Carter’s Earnings Cancel Sends Implied Options Volatility Skywards
by Option Review - October 27th, 2009 4:27 pm
Today’s tickers: CRI, RDC, XL, VIX, XHB, XRX, EFA, WYNN, BIDU & XHB
CRI – Carter’s Inc. – The more than 20,500 option contracts exchanged thus far today on the children’s apparel company trumps existing open interest of just 3,342 lots by a factor of 6. Shares of Carter’s are suffering significant erosion after the firm announced plans to delay its third-quarter earnings release, originally scheduled for this evening, perhaps until November 12, 2009. News of the postponement sent shares tumbling 25.5% lower to $21.16. Investor uncertainty jumped through the roof as evidenced by the massive 66% rise in option implied volatility this morning to an intraday high of 90%. Bullish investors took advantage of today’s declines by trading near-term call options. One trader put on a ratio call spread by purchasing 1,000 calls at the in-the-money November 20 strike for 2.30 apiece, and by selling 2,000 calls at the higher November 25 strike for 55 pennies each. The net cost of buying the calls is reduced to 1.20 per contract. The effective breakeven price of $21.20 on the transaction allows the investor to profit by expiration in November if shares of CRI rise at least 4 cents. Maximum potential profits of 3.80 per contract are available if the stock recovers up to $25.00. Losses would begin to accumulate if any rally lifted the share price above $28.80.
RDC – Rowan Companies, Inc. – Option traders scooped up put options on the provider of contract drilling services while shares slumped 2.75% to $24.90. The January 2010 22.5 strike had at least 1,400 puts purchased for an average premium of 1.16 apiece. The now in-the-money January 25 strike attracted traders who picked up 1,300 puts for about 2.15 each. Bearish sentiment spread to the April contract where another 2,000 puts were coveted at the April 22.5 strike for 2.02 a-pop. Finally, the most action took place at the in-the-money April 25 strike where 9,800 puts were purchased for an average of 3.18 each. Perhaps put-buying investors are aiming to protect the value of long positions in the underlying. Otherwise, traders placing bearish bets on RDC hope to accumulate profits on further share price weakness over the next several months.
XL – XL Capital Ltd. – Bullish investors took aim at XL Capital put options in the January contract this afternoon. Shares of XL are slightly higher by less than 0.25% to…
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DiggPopular Bank Shares Surge as Option Player Stakes a Claim
by Option Review - September 16th, 2009 9:25 pm
Today’s tickers: BPOP, LNCR, EEM, XLK, XL, PALM, LIZ & MI
BPOP - The ‘popular’ bank popped up on our screens this afternoon after a large-volume risk reversal was established on the stock. The massive trade was likely the work of an investor with knowledge of commercial banks as approximately 60,000 contracts were exchanged on BPOP amid a more than 12% rally in shares of the underlying to $2.60. It appears the trader purchased 30,000 now in-the-money October 2.5 strike calls for an average premium of 33 cents apiece. He funded the purchase of the calls by selling 30,000 puts at the January 2.5 strike for 43 cents each. The investor received a net credit on the transaction of 10 pennies per contract. The motivation is perhaps that this individual is swimming with the rising tide of financial names today and expects a far larger rally lifting shares towards $3.75-resistance level. If this is the case, he is likely to exercise the calls by October’s expiration and take delivery of the underlying shares to ride with the stock’s upward momentum. Even if the move continues somewhat, it would likely reverse the structure of this trade to his advantage. – Popular, Inc. –
LNCR - The provider of oxygen and respiratory therapy services attracted option bulls today with shares of the firm standing more than 13% higher for the session to $29.85. Option implied volatility on LNCR exploded 50% higher from a low of 32% this morning to an intra-day high of 48%. The burst in volatility is likely due to increased investor demand for calls on the stock as well as greater uncertainty regarding future price movements in shares of Lincare. Perhaps the rise in uncertainty stems from news that Deutsche Bank raised LNCR’s target price from $33.00 to $38.00 today and maintained their ‘buy’ rating on the stock. Investors gobbled up 2,200 September 30 strike calls for an average premium of 31 cents. The contracts will expire worthless unless shares breach the $30.00-level to land in-the-money by Friday. Bullish sentiment spread to the October 30 strike where traders coveted 2,400 calls for about 71 cents premium. Investors long the calls will begin to amass profits if shares rally through the breakeven point at $30.71 by expiration in October. – Lincare Holdings Inc. –
EEM - The emerging markets exchange-traded fund jumped higher on our ‘most active by options volume’ market scanner…
American Express Investor Trades Puts for Calls
by Phil - July 21st, 2009 5:42 pm
Today’s tickers: AXP, EFA, XL, LXK, AVP, WERN, ISRG & CHK
Chinese ETF sees more call option action
by Option Review - March 18th, 2009 4:46 pm
Today’s tickers: FXI, XL, AIG, WYE, EEM, JAVA, GIS, BK, SLM & C
FXI iShares FTSE/Xinhua China 25 – Shares are up by approximately 1.5% to stand at $27.96. The Chinese ETF appeared on our ‘most active by options volume’ market scanner after one investor purchased 40,000 in-the-money calls at the March 27 strike price for an average price of 55 cents per contract. The investor snagged the chunk of calls at a low premium earlier today relative to the current premium on the calls of 1.35. It looks like this trader offset the cost of the purchase by selling 40,000 calls at the April 30 strike price for a premium of 63 cents. Thus, he pockets a credit of 8 cents on the trade. As long as shares remain above $27 by Friday, this investor will have the right to collect 4,000,000 shares of the underlying stock at the strike price. But, by selling the calls in April this trader has capped upside gains at a maximum of 3.0 if shares happen to rally to $30 by expiration. The sale effectively provides him with an exit strategy in April.
XL XL Capital Limited – Shares of the property and casualty insurance firm have rallied 7.5% to $4.43 on the heels of AIG’s surge today. One investor looking for further upside gains purchased 6,400 calls at the March 5.0 strike price for 13 cents apiece. If shares can continue to rebound in this fashion and rise by 12% from its current price, then this trader would begin to profit at the breakeven share price of $5.13.
AIG American International Group – Outrage at $165 million in bonuses paid out to employees of the firm’s financial products division while taking in TARP funds at the same time apparently could not detract from AIG’s share price, which is soaring upwards by 40% to $1.35. While government appointed CEO Edward M. Liddy is getting reamed out at the Congressional hearings today, options investors have been busy trading calls across multiple contracts. Traders were heavily favoring the call side and skewed the call-to-put ratio to more than 4.5 calls to every put in action today. At the April 3.0 strike price, optimists picked up 3,700 calls for 10 cents each. Despite the huge rally today, shares would need to continue upwards by another 129% in order to reach the breakeven point at $3.10 by…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
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