WFT – Weatherford International Limited – The slight 1.5% decline in shares to $18.02 today has not deterred some option traders from making bullish plays on the oil and equipment services firm. The August 17.5 strike price had 9,200 puts sold short for an average premium of 1.50 apiece. The investor(s) who sold the puts will retain the full premium as long as shares remain higher than $17.50 by expiration next month. Traders appear to expect shares of WFT to remain high enough such that the puts remain out-of-the-money by expiration. However, such individuals must be prepared to have shares of the underlying put to them at an effective price of $16.00 in the event that the puts land in-the-money and are exercised. Additional bullishness on the stock appeared in the November contract where it looks as though one trader initiated a covered call strategy. The sale of 1,600 calls at the November 23 strike price yielded a premium of 95 cents each. Perhaps the investor purchased shares at an effective price of $17.07 and simultaneously sold the call options to establish a potential exit strategy. If the November 23 calls land in-the-money by expiration the investor will have the shares called away from him. At that point he will have attained profits of about 35% on the accretion in market value of WFT.
XLE – Energy Select Sector SPDR – A bullish reversal in the energy ETF caught our eye amid a more than 2% decline in the price of the fund to $45.20 today. It appears that one investor chose to sell 1,700 puts at the December 42 strike price for a rich premium of 3.25 apiece. The put options were then spread against the purchase of 1,700 calls at the December 53 strike price for 1.52 each. The net credit enjoyed on the reversal strategy amounts to 1.73. The trader can augment his gains if the price of the XLE rises approximately 17% through the exercise price of $53.00 by expiration at the conclusion of 2009. Otherwise, he will retain the full credit received today as long as the puts options at the December 42 strike price remain out-of-the-money by expiration.
MS – Morgan Stanley – The global financial services firm has experienced a 1.5% decline in shares to stand at $26.50 today. Investors wary of continued bearish movement in the price of the underlying were seen picking up protective put options on the stock. The just out-of-the-money August 26 strike price had more than 7,500 puts purchased for an average premium of 1.97 per contract. The puts will prove profitable to those holding the options if shares slip another 9% through the breakeven share price of $24.03 by expiration. We note that Morgan Stanley’s share price has remained higher than the $25.00 since the start of May 2009. Thus, some option traders expect MS to give back gains enjoyed during the firm’s recovery period since touching down to a 52-week low of $6.71 on October 10, 2008.
AET – Aetna, Inc. – The health care benefits company jumped to the top of our ‘hot by options volume’ market scanner after investors purchased about 25,000 bullish calls in the January 2010 contract. Shares of the Hartford, CT-based firm are higher today by approximately 1.5% to $24.41. Traders actively-seeking call options on the stock today appear to be looking for shares of AET to recover significantly by the start of 2010. Investors scooped up 25,000 calls at the January 40 strike price for an average premium of 38 cents per contract. Profits will begin to amass for holders of the calls if shares can surge 65% higher to breach the breakeven point at $40.38 by expiration. The stock would need to rise toward the 52-week high of $44.64 attained back on day one of the Beijing Olympics, August 8, 2008.
