SLV - iShares Silver Trust ETF – A bull call spread in the January 2011 contract on the silver ETF today suggests shares of the SLV may rally significantly over the next year and two months time. Shares of the SLV are currently up 0.5% to $18.23. The silver-bull purchased a ratio call spread by buying 3,000 calls at the January 23 strike for an average premium of 1.93 apiece, and selling 6,000 calls at the higher January 30 strike for about 90 cents each. The net cost of the transaction is reduced to just 13 cents per contract. Shares of the fund must rally at least 27% before the investor breaks even at a price of $23.13. The trader stands ready to accumulate maximum potential profits of 6.87 per contract if the stock surges up to $30.00 by January 2011.
EWT - iShares MSCI Taiwan Index ETF – A massive bearish play on the Taiwan Index exchange-traded fund caught our attention this afternoon with shares of the EWT down 0.5% to $12.64 in late-day trading. It appears one investor established a bearish risk reversal in the December contract to position for potential share price declines through expiration. The trader sold 31,000 calls at the December 13 strike for 20 cents premium apiece, spread against the purchase of 31,000 puts at the lower December 12 strike for 20 cents each. The sale of the calls exactly offset the cost of buying the puts. Essentially the reversal is a “free” bet that shares of the EWT will trend lower ahead of the 2010. The investor responsible for the transaction is likely long shares of the underlying fund and seeking protection to the downside. If shares fall beneath $12.00, the value of the underlying position is protected. However, if shares of the fund rally by expiration, the trader risks having shares of the stock called from him at $13.00 apiece.
CL - Colgate-Palmolive Co. – Speculation that Reckitt Benckiser Group may acquire Colgate-Palmolive spurred an all-out call option feeding frenzy on CL today and lifted shares of the U.S. company to a new 52-week high of $86.33. Investors flooded the November and December contracts, scooping up call options to position for further upward movement in the price of the underlying. The sudden surge in demand for Colgate-Palmolive options in the midst of takeover chatter boosted option implied volatility 60.67% to 28.29% -- the highest level since the start of May 2009. Option traders favored calls at the November and December contract 85/90 strike prices. The majority of the call volume at those strikes appears to be the work of traders purchasing the contracts. Investor exchanged more than 85,000 option contracts on CL this afternoon, which represent about 52% of the total existing open interest on the stock of 160,869 lots.
BG - Bunge Limited – Call activity on the global agribusiness and food company is likely inspired by the 2.5% increase in shares to $60.36 today. Investors traded call options in excess of existing open interest at a number of strike prices across several contracts. The now in-the-money November 60 strike had 3,750 calls exchanged, whereas the higher December 65 strike had 3,100 calls traded as of 10:10 am (EDT). Finally, volume at the January 70 strike exceeded 4,000 calls on previous open interest of 3,069 lots.
ADSK - Autodesk, Inc. – Shares of the software company are trading 10% lower this morning to $24.22 despite reporting third-quarter earnings of 27 cents per share, which exceeded analyst expectations by 4 pennies. Share price erosion today likely stems from lower-than-expected fourth-quarter profit guidance from the firm. Option implied volatility slumped 15.32% today to 37.56% following earnings. Investors exchanged more than 13,100 option contracts on Autodesk as of 10:20 am (EDT), which comprises about 15% of total existing open interest on the stock of 91,493 lots.
SLM - SLM Corp. – Shares of student loan provider, Sallie Mae, are up more than 6% to $11.41 one hour into the trading session. Some investors may be banking gains at the November 11 strike where 7,200 calls traded to the bid at 50 cents on previous open interest of 14,490 lots at that strike. Fresh positions were transacted at the December 14 strike where call volume currently stands at 1,000 contracts. Option implied volatility is slightly higher at 62.59% over the day’s opening reading of 60.21%.
