XLF - Financial Select Sector SPDR – Shares of the financials exchange-traded fund are 0.75% higher today at $15.36. Massive call transactions in the November contract this afternoon suggest some investors expect further bullish movement in the price of the fund by expiration. Traders taking a near-term optimistic stance on financial stocks purchased approximately 130,000 calls at the November 16 strike for an average premium of 48 cents apiece. Investors holding the contracts may accumulate profits if shares of the XLF rally at least 7% to surpass the breakeven price of $16.48 by expiration. Finally, bullish sentiment spread to the higher November 17 strike where traders paid an average of 19 cents to take ownership of 12,600 call options.
ENER - Energy Conversion Devices, Inc. – The manufacturer of renewable energy equipment appeared on our ‘most active by options volume’ market scanner due to bullish options activity in the October contracts. Shares of ENER surged more than 15.5% during the trading session to $12.58 on speculation that the company is a takeover target. Optimism today also stems from two new laws signed by ‘governator’ Arnold Schwarzenegger of California. Renewable energy firms rose on sentiment that the solar energy laws may help boost demand. Investors expecting the stock to remain higher than $11.00 through expiration shed 3,000 puts at the October 11 strike for one nickel per contract. Call-buyers targeted the higher October 12 strike to purchase 4,000 calls for an average premium of 47 pennies each. More optimistic traders looked to the higher October 13 strike where 2,400 calls were picked up for 23 cents apiece. Investors long the higher strike calls will amass profits by expiration if shares of ENER rally at least 5% from the current price to surpass the breakeven point at $13.23. Option implied volatility jumped 12% during the session from an intraday low of 73% to a high of 82%.
NBR - Nabors Industries Limited – Shares of NBR rose more than 4% during the trading session to $22.20 and attained a new 52-week high by noontime (EDT). It appears one option trader banked profits by unraveling a previously established bullish position on the land-drilling contractor. The investor originally sold 7,500 puts short at the November 17 strike price for an average premium of 63 cents per contract. Today, the bullish trader bought back all 7,500 puts for 25 cents apiece. Thus, net profits on today’s closing purchase amount to 38 pennies per contract, or total gains of $285,000.
MGM – MGM Mirage, Inc. – Option traders invested in put spreads on MGM this morning, perhaps to lock in gains on the 2% rally in shares today to $12.52. One investor selected the November contract where he purchased 4,800 puts at the November 11 strike for 80 cents apiece, and simultaneously sold 4,800 puts at the lower November 10 strike for 45 pennies each. The net cost of the spread amounts to 35 cents per contract. The investor responsible for the spread is likely long shares of the underlying stock. If this is the case, the put spread protects the long stock position in case shares decline 15% to fall beneath the breakeven point to the downside at $10.65. Finally, the other put spread on MGM involved the purchase of 6,400 puts at the December 12 strike for 1.60 apiece, against the sale of 5,000 puts at the lower December 10 strike for 70 cents each.
QCOM – Qualcomm Inc. – January 2011 puts were active at the 35 strike price today where investors paid premiums between 3.70 and 3.90 per contract to secure rights to sell shares at a fixed price of $35 each before expiration. We are unsure of their motivation, but with volume at around 16,000 contracts, today’s activity is well in excess of the 10,444 lots of open interest at the strike price. Shares at Qualcomm have lagged the market and are perhaps suffering as the company admits it’s that the demands for mobile data services will require more densely built networks. Recently Qualcomm lost ground following the announcement from Israeli-based Altair Semiconductor that it had launched a next-generation baseband chip for use with Long Term Evolution (LTE), which is likely to become focus for telecom providers in the years ahead. Perhaps it’s the inability of Qualcomm to ready future technology fast enough that has investors taking swipes at the downside.
AYE– Allegheny Energy, Inc. – The owner and operator of electric generation facilities appeared on our ‘hot by options volume’ market scanner this morning after investors initiated married put options in the November contract. Shares of AYE are currently 0.5% higher to stand at $25.95. Traders expecting continued gains in the stock purchased shares of AYE at approximately $25.85 each, in conjunction with 6,100 puts at the November 25 strike for 75 cents apiece. Investors buying the so-called married put options are hoping shares of Allegheny Energy rally higher, but have purchased downside protection in case the stock edges lower by expiration next month. Downside protection will kick in if shares of AYE decline 7% to breach the breakeven point at $24.25.
TIBX– TIBCO Software, Inc. – Long-term bullish option trading in the May 2010 contract caught our eye on software company, TIBCO, this morning. Shares are nearly 2% higher today to $10.11. One investor initiated a ratio call spread on TIBX by buying 2,500 calls at the now in-the-money May 10 strike for 1.51 apiece. The purchase of the lower strike call options was spread against the sale of 5,000 calls at the higher May 12.5 strike for 53 pennies each. The spread results in a net cost of 45 cents per contract and yields maximum potential profits of 2.05 if shares rally up to $12.50 by expiration day in May. Shares must surge 24% by expiration for the trader to walk away with maximum profits of 2.05 per contract.
