CAT – Caterpillar, Inc. – Shares of the machinery manufacturer were on the rise this morning, but have reversed direction this afternoon, surrendering nearly 2% to stand at $46.91. One investor was seen positioning for a drastic decline in the stock by expiration in September. Initiating a ratio put spread he purchased approximately 7,000 puts at the September 42 strike price for an average premium of 1.17 apiece spread against the sale of some 14,000 puts at the lower September 37 strike for 40 cents each. The net cost of the transaction amounts to 37 cents and yields maximum potential profits of 4.63 if the stock declines to $37.00 by expiration. Shares of CAT must fall at least 11% from the current price before the bearish investor begins to amass profits to the downside at the breakeven point of $41.63.
JWN – Nordstrom, Inc. – Shares of the high-end fashion retailer have slipped nearly 3.5% to $29.26 today just a few days ahead of the firm’s earnings announcement scheduled for this coming Thursday. Option trades on the stock today suggest pessimism by investors who were seen trading in call options for more fashionable puts. Bearish reversals at the August 30 strike price involved some 6,400 calls shed for an average premium of 95 cents in exchange for the purchase of 6,400 puts at the same strike for about 1.47 per contract. The net cost of the transaction amounts to approximately 52 cents and yields downside protection beneath the breakeven point at $29.48. Profits have already begun to amass for investors long the put options because the current market price of JWN shares is 22 cents beneath the breakeven point described above. Additional bearish sentiment was observed at the August 29 strike price where investors purchased 1,100 puts for an average premium of 1.00 apiece.
TIBX – TIBCO Software, Inc. – Option implied volatility on the provider of infrastructure software exploded upwards by an amazing 131% to the current reading of 87.04% amid news that Germany’s SAP AG may be looking to buy the U.S. firm. Investor uncertainty and shares of TIBX surged, with the stock rallying 11.5% to $9.45 during today’s trading session. Option traders looking to join the bullish wave purchased approximately 4,500 calls at the September 10 strike price for an average premium of 74 cents apiece. Profits will begin to amass for these individuals in the event that TIBX shares continue to climb through the breakeven point at $10.74 by expiration. Nearly 1,000 calls were picked up at the higher September 12.5 strike for about 21 cents per contract. A rally of about 35% from the current price is required for the higher strike call buyers to realize profits starting at a price of $12.71.
XLI – Industrial Select Sector SPDR – The industrials exchange-traded fund edged onto our ‘most active by options volume’ market scanner amid bullish options activity despite the more than 1% decline in shares to $24.78 today. It appears that approximately 10,000 calls were purchased at the December 27 strike price for an average premium of 87 cents. Investors holding these calls are likely hoping for a more than 12% rally in the fund so that they may begin to accrue profits starting at the breakeven price of $27.87. The higher December 30 strike price looks to have had 5,000 calls shed for an average premium of 22 cents per contract. The sale did not appear to be linked to the long call transaction at the lower strike, but could potentially be the work of an investor effectively limiting profits to the upside by enacting a call spread.
