XLK – Technology Select Sector SPDR – Option traders devoured call options on the tech-sector exchange-traded fund in anticipation of further upside potential for the stock by expiration in December. Shares of the XLK are currently trading slightly higher by less than 0.5% this morning to stand at $20.77. Investors purchased approximately 42,000 calls at the December 22 strike by shelling out an average premium of 45 cents per contract. The heavy call volume at the December 22 strike evokes a sense of déjà vu given that a chunk of 35,000 calls were picked up at the same strike for about 43 cents each last week on September 11, 2009. Investors long the calls are hoping shares of the fund experience at least an 8% rally by expiration so they may breakeven at a price of $22.45. We note that shares of the XLK have traded beneath the breakeven point since September 2, 2008.
XL – XL Capital Ltd. – Investors coveted call options on XL Capital today amid a more than 3% climb in shares to $17.92. The most heavily trafficked strike is the now in-the-money September 17.5 strike where traders purchased approximately 10,000 calls for an average premium of 65 cents per contract. Investors may have targeted the September 17.5 strike because they aim to exercise their right to take delivery of the shares of the underlying stock ahead of expiration on Friday. Another possible tactic, in lieu of exercise, may result in profits to traders if they can sell the calls for more than the 65 cents paid to take ownership today.
PALM – Palm, Inc. – Shares of the mobile device maker are currently 1.5% lower to $14.58 ahead of tomorrow’s much anticipated quarterly results release. The earnings report represents the firm’s first full quarterly results since the Pre smart phone’s induction into the marketplace. Options activity in the near-term October contract suggests bullish sentiment on Palm through expiration next month. It looks like an investor, who originally purchased 4,000 calls at the October 15 strike for 86 cents apiece back on September 14, rolled the position to a higher strike price. The trader made a closing sale of the 4,000 calls by selling the lots for 1.35 each. He spread the sale against the purchase of 4,000 calls at the higher October 18 strike for 45 cents per contract. The investor banked profits of 49 cents on the closing sale and reestablished a bullish position on Palm. Shares must rally about 27% from the current price by expiration day for the trader to break even at $18.45.
LIZ – Liz Claiborne, Inc. – The apparel and accessories company appeared on our ‘hot by options volume’ market scanner this morning after one investor initiated a covered call on the stock. Shares of LIZ enjoyed a more than 3.5% rally to $6.16. The covered call likely involved the purchase of shares of the underlying stock for approximately $6.02 each in conjunction with the sale of 4,000 calls at the January 10 strike for 35 cents premium per contract. The premium received on the sale of the calls allows the investor to take ownership of the stock at $5.67. Now he is positioned to accumulate any potential gains should shares continue higher. The short call position provides an effective exit strategy for the trader if shares of LIZ breach $10.00 by expiration in January. If this occurs, the underlying shares will be called from him at $10.00 and the investor will realize total gains of 76%.
MI – Marshall & Ilsley Corp. – The commercial banker is enjoying its day in the sun today as its share price adds almost 12% to stand at $8.33. Heavy options volume of around 23,000 contracts appears to have been caused by a single purchase of put options expiring in December that would insulate declines in the share price beneath the $7.50 strike price. An investor paid a 1.0 premium today to get long of enough insurance to cover a 2 million share position. Premiums on both calls and puts are in decline as implied volatility slips on account of a rally for its shares. Today’s rally for financial stocks helping to propel stock prices to fresh peaks for 2009, is lifting MI despite a Moody’s ratings warning yesterday. Marshall’s shares have surged through resistance at $7.50 and well beyond today.
