MA – MasterCard, Inc. – Option trades on the global payment solutions company this morning revealed that one investor is utilizing out-of-the-money put options to garner profits over time. Shares of the firm are currently off more than 1% to stand at $171.62. It appears that this individual has established a pattern of selling short puts. Back on May 11th it seems the trader sold 4,000 puts short for an average premium of 2.93 and today closed out the position by buying the same 4,000 puts back for 1.58 each. He has likely banked gains of 1.35 on the trade. To continue his strategy he looks to have sold another 4,000 puts short at the October 145 strike price for a hefty premium of 6.93 apiece. The investor will reel in profits on the new short position depending on when and at what price he buys back the options in the future.
FXI – iShares FTSE/Xinhua China 25 Index Fund – The China ETF has slipped nearly 2% to $38.75 perhaps prompting one trader to enact a ratio put spread in the near-term June contract. The ratio spread was established through the purchase of 10,000 puts at the in-the-money June 39 strike price for a premium of 1.68 each against the sale of 20,000 puts at the June 35 strike for about 40 cents apiece. The net cost of the downside protection amounts to 88 cents and yields maximum potential profits to the downside of 3.12 if shares decline to $35.00 by expiration. Perhaps the investor is long underlying shares of the fund and has initiated the spread to offset potential losses that might accrue if the FXI moves lower by expiration in just a few weeks.
NTAP – NetApp, Inc. – Investors hoping to see NetApp successfully take control of Data Domain Inc. (DDUP) must be feeling a bit anxious today after EMC Corp. initiated an unsolicited bid of $1.8 billion for DDUP. EMC’s offer is 17% higher than NTAP’s original bid of $1.5 billion extended two weeks ago. NTAP is a supplier of enterprise storage and data management software and hardware products and has experienced a share price decline of nearly 4% to $19.89 after EMC’s extension of a more attractive bid. Some option traders are bracing for a recovery in NTAP’s shares through expiration in July. The July 21 strike price had 3,500 calls bought for 85 cents apiece while the higher July 22 strike witnessed 2,400 calls coveted for about 55 cents each. Perhaps these call-buying optimists expect NTAP to challenge EMC for potential control of buyout target, Data Domain. Investor uncertainty climbed higher as evidenced by the rise in option implied volatility from 45% yesterday to the current reading of 50% for NTAP.
AET – Aetna, Inc. – We observed some bullish call buying activity in the health care benefits company today after the stock appeared on our ‘hot by options volume’ market scanner. Shares of the firm are currently higher by 1.5% to $27.78. The July 30 strike price had more than 6,100 calls pocketed for an average premium of 1.00 per contract. Apparently, a number of option investors are positioning themselves for continued bullish movement in the stock by expiration in July. Shares of AET would need to rally by about 12% from the current price in order to breach the breakeven point at $31.00. Any price exceeding the breakeven point by expiration will result in profits to investors who are long the calls. Shares are trying for a third time since April to breach what’s now shaping up to by tough overhead resistance at around $28.00.
STI – SunTrust Banks, Inc. – Shares of the financial services firm have surged more than 9.5% to $15.17 amid an upgrade to ‘outperform’ from ‘market perform’ by an analyst at Morgan Keegan. The rally has spurred a frenzy of options activity on the stock. Some investors were likely banking gains as some 7,700 calls were shed at the in-the-money June 14 strike price for an average premium of 1.26 apiece. Investors have amassed open interest at this strike of more than 22,000 and bulls were likely waiting patiently in the wings for today’s move. The 14 strike also saw hefty call buying too. Similar mixed results were observed with some 4,500 calls traded at the higher June 15 strike price which is now in-the-money. Pure bullishness was seen at the July 19 strike price where more than 5,000 calls were purchased for about 40 cents each. Call buyers here are hoping to see shares of STI rally higher by 28% to surpass the breakeven share price of $19.40 by expiration.
SLV – iShares Silver Trust ETF – Bullish option trades on the silver ETF continue today as investors position themselves for continued upward movement in the underlying price of the fund. Shares are currently higher by more than 1% to $15.55 today. We noticed one trader extending optimism to the October contract where he established a bull call spread. The transaction involved the purchase of 6,000 calls at the October 17 strike price for an average premium of 1.10 each which were spread against the sale of 6,000 calls at the higher October 22 strike for 30 cents. The net cost of the trade amounts to 80 cents and yields maximum potential profits of 4.20 to the investor if shares were to rally to $22.00 by expiration. The price per share would need to surge approximately 41% from the current price in order for the call-spreading silver bull to reap the total profits available by July’s expiration.
