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Daily Options Intelligence Report

Hewlett−Packard options deliver winner to call seller

Wed, Sep 2 2009, 05:51 GMT
by Andrew Wilkinson

Interactive Brokers LLC  |  View company's profile

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HPQ – Hewlett-Packard Co. – Shares of the global technology company have surrendered more than 2% to arrive at the current price of $43.85. Gloomy predictions by one bearish investor were rewarded during the session as he apparently made a closing purchase of a short call position in the September contract. It appears that the trader originally shed about 4,500 calls at the September 47 strike price for a premium of 65 cents each back on August 12, 2009. Today he closed out the short position by buying the calls back for just 12 cents per contract. The trader’s pessimistic foresight yielded net profits of approximately 52 cents for a total payoff of $238,500.

ELX – Emulex Corp. – The telecommunications firm appeared on our ‘hot by options volume’ market scanner after bullish activity was detected in the January 2010 contract. Shares of ELX have resisted the overall bearish market momentum today by rising a modest 0.5% to $9.72. A bullish risk reversal was established through the sale of 5,000 puts at the January 7.5 strike for 30 cents each spread against the purchase of 5,000 calls at the higher January 12.5 strike for 35 cents apiece. The net cost of the transaction amounts to just one nickel per contract and positions the trader to benefit from further bullish movement in the price of the underlying. Shares of Emulex must rally approximately 29% higher by expiration in order for the investor to break even at a price of $12.55.

FXI – iShares FTSE/Xinhua China 25 Index Fund – A bearish reversal play was enacted on the China ETF this afternoon amid a 2% decline in shares to $38.46. The investor responsible for the reversal may simply be looking to amass profits to the downside. Alternatively, the trader could hold a long position in the underlying stock, in which case he has taken a protective stance. The transaction involved the sale of 15,000 calls at the November 39 strike price for 3.00 apiece spread against the purchase of 15,000 in-the-money put options at the same strike for 3.20 each. The sale of the calls significantly reduced the cost of getting long the puts. The reversal cost the investor just 20 cents per contract and allows him to accrue profits beneath the breakeven price of $38.80. Given the current price of the FXI, the trader has already amassed profits of about 34 cents or $510,000.

Published on  Wed, Sep 2 2009, 11:37 GMT

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