Today’s tickers: NEM, CALM, XRX, MCD, AEIS & JNPR
NEM – Newmont Mining Corp. – The gold producer’s shares started strong this morning, but earlier gains quickly gave way to losses and shares are currently down 3.00% to stand at $60.75 as of 3:25 pm in New York. Options on gold companies as well as options on a number of ETFs tracking miners and gold producers were very active today after gold prices climbed to new highs this morning. During the first couple of hours of the session one bullish trader utilized long-dated call options to position for Newmont Mining’s shares to potentially rally to new heights by expiration in January 2012. The investor purchased 5,800 deep in-the-money calls at the January 2012 $57.5 strike for a premium of $12.23 each, and sold the same number of calls at the higher January 2012 $67.5 strike at a premium of $7.53 apiece. The net cost of putting on the spread amounts to $4.70 per contract. The trader is therefore prepared to make money should NEM’s shares trade above the average breakeven price of $62.20 through January 2012 expiration. Maximum potential profits of $5.30 per contract pad the investor’s wallet if Newmont’s shares jump 11.1% over the current price of $60.75 to surpass $67.50 ahead of expiration day.
CALM – Cal-Maine Foods, Inc. – Options on the largest egg seller and distributor in the U.S. are more active than usual today perhaps on news the Jackson, Mississippi-based firm recalled more than a quarter of a million eggs purchased from Ohio Fresh Eggs because they may be contaminated with Salmonella. Cal-Maine Foods was reportedly alerted to contamination issues with the eggs by the FDA this past Friday. CALM’s shares reacted positively to the news this week, rallying more than 12.0% off Monday’s intraday low of $28.68 to today’s high of $32.15. Shares are currently up 4.4% at 30.90 as of 1:20 pm. Bullish players expecting shares to climb higher ahead of expiration day this month picked up 1,200 calls at the November $30 strike for an average premium of $0.86 each right out of the gate this morning. Call buyers start accruing profits above the average breakeven price of $30.86. The sharp rise in the price of CALM’s shares lifted premium on the now in-the-money call options, which currently command an asking price of $1.40 apiece. In contrast to near-term bullish patterns, activity in longer-dated option contracts on the egg seller appears to be the work of an investor wary that shares may pull back ahead of February 2011 expiration. It looks like the trader purchased a put spread, buying 1,000 contracts at the February 2011 $30 strike for an average premium of $1.91 each, and selling the same number of puts at the lower February $25 strike at an average premium of $0.525 apiece. The net cost of the spread amounts to $1.385 per contract. Thus, the put player is prepared to profit, or realize downside protection, if CALM’s shares fall 7.4% from the current price of $30.90 to breach the average breakeven point on the spread at $28.615 by expiration day. Maximum potential profits of $3.615 are available to the investor if shares in Cal-Maine Foods plummet 19.1% to trade below $25.00 by February expiration. News of the recall and the sharp rise in demand for options on CALM boosted the stock’s overall reading of options implied volatility 21.6% to 38.42% this afternoon.
XRX – Xerox Corp. – A sizable short straddle initiated on Xerox Corp. this morning suggests one strategist foresees limited movement in the price of the underlying shares going forward. Shares of the world’s leading enterprise for business process and document management are up 1.80% at $11.94 as of 11:45 am in New York. The options trader looked to the April 2011 $12 strike to sell 10,000 calls and 10,000 puts for a gross premium of $2.10 per contract, or a total of $2.1 million. The investor keeps the full amount of premium received on the transaction if Xerox’s shares settle at $12.00 at expiration next year. Short positions assumed in both call and put options at that strike expose the straddle-seller to losses in the event that shares in XRX rally above the upper breakeven price of $14.10, or should shares slip beneath the lower breakeven point at $9.90, ahead of April expiration. Xerox Corp.’s shares have not traded above $14.00 in at least two years, but have traded under $9.90 as recently as September 16, 2010.
MCD – McDonald’s Corp. – Investors are feasting on McDonald’s Corp. put options today, which may mean that some strategists are bracing for the price of the underlying shares to slide lower ahead of expiration day in January 2011. Shares of the world’s largest restaurant chain are down 0.45% at $78.95 as of 12:50 pm in New York trading. More than 15,860 put options have changed hands at the January 2011 $75 strike versus previously existing put open interest of 5,294 contracts. The majority of the puts, some 11,895 contracts, were purchased for an average premium of $1.17 apiece. Put buyers may be enacting outright bearish bets on the stock or building up downside protection to hedge a long position in MCD shares. Investors buying the puts outright are prepared to make money should shares of the Big Mac maker plunge 6.5% lower to breach the average breakeven point to the downside at $73.83 by expiration day in January. Yesterday, MCD’s shares came within $0.10 of its all-time high of $79.90 after reporting a better-than-expected 6.5% rise in comparable-store sales in the previous month. Options implied volatility on the fast food chain is running 5.8% higher this afternoon to stand at 55.94% as of 1:00 pm.
AEIS – Advanced Energy Industries, Inc. – The maker of solar power control technologies popped up on our ‘hot by options volume’ market scanner in the first half of the trading session after one options strategist initiated a large buy-write strategy in the January 2011 contract. Shares in Advanced Energy Industries are currently down 0.30% to arrive at $12.55 as of 12:00 pm. It looks like the investor purchased approximately 365,000 shares of the underlying stock at a price of $12.56 this morning and sold 6,600 in-the-money calls at the January 2011 $12.5 strike for a premium of $1.00 each at a delta of approximately 0.55. Selling the calls effectively reduces the price paid for the underlying shares to around $11.56 each and provides an effective exit strategy on the long position in AEIS shares. If the shares are called from him at $12.50, the investor enjoys gains of 8.13% on the “rise” in shares from $11.56 to $12.50. Alternatively, the covered call seller may expect the Jan. 2011 $12.5 strike contracts to expire worthless. In this case the trader may decide to hold onto the shares, perhaps because he expects the price of the underlying stock to rally higher later on in 2011.
JNPR – Juniper Networks, Inc. – Near-term bullish options traders expecting shares in Juniper Networks to reach new highs for the year ahead of November expiration are scooping up calls this morning. Shares of the networking and telecommunications equipment company are currently up 0.90% to stand at $34.50 as of 11:10 am in New York, but earlier increased as much as 2.2% to hit an intraday- and new 52-week high of $34.94. Investors picked up 3,000 calls at the November $35 strike for an average premium of $0.57 each. Call buyers at this strike make money if Juniper’s shares rally another 1.80% over today’s high of $34.94 to surpass the average breakeven price of $35.57 by expiration day. Optimism spread to the higher November $36 striker where some 2,300 call options were purchased at an average premium of $0.31 apiece. Finally, uber-bulls bought roughly 1,400 calls at the November $37 strike for an average premium of $0.15 a-pop. Investors holding these contracts are poised to profit should shares in Juniper Networks surge 6.325% to trade above the effective breakeven point at $37.15 by November expiration. Increased demand for call options on JNPR helped lift the stock’s overall reading of options implied volatility 5.7% to 33.37% by 11:15 am.
