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Daily Options Intelligence Report

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Bullish Motorola play in options action

Thu, Jul 2 2009, 17:12 GMT
by Andrew Wilkinson

Interactive Brokers LLC

MOT – Motorola, Inc. – A large-volume bullish reversal initiated in the October contract on MOT today suggests some investors are positioning for a rally. Currently shares are off by more than 3% to stand to $6.25. Perhaps traders are anticipating that Motorola’s new lineup of phones, based on Google’s Android operating system, will boost sales for the firm. It appears that approximately 15,000 puts were sold at the October 5.0 strike price for 14 cents apiece in order to partially fund the purchase of 15,000 calls at the October 7.0 strike for 34 cents per contract. The net cost of the bullish stance amounts to 20 cents. Thus, shares of MOT would need to rev upward by 15% from the current price to $7.20 in order for investors to profit by expiration. Interestingly, it appears that today’s reversal has been added to similar bullish positioning as seen in the open interest at each of the strike prices described. Today’s activity could be the work of an investor who is merely adding to a position. Or, perhaps we are seeing traders hopping on the bull-bandwagon.

AXP – American Express Company – The global payments and travel company edged onto our ‘most active by options volume’ market scanner after one bearish trader dug his claws into the August contract. AXP shares are down 1% to $22.75. It appears that the investor has sold 5,000 puts at the deep in-the-money July 25 strike price for 2.54 apiece in order to get long of 7,500 puts at the closer-to-the-money August 23 strike price for 2.03 each. The trader likely took profits on the sale of the near-term put options and proceeded to reestablish a position in protective put options at a lower strike with more time to expiration.

JOSB – Jos. A. Bank Clothiers, Inc. – The designer of men’s clothing and accessories has surrendered more than 6.5% to stand at $32.44 today. Traders expecting further declines initiated interesting trades involving put options. It appears that about 3,000 puts were sold short at the deep in-the-money July 35 strike price for a premium of 2.19 apiece and spread against the purchase of some 3,000 puts at the more bearish August 30 strike price for 1.39 per contract. The net credit received from the transaction amounts to 80 cents. Writing puts in the near-term July contract leaves traders exposed to having shares of the underlying put to them at expiration at an effective price of $34.20. This investor might be cutting losses through the use of the 30 strike, meaning he can put shares to another investor at that point. However, the trade possibly relies on the shares price rallying back through $35 before expiration time arrives.

ILMN – Illumina Inc. – The biotechnology firm engaged in the development of tools used for large-scale analysis of genetic variation and function has plummeted about 11.5% to $33.76. Shares were nearly 18% lower in pre-market trading after the company reported that its second-quarter revenue of $161 million failed to meet initial estimates of $168-$173 million. Option traders took advantage of the bearish decline by selling about 3,000 calls at the near-term July 35 strike for an average premium of 46 cents apiece. The full premium enjoyed by call-writers will be fully retained as long as the July 35 calls remain out-of-the-money by expiration in a few weeks.

Published on  Thu, Jul 2 2009, 17:13 GMT