BPOP – Popular, Inc. – The ‘popular’ bank popped up on our screens this afternoon after a large-volume risk reversal was established on the stock. The massive trade was likely the work of an investor with knowledge of commercial banks as approximately 60,000 contracts were exchanged on BPOP amid a more than 12% rally in shares of the underlying to $2.60. It appears the trader purchased 30,000 now in-the-money October 2.5 strike calls for an average premium of 33 cents apiece. He funded the purchase of the calls by selling 30,000 puts at the January 2.5 strike for 43 cents each. The investor received a net credit on the transaction of 10 pennies per contract. The motivation is perhaps that this individual is swimming with the rising tide of financial names today and expects a far larger rally lifting shares towards $3.75-resistance level. If this is the case, he is likely to exercise the calls by October’s expiration and take delivery of the underlying shares to ride with the stock’s upward momentum. Even if the move continues somewhat, it would likely reverse the structure of this trade to his advantage.
LNCR – Lincare Holdings Inc. – The provider of oxygen and respiratory therapy services attracted option bulls today with shares of the firm standing more than 13% higher for the session to $29.85. Option implied volatility on LNCR exploded 50% higher from a low of 32% this morning to an intra-day high of 48%. The burst in volatility is likely due to increased investor demand for calls on the stock as well as greater uncertainty regarding future price movements in shares of Lincare. Perhaps the rise in uncertainty stems from news that Deutsche Bank raised LNCR’s target price from $33.00 to $38.00 today and maintained their ‘buy’ rating on the stock. Investors gobbled up 2,200 September 30 strike calls for an average premium of 31 cents. The contracts will expire worthless unless shares breach the $30.00-level to land in-the-money by Friday. Bullish sentiment spread to the October 30 strike where traders coveted 2,400 calls for about 71 cents premium. Investors long the calls will begin to amass profits if shares rally through the breakeven point at $30.71 by expiration in October.
EEM – iShares MSCI Emerging Markets Index – The emerging markets exchange-traded fund jumped higher on our ‘most active by options volume’ market scanner this afternoon after a massive call spread was initiated in the January contract. Shares are currently trading higher by more than 2.5% to $39.19. It appears the investor implemented the trade by buying approximately 91,000 call options at the January 45 strike for an average premium of 56 cents each, spread against the sale of 91,000 calls at the higher January 48 strike for 19 cents premium apiece. The net cost of the transaction amounts to 37 cents per contract. Perhaps optimism that the recession may be over inspired the investor to target out-of-the-money call options. The parameters of the trade indicate that the trader expects shares of the EEM to rally at least 16% higher by expiration to surpass the breakeven point at $45.37. The investor will reel in maximum potential profits of 2.63 per contract if shares of the underlying surge 22% to $48.00. The enormous size of the position will yield total profits of $23,933,000 if the stock can rally to the $48.00 level by January’s expiration day.
