MBI – MBIA Inc. – Shares of the insurance company closed 2% lower to end yesterday’s trading session at $6.76. Bullish momentum has taken hold of the stock today as shares burst 19% higher to $8.05. Call options in the October contract are in high demand this afternoon as investors strive to take part in the rally. The now in-the-money October 8.0 strike had some 7,000 calls picked up for 65 cents apiece. The higher October 9.0 strike price attracted option bulls who bought nearly 3,000 calls for 40 cents premium. Finally, the most bullish individuals looked to the October 10 strike to purchase 1,400 calls for 30 cents per contract. Shares would need to increase another 28% by October’s expiration day for call-buyers at the October 10 strike to begin to accrue profits at the breakeven price of $10.30. Option implied volatility on MBI jumped 31% during the session from a low of 95% to an intra-day high of 124%.
M – Macy’s, Inc. – An upgrade to ‘buy’ from ‘hold’ at Citigroup sent shares 6.5% higher today to $18.95 after Citi analysts assigned the department store operator a price target of $30.00. The options activity, however, didn’t seem to jive with the prediction for a near doubling in shares at the retailer. Notable options activity took place at the October 19 strike as investors dabbled in both calls and puts. Bullish individuals purchased about 1,000 calls at the October 19 strike for approximately one dollar per contract. Traders looking to lock in gains picked up 2,500 in-the-money puts at the same strike for 1.20 apiece. Call-buyers will begin to amass profits if shares rally about 6% from the current price to breach the $20.00 level by expiration. Traders holding put options are protected in case the stock slips 6% and falls beneath the breakeven price of $17.80 by expiration day next month.
JDSU – JDS Uniphase Corp. – The provider of telecommunications equipment saw a large gain in implied volatility earlier, jumping more than 26% to a reading of 57%. Shares of JDSU have jumped 9% during the session to stand at $8.08. Option traders established bullish positions by purchasing 4,000 in-the-money calls at the nearby October 7.0 strike for an average premium of 73 cents each. Optimism spread to the November 8.0 strike where more than 2,000 calls were bought for 65 cents per contract. Investors long the higher strike calls are hoping to see shares rally 7% higher to breach the breakeven point at $8.65 by expiration in November. We note that the rise in volatility, the increase in demand for call options, and the jump in shares today has boosted call premiums significantly. Thus, traders who picked up the call options early in the session could yet take profits by selling to close ahead of the closing bell. For example, investors who paid just 65 cents for the now in-the-money November 8.0 strike calls could bank gains by selling the options at the current premium of 90 cents each.
SHPGY – Shire PLC – The maker of attention-deficit hyperactivity disorder drug, Adderall XR, received an upgrade to ‘hold’ from ‘underperform’ at Jeffries, sending shares of the pharmaceutical company up 2% to reach a new 52-week high of $53.43. One Shire-bull reeled in hefty profits today by shifting a long call position to a higher strike. It seems the investor originally purchased 2,500 calls for about 2.33 each at the October 42.5 strike back on June 23, 2009. Today he closed out the position by selling the calls for a whopping 11.25 per contract. Net profits on the sale amount to approximately 8.92 apiece for a total of $2,230,000. The investor has maintained a bullish stance on the stock by reestablishing a long call position at the higher November 55 strike where he coveted 2,500 calls for 2.35 each. Additional profits will begin to amass in the event that shares of SHPGY rise 7% from the current price to surpass the breakeven point at $57.35 by expiration in November.
