to the April 2011 $12 strike where some 3,300 puts were purchased for an average premium of $1.55 a-pop. Put buyers at this strike are poised to profit should Gannet’s shares drop 20.00% to trade beneath the average breakeven price of $10.45 ahead of expiration day in April. The overall reading of options implied volatility on the publisher jumped 8.00% to 52.75% by 11:45 am ET.
XRT – SPDR S&P Retail ETF – One bearish options trader purchased a sizeable put spread in the first 5 minutes of the trading session to prepare for the price of the underlying shares to potentially slip significantly lower ahead of November expiration. Shares of the XRT, an exchange-traded fund designed to replicate the performance of the S&P Retail Select Industry Index, declined as much as 1.5% during the first half of the trading session to reach an intraday low of $40.49 as of 11:50 am ET. It looks like the put player picked up 12,500 contracts at the November $40 strike at a premium of $1.44 each, and sold the same number of puts at the lower November $36 strike at a premium of $0.52 apiece. Net premium paid to establish the spread amounts to $0.92 per contract. Thus, the investor stands ready to make money should shares of the fund fall another 3.5% to breach the effective breakeven point on the spread at $39.08 by November expiration. Maximum potential profits of $3.08 per contract are available to the trader if the XRT’s shares plummet 11.1% from today’s low of $40.49 to trade below $36.00 by expiration day.
AMR – AMR Corp. – Shares of the operator of American Airlines rallied as much as 3.765% this morning to secure an intraday high of $6.89 perhaps on news the International Air Transport Association raised its 2010 global industry profit forecast to $8.9 billion from $2.5 billion. The IATA also upped its profit forecast for airlines in North America in 2011 to $3.5 billion from $1.9 billion. The IATA’s positive revision spurred near-term bullish options activity on AMR Corp. in early trading. Investors expecting the price of the underlying stock to rise ahead of expiration next month bought approximately 5,200 calls at the October $7.0 strike for an average premium of $0.25 a-pop. Call buyers make money if AMR’s shares increase another 5.2% over today’s high of $6.89 to surpass the average breakeven price of $7.25 by expiration day. Investors picking up October $7.0 strike calls today are adding to the long call open interest currently generated at that strike.
