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Daily Options Intelligence Report

Oshkosh attracts interesting combination options play

Fri, Sep 4 2009, 17:07 GMT
by Andrew Wilkinson

Interactive Brokers LLC  |  View company's profile

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OSK – Oshkosh Corp. – The manufacturer of specialty commercial trucks enjoyed a 1% rally during the session to stand at $32.86. Perhaps the bullish move in shares today stems from news released yesterday evening which detailed terms of a $20 million deal Oshkosh has signed with the U.S. Air Force. Oshkosh has apparently agreed to provide 36 vehicles set for deployment to Air Force bases around the globe beginning in January. Thusly, options activity on the stock was observed in the January 2010 contract where it appears that one investor has taken two bullish positions. A plain-vanilla call spread involved the purchase of 2,000 calls at the January 35 strike for 4.10 each, marked against the sale of 2,000 calls at the higher January 50 strike for 77 cents apiece. The net cost of the transaction amounts to 3.33 per contract. Next, it looks as if the trader initiated a put credit spread in order to partially offset the cost of the call spread. It appears that he sold 2,000 puts at the January 30 strike for 3.90 each and simultaneously purchased 2,000 puts at the lower January 25 strike for 2.05 apiece. The investor receives a net credit of 1.85 on the transaction which he will retain in full as long as shares remain higher than $30.00 through expiration in January 2010. Finally, maximum potential profits available on the call spread amount to 11.67 (excluding credit received from credit spread). The investor may pocket such profits if shares of OSK surge a ridiculous 52% from the current price to $50.00 by expiration next year.

GNW – Genworth Financial, Inc. – Bullish sentiment was revealed through options activity which took place in the October contract on the financial company this morning. Investors were perhaps inspired to take optimistic positions in the stock today because GNW received an upgrade to ‘outperform’ with a price target of $15.75 at Northland Securities yesterday. Shares of Genworth are up slightly by 0.25% to stand at $9.15. Over the past six months the stock has exploded upwards, gaining approximately 829% to arrive at the current price. The bullish trading we observed on GNW involved the purchase of a call spread which was partially financed by the sale of put options. The call spread was established through the purchase of 10,000 calls at the October 10 strike for 90 cents premium, spread against the sale of 10,000 calls at the higher October 13 strike for 20 cents apiece. Finally, a chunk of 10,000 puts were shed at the October 7.0 strike price for a premium of 40 cents each. The net cost of the bull call spread amounts to just 30 cents per contract and thus yields maximum potential profits of 2.70 if shares rally up to $13.00 by expiration day. Shares must rise 13% from the current price in order to breach the breakeven point on the trade at $10.30. This investor stands to have a million shares in the company put to him in the event that shares breach the short put strike price by expiration.

XOP – S&P Oil & Gas Exploration & Production ETF – Put-spreaders prancing in the December contract on the exchange-traded fund, pushed the XOP onto our ‘most active by options volume’ market scanner today. Shares of the fund have attained modest gains during the session, rising less than 0.5% to $34.35. Trading patterns on the XOP may indicate that investors are bracing for bearish movement in the price of the underlying through expiration in December. The December 34 strike price had 13,000 puts purchased for an average premium of 3.10 apiece, spread against the sale of 13,000 puts at the lower December 27 strike for 70 cents each. The net cost of the transaction amounts to 2.40 per contract and yields maximum potential profits of 4.60 if shares plummet to $27.00 by expiration. It is possible that traders are long the stock and offsetting the cost of protective, nearest-to-the-money, puts by selling the same number of out-of-the-money puts. If this is the case, shares of the XOP would experience an 8% decline before downside protection kicked in beneath the breakeven price of $31.60.

S – Sprint Nextel Corp. – Frenzied call buying on Sprint was observed throughout the first half of the day. The 27% surge in implied volatility on the stock from 55% to the current reading of 70% indicates that investors are expecting the price of the underlying shares to shift perhaps sharply going forward. The rise in volatility and the concentration of call buying seen in the October contract this morning probably stem from yesterday’s announcement that Sprint will sell its first phone running Google’s Android software in October. Shares are currently trading higher by more than 2.5% to $3.67. Call buyers coveted more than 35,000 calls at the October 4.0 strike price for an average premium of 20 cents per contract. Investors long the calls will start to amass profits if shares rally 14% from the current price to surpass the breakeven point at $4.20 by next month’s expiration.

Published on  Fri, Sep 4 2009, 17:09 GMT

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