JPM – JPMorgan Chase & Co. – Option traders carousing in the August contract on JPM today appear cautiously optimistic on the stock amid a 0.5% rise in the underlying to $34.33. We observed some investors picking up 2,600 calls at the in-the-money August 34 strike price for 2.53 apiece and selling 2,800 calls at the higher August 40 strike for 56 cents each. Such transactions effectively create a trading range for the stock between the breakeven point on the purchased call options at $36.53 and $40.00. Put buying some 1,100 times at the August 34 strike for an average premium of 2.52 suggests caution by traders wary of potential bearish movement in the stock. Finally, those individuals looking for a roaring rally picked up 1,800 calls at the August 40 strike for 56 cents per contract.
UPL – Ultra Petroleum Corp. – The independent oil and natural gas company jumped onto our ‘most active by options volume’ market scanner late this afternoon after one investor was seen drilling for options in the September contract. Shares of UPL are currently slightly lower by less than 0.5% to stand at $40.60 for the day. The trader appears to have funded the purchase of calls today by initiating a sold strangle strategy. The strangle involved the sale of 15,000 puts at the September 34 strike price for a premium of 1.61 apiece in combination with the sale of 15,000 calls at the September 46 strike for 1.91 per contract. The gross premium on the transaction amounts to 3.52. The third leg of the trade, likely funded with the proceeds of the strangle, involved the purchase of 10,000 calls at the in-the-money September 40 strike price for a hefty 4.48 each. The trader is looking for shares to make bullish moves by expiration, however, he does not want the stock to rise beyond the parameters of the strangle.
AMGN – Amgen Inc. – Two notable options plays on Amgen looked relatively bullish and suggest that an investor aims to defend a long position yet sees continued upside. First, using August puts a ratio combination wound up costing the investor a net 35 cent premium. The customer sold 20,000 August expiration puts to buy 10,000 puts at the higher 45 strike for a net debit of just 35 cents. In isolation the 45 puts would have cost 1.15. Sticking with the August contract the investor bought 10,000 calls at each of the 55 and 65 strikes at 2.05 and 25 cents respectively. Shares rebounded in April from a $45 low, which marks the 52-week low, while the upside call strikes would easily reap the benefit of a strong continuation of the nascent rally for shares of Amgen.
STI – SunTrust Banks, Inc. – Shares of the financial services company have slipped slightly by less than 1% to stand at $15.48 today. Options activity on the firm attracted our eye after one investor was seen enacting a bullish reversal on the company in the August contract. Hoping for a rally, this individual appears to have sold 10,000 puts short at the August 14 strike price for a premium of 1.00 apiece in order to finance the purchase of 10,000 calls at the higher August 17 strike price at a cost of 95 cents each. A credit of a nickel per contract is enjoyed by the trader who can expect to amass profits if the calls land in-the-money by expiration. Shares of STI would need to rally higher by approximately 10% by expiration in August.
MRK – Merck & Co., Inc. – Certain activity by option traders populating MRK today suggests a potential range for the stock through expiration in August. The trades observed indicate that some investors are bullish on the stock. Such optimism could be a result of the positive opinion Merck received from the European Medicines Agency’s (EMEA) Committee for Medicinal Products for Human Use (CHMP). The committee recommended a restricted first line use of ‘Januvia’ to treat type 2 diabetes. Shares of the firm have responded positively by gaining about 1% to $26.80. The near-term July 27.5 strike price appears to have had 4,000 calls purchased for an average premium of 48 cents per contract. Investors long the calls will profit if the stock can rise 4% from the current price and break through $27.98 by expiration. Elsewhere, about 7,000 calls were sold short at the August 30 strike price for 26 cents each. One could postulate that the long call position in the July contract represents an effective lower range and the short sale of calls in August may provide an upper boundary for shares. The 26 cent premium enjoyed on the short sale will be fully retained as long as the August 30 calls land out-of-the-money by expiration.
TLT – iShares Barclays 20+ Year Treasury Bond Fund – Following a week of successful note auctions by the U.S. government in which overseas central banks stepped up the pace, yields declined dramatically across the curve. The yield on the benchmark 10-year note for example, which recently poked its nose up at 4% yields shrank to 3.5% on Thursday. Bond prices are quiet today, yet one sizeable option trade occurred on the call side involving a sizeable number of 20,000 contracts. The iShares TLT tracks the price of the bond and the fact that these calls were sold today implies to us that these investors are either buying shares of TLT and taking in premium, or more likely simply taking the view that it will be hard for yields to decline much further during the next three weeks. Investors stepped in to sell around 20,000 calls at the July 96 strike for average premiums of 90 cents, implying a breakeven at 96.90.
