RHT – Red Hat, Inc. – A sharp rise in the software company’s option implied volatility reading pushed the RHT ticker symbol onto our ‘top option implied volatility % gainers’ market scanner this morning. Shares of the firm have slipped 1% lower to $27.36, but the increase in volatility suggests investors expect greater fluctuations in the price of the underlying shares going forward. Volatility surged 21% from an opening reading of 38% on the stock to the current reading of 46%. Investors dabbled in near-term call options on Red Hat, making predominantly bullish plays, despite the decline in shares today. Nearly 4,000 calls were picked up at the October 30 strike for an average premium of 33 cents apiece. Investors holding these contracts hope to see shares rally at least 11% from the current price to surpass the breakeven point at $30.33 by expiration this month. Bullishness spread to the November contract where traders coveted some 3,000 calls for about 1.04 each. Finally, the higher November 35 strike had 1,500 calls purchased for an average premium of 19 pennies per contract. Investors holding the higher strike calls will begin to accumulate profits if Red Hat’s shares rally 29% to $35.19 by expiration day in November.
MRVL – Marvell Technology Group Ltd. – Shares of the semiconductor maker have edged more than 5% lower during the session to the current price of $15.33. Some investors were prepared for the decline in the stock, as evidenced by early-bird put activity we observed in the November contract. Traders purchased more than 6,300 now in-the-money puts at the November 16 strike for an average premium of 1.20 per contract. Put-buyers received a first-mover advantage of sorts by pursuing bearish tactics early in the session. Any investors attempting to buy the same November 16 strike puts now (11:30 am EDT) will find the contracts tote an asking price which is 29% greater at 1.55 each. Profits are available to the put-purchasers in the event that shares of MRVL continue lower by another 3% to breach the lower breakeven point at $14.80.
CMCSA – Comcast Corp. – We noted in Monday’s options activity that an investor bullish on the prospects for this media-giant was employing a bullish risk reversal in January 2010 expirations. At the time the investor took a net credit on the sale of 16 strike puts used to finance 17.5 strike calls. Sticking to his guns, it’s likely we’re seeing the same investor implement more of the same combination in Thursday’s session despite an adverse movement in the share price. Comcast’s shares have slipped 7.5% to $15.62 on emerging reports that it might buy between 20-50% of NBC Universal, which is jointly owned by General Electric and French conglomerate Vivendi. The Associated Press cites people apparently familiar with the deal that a Comcast stake depends on Vivendi’s sale of its stake. We’re wondering whether investors are reacting negatively on account of what could be a $10 billion cost to acquire an even stake in NBC. The move would increase Comcast’s cable distribution. Reversals were trading on those same strikes today at a 90 cent credit on account of the decline in the share price, which raises the value of the puts. We can see a 5,000 lot transaction using time and sales today.
LEAP – Leap Wireless International, Inc. – The mobile telecommunications company received a downgrade to ‘neutral’ from ‘overweight’ with an 18-month price target of $22.00 by an equity analyst at JPMorgan today. Shares of LEAP are currently off more than 9.5% to $17.68. We observed one investor bucking the bearish trend and market pessimism on Leap Wireless in the January 2010 contract this afternoon. It appears the trader initiated a bull call spread by purchasing 12,000 calls at the January 20 strike for 2.34 apiece, and by selling 12,000 calls at the higher January 30 strike for 45 cents premium each. The net cost of the spread amounts to 1.89 per contract. The investor apparently expects LEAP to recover significantly by expiration at the start of 2010. Shares must increase at least 24% from the current price for the call-spreader to breakeven at $21.89. Maximum potential profits of 8.11 per contract – or $9,732,000 – is attainable if the stock surges a whopping 70% to $30.00 by expiration.
