Today’s tickers: RIMM, CAH, AVNR, HRBN, ANF & ADBE
RIMM – Research in Motion Ltd. – Investors are crowding the options arena on the Blackberry maker today with shares in Research in Motion rising as much as 9.5% earlier this afternoon to an intraday high of $56.62. The price of the underlying stock climbed the most in more than 10 months after an analyst remarked that the company’s Playbook tablet computer could give rival Apple Inc.’s iPad a run for its money. Shares are currently up 6.2% to stand at $54.94 with 45 minutes remaining before the final bell. November contract call options are by far the most active. Volume generated in near-term out-of-the-money calls today trumps previously existing open interest levels in all cases. Investors are buying more of those OTM calls than selling, but we will have to wait to see how open interest levels shift tomorrow to determine what portion of today’s activity represents intraday moves as compared to positions held by investors overnight. Bullish traders are also selling put options at the November $52.5 and $55 strikes, which suggests they expect shares to stay afloat, at least through expiration next month. Optimistic options players also made their mark in longer-dated contracts. Some investors initiated bull call spreads, buying approximately 2,000 calls at the December $65 strike for an average premium of $0.79 each, and selling about the same number of calls at the higher December $75 strike for an average premium of $0.21 apiece. Call spreaders are poised to profit should RIMM’s shares jump 15.8% over today’s high of $56.62 and trade above the average breakeven price of $65.58 by December expiration. Maximum potential profits of $9.42 per contract are attainable if the Blackberry producer’s shares rally 32.5% in the next couple of months to trade above $75.00 by expiration day. The Canada-based firm’s shares last traded above $75.00 back in March of 2010. Investors exchanged more than 296,000 option contracts on Research in Motion before 3:30 p.m. in New York.
CAH – Cardinal Health, Inc. – Speculation that Cardinal Health may be the target of a leveraged buyout fueled frenzied options activity on the healthcare products and services provider today and sent the stock’s overall reading of options implied volatility through the roof earlier in the session. Uncertainty has since taken a backseat though because the company released a statement saying they are not in discussions with any parties regarding an acquisition of Cardinal Health. Shares are currently up 1.75% at $32.98 while implied volatility is up 16.7% at 31.23%, as of 2:10 p.m. in New York trading. Earlier today, CAH’s shares jumped more than 5.6% to an intraday high of $34.23 on the LBO speculation. Volatility skyrocketed and increased as much as 71.8% to an intraday high of 45.99%. Investors used options to speculate on the previously unconfirmed takeover rumors. Call options expiring in November and December were the most popular contracts. Traders exchanged more than 3.3 calls on Cardinal Health for each single put option traded on the stock today. Option players purchased the majority of the 8,000 calls that changed hands at the November $35 strike at an average premium of $0.69 apiece, and picked up another 1,200 calls at the higher November $40 strike for an average premium of $0.14 each. Call buyers scooped up another 6,100 lots at the December $35 strike for an average premium of $1.25 a-pop. Put players were most active at the December $30 strike where more than 5,400 contracts changed hands versus previously existing open interest of 1,483 lots. Options traders may decide to purge themselves of today’s new positions now that Cardinal Health has confirmed the takeover hype was really much ado about nothing.
AVNR – AVINIR Pharmaceuticals, Inc. – Investors are using near-term options to speculate on the direction the pharmaceutical firm’s shares are likely to take after the FDA announces its decision on AVP-923, Avinir’s treatment intended for patients with a neurological condition known as pseudobulbar affect (PBA), on Saturday. AVNR shares are down 1.00% at $2.96 as of 12:45 p.m., but at least one options strategist is positioning for the price of the underlying stock to rise ahead of November expiration. The pharmaceuticals maker was rated new ‘outperform’ at Wedbush today. The optimistic player initiated a three-legged bullish combination strategy, selling 3,000 puts at the November $2.0 strike for a premium of $0.50 each, buying 3,000 calls at the higher November $3.0 strike at a premium of $1.10 per contract, and selling 3,000 calls at the November $6.0 strike for a premium of $0.30 apiece. The net cost of the transaction amounts to $0.30 per contract and positions the investor to make money if AVNR’s shares rally 11.5% to trade above the effective breakeven price of $3.30 by expiration day. Maximum potential profits of $2.70 per contract are available to the options trader if shares jump 102.7% to exceed $6.00 by November expiration. The transaction is a very effective way to take a bullish stance on the stock, but it is not without its risks. The investor may wind up having 300,000 shares put to him at $2.00 each if AVNR shares fall and the puts land in-the-money by expiration day. AVNR’s shares have not traded above $3.73 in at least one year.
