• Home ::
• Fundamental ::
• Analysis Reports ::
• Daily Options Intelligence Report

Daily Options Intelligence Report

Options activity denotes mood change for Moody's investor

Fri, Oct 2 2009, 16:22 GMT
by Andrew Wilkinson

Interactive Brokers LLC  |  View company's profile

Vote:

1823b248-c1cd-4617-a137-58826d44966f

0

0

• Send
• Print
• Add To
• Rss

MCO – Moody’s Corp. – Credit ratings and research firm, Moody’s Corp., experienced a more than 3.5% decline in shares at times during the trading session. The stock recovered slightly by lunchtime with shares currently off by 2% to $19.92. It appears one investor exchanged approximately 55,000 put options on the ratings company. The first of two transactions looks like profit taking on an existing bearish position, while the second trade indicates the investor may have had a change of heart. The trader originally established a 10,000-lot put spread at the November 28/20 strike prices on June 1, 2009. The bearish spread resulted in an average net cost of 2.78 per contract. Today, the trader closed out the position by selling the November 28 strike puts for 8.50 each, and by simultaneously buying the lower strike puts for 2.55 apiece. Net profits on the transaction amount to about 3.17 per contract for a total of $3,170,000. The investor banked gains on the nearer-term pessimistic options play, but subsequent trading suggests he is now bullish on Moody’s through expiration in January. The investor populated the January contract with a credit put spread. It appears he sold 17,500 puts at the January 24 strike for 5.60 each and bought 17,500 puts at the lower January 16 strike for 1.45 a-pop. The transaction results in a net credit of 4.15 per contract for a grand total of $7,262,500. Maximum retention of the credit is possible if shares of MCO rally 20% from the current price to surpass the $24.00-level by expiration next year. We note that shares of the ratings agency last traded higher than $24.00 on September 17, 2009.

MS – Morgan Stanley – The financial services firm jumped onto our ‘most active by options volume’ market scanner after a large-volume put spread was established in the January contract. Shares of the financial services firm are 2% lower today to $29.34. The transaction involved the purchase of 22,500 puts at the January 29 strike for 3.05 apiece, spread against the sale of 22,500 puts at the lower January 22.5 strike for 80 cents each. The net cost of the bearish play amounts to 2.25 per contract. The investor responsible for the trade is likely looking to protect the value of a long position in the underlying stock. Shares of Morgan Stanley must decline 9% from the current price for downside protection to commence beneath the breakeven price of $26.75.

FDX – FedEx Corp. – One investor took to the January 2010 contract on FedEx this morning to brace for potential bearish movement in the stock through expiration at the start of next year. Shares of FDX are currently trading 1% lower to $73.16. The trader initiated a put spread by purchasing 12,500 puts at the January 75 strike for 7.30 apiece, which he spread against the sale of 12,500 puts at the lower January 65 strike for 3.00 each. The net cost of the transaction amounts to 4.30 per contract for a total of $5,375,000. The investor probably put on the trade to protect a long position in the underlying shares. If this is the case, downside protection will kick in if shares of FDX slip 3% lower to breach the breakeven point at $70.70. Alternatively, the investor is short the stock and seeking profits to the downside. In this scenario, maximum potential profits of 5.70 per contract – or a total of $7,125,000 – is realized if shares edge 11% lower to $65.00 by expiration in January.

JCP – J.C. Penney Company, Inc. – Mixed options strategies on department store operator, J.C. Penney, attracted our attention this morning amid a 1% rally in shares to $32.97. One strategy implemented on JCP was a bullish risk reversal. The investor responsible for the trade sold approximately 3,000 puts at the October 31 strike for an average premium of 59 cents each to finance the purchase of about the same number of calls at the higher October 34 strike for 49 cents apiece. The trader receives a net credit of 10 cents per contract, which he may retain in full as long as shares of the retailer remain higher than $31.00 through expiration. Additional profits accumulate if the stock rallies at least 3% to surpass the $34.00-level. The other strategy initiated this morning was a sold strangle. Using the same strike prices described above, it appears the trader sold approximately 3,000 puts for 59 cents each in combination with the sale of 3,000 calls for 49 cents per contract. The investor receives a gross premium in the amount of 1.08. The transaction suggests the trader expects lower volatility in the price of JCP going forward. Maximum retention of premium occurs if shares remain strangled within the confines of the strike prices through expiration this month.

Published on  Fri, Oct 2 2009, 16:24 GMT

Vote:

1823b248-c1cd-4617-a137-58826d44966f

0

0

• Send
• Print
• Add To
• Rss