PCS – MetroPCS Communications, Inc. – The wireless communications provider has experienced a more than 4.5% rally in shares today, attracting bullish option traders to the field. One trade in particular caught our eye as an investor looking for significant gains in the price of the stock took action. The purchase of 3,600 calls at the nearly in-the-money August 12.5 strike price for 1.05 was the first leg of the optimistic trade. The call options in the August contract were spread against the sale of another 3,600 calls at the higher 17.5 strike price in the February 2010 contract for 55 cents apiece. The net cost of the calendar spread amounts to 50 cents. If the nearer-term calls land in-the-money, the investor can exercise his right to take delivery of the underlying shares at an effective cost of $13.00 each. Once he is long the stock, the investor is hoping to see shares rise to $17.50 by expiration in February. If shares can rally through the 17.5 strike price, the trader will make his exit by having the underlying stock called away from him, exiting the pitch with gains of 35% in total.
EEM – iShares MSCI Emerging Markets Index – Options action on the emerging markets fund today suggests mixed opinions by traders populating the nearer-term contracts. Shares of EEM have slipped 1% to stand at $31.55. One bearish investor looked to the August 30 strike price to initiate a sold straddle. Such positioning indicates that the trader expects shares to continue downward and settle at $30.00 by expiration. The straddle was enacted through the sale of 7,500 puts and an equal number of calls for a gross premium of 3.93 per contract. The full premium will remain pocketed by the investor responsible for the trade if the price of the underlying gravitates to $30.00. The short call and put positions leaves this individual exposed to losses beneath the breakeven point to the downside at $26.07 and vulnerable to unlimited losses above the breakeven point to the upside at $33.93. Another investor has lessened his bearish outlook on the EEM by initiating a calendar spread. It appears that this trader sold 20,000 puts at the August 27 strike price for 52 cents apiece to fund the purchase of 20,000 puts at the much lower September 22 strike for 26 cents per contract. The calendar spread yields a 26 cent credit to the investor. The sale of the higher-strike puts indicates that the investor doubts shares will trade beneath $27.00 by expiration. If the ETF were trading lower than $27.00 he would likely have 2,000,000 million shares of the underlying put to him at that exercise price. The purchase of the 20,000 puts at the September 22 strike limits the trader’s losses to a maximum of 4.74 per contract.
GIGM – GigaMedia Limited – The entertainment software and online gaming company edged onto our ‘hot by options volume’ market scanner after contrarian option traders took bullish stances on the stock in the midst of a 3% decline in shares to $5.31. Investors looking for a recovery in the price of the underlying by the time October rolls around were seen locking into call options on GIGM. The October 7.5 strike price had 10,000 calls purchased for 30 cents apiece. Option players long of the calls are hoping to see shares surge at least 47% higher from the current price in order to begin to amass profits at the breakeven point at $7.80.