HRBN – Harbin Electric, Inc. – Shares of the manufacturer of an array of electric motors are up 5.20% this morning to stand at $21.02 after the stock was upgraded to ‘buy’ from ‘neutral’ with a 12-month target share price of $26.00 at Roth Capital. Harbin’s shares fell sharply by as much as 15.65% yesterday to an intraday low of $19.57 on concerns surrounding the company’s operation and buyout. The Chinese motor maker received a buyout offer of $24.00 a share back on October 11, 2010, from CEO Tianfu Yang. One options trader expecting shares in Harbin Electric to continue to rally initiated a ratio call spread, buying 2,500 now in-the-money calls at the December $20 strike for a premium of $2.20 each, and selling 5,000 calls at the higher December $25 strike at a premium of $0.25 apiece. Net premium paid to establish the bullish spread amounts to $1.70 per contract. Thus, the investor responsible for the transaction is poised to profit should Harbin’s shares exceed the effective breakeven point at $21.70 by December expiration. Maximum potential profits of $3.30 per contract are available to the trader should shares surge 18.9% over the current price of $21.02 to settle at $25.00 at expiration. Harbin Electric is scheduled to report third-quarter earnings before the market opens on November 9, 2010.
ANF – Abercrombie & Fitch Co., Inc. – Frenzied trading in options on the retailer of clothing beloved by the teen/tween crowd ensued right out of the gate this morning perhaps on news that U.S. same-store sales increased 2.8% last week versus the same time period one year ago. Abercrombie’s shares are up 5.40% at $45.09 as of 11:50 a.m. in New York. Options traders are exchanging more than 1.7 calls on the retailer for each single put option in action thus far in the session. Trading in ANF today is heaviest in the November contract. Investors, for the most part, are buying up calls and selling puts on the stock, but it also looks like some traders are positioning for near-term appreciation in volatility on Abercrombie by establishing long straddles. Straddlers may be preparing for the clothing company’s third-quarter earnings report, which is scheduled for release ahead of the opening bell on November 11, 2010. Investors expecting volatility to rise appear to have purchased approximately 3,000 calls and 3,000 puts at the November $45 strike at an average gross premium of $4.71 per contract. The long straddle positions traders to make money if shares in ANF exceed the average upper breakeven point at $49.71, or if shares trade below the average breakeven price to the downside at $40.29, by expiration day next month. Investors may profit ahead of expiration if they sell-to-close the long straddle for more than they paid to initiate the position. Options implied volatility on ANF increased 8.4% by midday. Bullish traders purchased in- and out-of-the-money calls on the clothing company, which could mean they expect this rally to continue. Uber-optimists paid an average premium of $0.61 per contract for calls at the November $49 strike where more than 1,900 contracts changed hands versus previously existing open interest of 247 lots. More than 41,800 options changed hands on Abercrombie & Fitch by 12:10 p.m. in New York trading.
ADBE – Adobe Systems, Inc. – Shares of the software maker are up 0.25% to stand at $28.27 as of 1:00 p.m., but earlier rallied as much as 2.00% to touch an intraday high of $28.77. The rise in ADBE shares and latent speculation the company could be the target of a takeover spurred demand for call options on the stock today. Investors picked up 1,200 calls at the November $29 strike for an average premium of $0.29 apiece, and purchased another 1,660 calls at the higher November $30 strike at an average premium of $0.64 each. Bullish sentiment spread to the November $31 strike where 1,500 calls were coveted an average premium of $0.46 a-pop. Traders bought 1,200 calls at the higher November $32 strike for a premium of $0.33 per contract. Investors holding the November $32 strike calls make money if Adobe’s shares jump 14.3% to trade above the average breakeven point at $32.33 by November expiration. Open interest is sufficient to cover call volumes at each of the strike prices described, which could indicate in some cases that buyers are closing out short positions as opposed to initiating outright bullish transactions. Options implied volatility on the software company is up 6.1% to arrive at 39.42% in early afternoon trading.
