Bulls Bulk Up on US Oil Fund Call Options

 Today’s tickers: USO, MWW, AMCC & CLDX

USO – United States Oil Fund, LP – Crude oil rose Friday with traders finding more than a few excuses to support chasing the United States Oil Fund higher by as much as 4.75% to an intraday high of $37.64. The exchange traded security is meant to broadly track the price of oil and had fallen sharply at the outset of the week after OPEC’s leading producer, Saudi Arabia hinted strongly that it would accommodate rising demand with an increase in supply. Since then investors drove crude oil prices down almost $7 per barrel towards $85 leading some to possibly think that the decline might leave its price bank in the middle of a price range that Saudi and other cartel members would be content with. Friday’s third-quarter GDP report was restrained by inventories, without which the economy might have grown at a breakneck 7.1% pace for the fastest since 1984. Rising oil prices were also inspired by further unrest in the Middle East with headlines over the house arrest of an Egyptian government opponent and a clampdown on domestic Internet usage encouraging call option buying on the USO. Bullish players are binging on call options across several expiries today to support their view that USO shares will continue to rally. In options expiring next week, a whopping 20,500 calls changed hands at the February $38 strike on open interest of just 2,424 contracts. More than 15,150 of the calls were purchased for an average premium of $0.22 apiece. Similar buying patterns were seen in March contract calls. Oil-optimists even looked up to the April $44 strike to take ownership of some 2,100 calls for an average premium of $0.18 a-pop. More than 170,000 options have traded on the USO thus far today and the massive upswing in demand for the contracts helped lift the fund’s overall reading of options implied volatility 12.7% to 29.88% by 12:20pm in New York. Trading in USO calls is currently outpacing that of puts by roughly 5.3 contracts to 1.

MWW – Monster Worldwide, Inc. – Profit-taking activity in put options on the online employment site operator, as well as contrarian trading in near-term call options on MWW caught our eye this morning. Shares in Monster Worldwide plunged 23.0% to an intra-session low of $16.47 on lower-than-anticipated first-quarter earnings guidance from the employment solutions firm after the final bell yesterday. Some traders populating near-term put options on the stock during trading on Thursday appear to have either expected Monster to disappoint after the close, or had wisely hedged positions in MWW in case of a post-earnings pullback in the price of the underlying. Investors bought roughly 1,600 February $19 strike puts for an average premium of $0.50 each yesterday afternoon. The subsequent nosedive in the value of Monster’s shares allowed the put players to sell some 1,595 put options at that strike today for an average premium of $2.32 a-pop. Traders selling-to-close puts purchased on Thursday can pat themselves on the back for a job well done, and walk away with average net profits of $1.82 apiece. Meanwhile, it looks like fresh interest in front-month calls today was generated by investors positioning for a rebound in shares in the near-term. More than 2,300 calls changed hands at the February $17 strike today on open interest of just 7 contracts. It looks like the majority of these now in-the-money calls were purchased for an average premium of $0.80 each. Call buyers make money if shares reverse course and rally 4.5% over the current price of $17.04 to exceed the average breakeven point to the upside at $17.80 by February expiration.

AMCC – Applied Micro Circuits Corp. – Demand for put options on Applied Micro Circuits Corp. jumped this morning with shares in the semiconductor company falling as much as 9.3% to an intraday low of $9.65. AMCC reported a weaker-than-expected loss of $0.03 a share for the third quarter after the closing bell on Thursday, which disappointed analysts expecting the firm to earn $0.09 a share in the quarter. Bearish options traders are positioning for shares to continue to slide in the next several months by picking up in-the-money puts expiring in May. More than 2,300 deep in-the-money put options changed hands at the May $12.5 strike on scant open interest of 373 contracts. It looks like traders paid an average premium of $2.50 apiece to buy some 1,300 of the puts. Volume in puts traded on the stock more than doubled at the lower May $10 strike where upwards of 4,900 contracts changed hands on open interest of 124 options. The majority of these contracts were likely purchased for an average premium of $0.97 a-pop. Investors long the puts at May $10 strike start to make money if shares in Applied Micro Circuits fall another 6.4% from today’s low of $9.65 to breach the average breakeven price on the downside at $9.03 by May expiration day. Options implied volatility on AMCC plunged 30.6% to 36.52% post earnings.

CLDX – Celldex Therapeutics, Inc. – Call buyers paid Celldex Therapeutics a visit this morning to position for the biotechnology firm’s shares to extend today’s sharp rally during the next couple of months. Shares in Celldex increased as much as 12.75% during the session to hit an intraday high of $3.89 on reports of unconfirmed takeover chatter. Activity in Celldex options is confined almost entirely to calls today, with heavy volume accumulating in the front month. It looks like the majority of the 3,174 calls that have traded at the February $4.0 strike were purchased at an average premium of $0.24 each. Call buyers at this strike stand ready to make money should the price of the underlying rally another 9.0% over today’s high of $3.89 to exceed the average breakeven price of $4.24 by expiration day next month. Optimism spread to the March $4.0 strike where another 684 calls were picked up for an average premium of $0.44 a-pop. The surge in demand for CLDX calls and unconfirmed takeover rumors helped push the overall reading of options implied volatility on the stock up 64.8% to 121.37% by 1:10pm in New York. Celldex is scheduled to report fourth-quarter earnings before the market opens on March 3, 2011.