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Daily Options Intelligence Report

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High energy rewards for option trader at RRI

Tue, Nov 3 2009, 18:42 GMT
by Andrew Wilkinson

Interactive Brokers LLC

RRI – RRI Energy, Inc. – Yesterday afternoon one investor purchased 10,000 calls at the December 4.0 strike for 1.30 apiece despite the fact that shares were down 3% to $5.10. The seemingly contrarian strategy suggested shares of RRI were likely to rebound by expiration in December. Yet, the investor only needed to wait 24 hours because the stock is currently trading 2% higher to $5.25. The same individual was rewarded today for assuming an optimistic stance on RRI because he sold all 10,000 calls this morning for 1.45 apiece. Net profits on the closing sale amount to 15 cents per contract for a grand total of $150,000 – not bad for one day’s work.


WFR – MEMC Electronic Materials, Inc. – Option traders driving call volume in the November contract are in fact taking bullish positions on the stock by purchasing the options. We noted earlier today that heavier than usual option activity was driving implied volatility higher. Volatility is now up 20.25% to 68.92% versus this morning’s reading of 65.16%. Shares retreated slightly by lunchtime but are still up more than 1% to $12.45. Some traders targeted the in-the-money November 11 strike where 1,400 calls were picked up for an average premium of 1.49 apiece. Other investors selected the now in-the-money November 12 strike to take ownership of 2,900 calls for about 83 cents each. Bullish individuals expecting shares to continue higher paid an average of 49 cents to purchase 6,100 calls at the November 13 strike. The stock must rise another 8% to $13.49 before investors holding the November 13 strike calls breakeven.


CAR – Avis Budget Group, Inc. – Shares of the rental car company surged 8% to $9.12 today after the firm posted third-quarter earnings of 54 cents per share. Avis Budget Group reported staggering losses of $9.91 per share in the same period last year. Option players populated the November and December contracts with fresh call trading. It looks like some 5,100 call options were purchased at the November 10 strike for an average premium of 48 cents apiece. Next, approximately 1,000 calls were coveted at the December 10 strike for 80 cents premium. December contract call-buyers will accrue profits by expiration if shares rise at least 18.5% to surpass the breakeven price of $10.80.


FRX – Forest Laboratories – An interesting options strangle combination appears to have been put in place on Tuesday morning with one investor appearing to sell around 3,000 calls at the 30 strike in November and the same amount of puts at the 27.5 strike price also expiring this month. The current share price is $27.75, with the stock rebounding off last week’s $27 low. The company announced favorable results for its constipation drug, linaclotide, in development with Ironwood Pharma. The 17-day option combination creates a gross premium of 1.10, which implies the investor sees lower volatility going forward in a more favorable post-trial environment. The share price must now remain hemmed between $26.40 and $31.10 for this trade to remain profitable and within the two strike prices in order to see the investor retain the entire premium. Implied volatility is marginally lower at 37.5% today

Published on  Tue, Nov 3 2009, 18:50 GMT