GET – Gaylord Entertainment Company – The diversified hospitality and entertainment company edged onto our ‘hot by options volume’ market scanner after a bullish reversal was established in the October contract. Shares of GET have surged more than 17.5% to $17.22 today on “solid” second-quarter results which exceeded analyst expectations. An investor looking for continued gains in the stock sold 3,000 puts short at the October 12.5 strike price for 55 cents per contract in order to partially fund the purchase of 3,000 calls at the higher October 17.5 strike for a premium of 1.65 each. The net cost of the transaction amounts 1.10. The trader will begin to accrue profits by expiration if shares can continue higher by at least 8% to breach the breakeven point at $18.60. We note that the more than 6,000 lots exchanged on the stock today, trumps previous existing open interest of 1,993 contracts by 201%.
BAC – Bank of America Corp. – A number of longer-term option trades observed on BAC today indicate that some investors believe the financial services firm is on the road to recovery. Shares have increased more than 3% to arrive at the current price of $15.80. Call spreads were enacted in the February 2010 contract by traders expecting significant appreciation in the value of the underlying shares by expiration. Approximately 14,000 calls were purchased at the February 20 strike price for an average premium of 86 cents apiece, and were spread against the sale of about 14,000 calls at the higher February 25 strike for 22 cents each. The average net cost of the transaction amounts to 64 cents. Investors will enjoy maximum potential profits of 4.36 per contract if shares of BAC can rally a whopping 58% to $25.00 by expiration in February. Traders will begin to amass profits given a 31% rise in the stock through the breakeven point at $20.64.
WFMI – Whole Foods Market, Inc. – The largest retailer of natural and organic foods in the U.S. is scheduled to report third-quarter earnings after the market closes today. Shares are currently off slightly by more than 1% to $24.45 as we near the conclusion of today’s trading session. Option trades revealed mixed sentiment by investors ahead of earnings. A trader who could be protecting a long position in the underlying was seen selling 5,000 puts short at the near-term August 23 strike price for 94 cents each in order to finance the purchase of 5,000 puts at the September 23 strike for 1.44 per contract. The net cost of the calendar spread amounts to 50 cents and protects the investor in case shares of WFMI fall beneath the breakeven point of $22.50 by September’s expiration. We note that this individual also bears the risk of having shares put to him by expiration in August in the event that the puts land in-the-money beneath a share price of $23.00. In contrast, bullish call buying was seen at the August 26 strike price where investors picked up 1,700 lots for a premium of 98 cents apiece. Traders long the calls are apparently hoping to see WFMI obtain a new 52-week high, as the breakeven point of $26.98 is a full $1.84 higher than the current high of $25.14, attained back on July 30, 2009. Perhaps these bullish investors are anticipating better-than-expected third-quarter earnings, which could potentially boost the stock 10% higher to $26.98 by expiration this month.
