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Daily Options Intelligence Report

Mosaic calls in overdrive as potential takeover surfaces

Thu, Jul 16 2009, 17:12 GMT
by Andrew Wilkinson

Interactive Brokers LLC  |  View company's profile

MOS – The Mosaic Company – Earlier this week shares in this fertilizer company jointly owned by commodity behemoth Cargill and agricultural firm IMC Global, were trading just under $40. Today shares breached $50 after a Sao Paulo-based newspaper ran a story suggesting local company Vale might buy the company. The price tag of $25 billion infers a further 10% possible gain for shares of Mosaic, which is based in Minnesota. Option traders wasted no time snapping up calls expiring tomorrow promising buyers rights to secure the stock at $50 per share. The premium surged amid the uncertainty reaching 1.75 per 100 shares having closed yesterday at 30 cents apiece. With a declining dollar and rising commodity prices over the last few days, call activity has been evident in Mosaic’s options especially in the July contract, which expires this weekend. We find the rise in open interest at the 45 and 40 strikes curious given the fact that unless shares settle above $50 on Friday, money spent will be worthless. Option implied volatility rose from 65 to 70% amid today’s activity.

GE – General Electric – On the eve of earnings shares in GE are down 1.5% at $12.05, which is making option trading an active pastime today. There are twice as many 12 strike puts at play as there are calls in the July contract today with some 32,000 bearish contracts changing hands at 34 cents. Investors bought both calls and puts after the opening bell in what might be straddle plays in the expectation of a big move in either direction after earnings tomorrow. Some 6,000 option combinations may have traded at a price of 68 cents. Option pricing currently expects that shares in GE will remain within a range after earnings of between $11.66 and $12.34. Decent call volume of 12,900 contracts has changed hands at the July 13 strike. Delta on these call options currently shows a one-in-eight chance of a rally of 7.9% to reach $13.00 before Friday’s closing bell.

LSI – LSI Corporation – Semiconductor maker LSI saw heavy volume in its options today but the activity is largely confined to jostling by a sole investor who rolled forward a long 31,000 lot call position from the July to September contract at the same strike. Shares in the company are trading at $5.15 and are higher today by 3.4%. The investor paid a 50 cent premium for the privilege of staying long with the September strike carrying a 70 cent premium.

MGM – MGM Mirage – It would require a two-month long rally of 57% in shares of the casino and hotelier to reach $10.00 after a 1.7% decline today as its shares are trading at $6.34. Yet one bullish investor appears to have traded a butterfly using September calls at the 7.5/10 and 12.5 strikes involving around 27,000 lots. The net premium paid amounts to 30 cents and means that if shares did rally to the central $10 strike by expiration the investor would reap 2.30 per contract. Shares did reach $13.60 during bullish days in May on optimism over financing prospects at the company. They subsequently traded back to $5.51.

Published on  Thu, Jul 16 2009, 17:17 GMT