ACE - ACE Limited – The surge in demand for call options on the insurance company today drove option implied volatility up 19.75% to 28.67%, while shares gained more than 2% to $49.78 during the trading day. Investors populating the December contract exhibited bullish sentiment on ACE by selling puts and buying calls. Approximately 3,000 puts were shed at the December 50 strike for an average premium of 1.51 apiece, while some 2,100 calls were purchased at the same strike for roughly 89 cents each. Call volume at the January 50 strike sky-rocketed to 21,666 contracts – on previous existing open interest of just 1,402 calls – as traders scooped up about 20,000 lots for a premium of 1.42 per contract. Investors long the January contract call options are positioned to accrue profits if ACE’s shares trade above the breakeven price of $51.42 by expiration.
EFA - iShares MSCI EAFE Index ETF – The exchange-traded fund, which includes stocks from Europe, Australasia and the Far East, attracted bearish option players despite the 2.5% rise in shares today to $56.88. One investor, who may hold a long position in the underlying stock, unfurled a ratio put spread in the January 2010 contract. The trader purchased 10,000 puts at the January 55 strike for an average premium of 1.39 each, and sold 20,000 puts at the lower January 52 strike for about 70 cents apiece. The investor pockets a net credit of 1 penny per contract on the trade and establishes downside protection in case shares of the EFA decline ahead of expiration. The 1 cent credit is ‘free money’ for the trader as long as the shares remain above $55.00 through expiration in January.
HAL - Halliburton Co. – Options activity on the oil and gas company today suggests at least one investor is bracing for potential share price erosion through expiration in January. Halliburton’s shares rose 1% during the session to $29.57. The trader responsible for the bearish ratio put spread is likely holding a long position in the underlying stock. If this is the case, today’s transaction provides downside protection for the investor. It appears 5,000 puts were purchased at the January 29 strike for an average premium of 1.24 apiece, spread against the sale of 10,000 puts at the lower January 24 strike for 18 pennies each. The net cost of the ratio spread amounts to 88 cents per contract. Downside protection kicks in if shares of HAL slip beneath the breakeven point at $28.12 by January’s expiration day.
AMAT - Applied Materials, Inc. – Shares of the semiconductor company climbed more than 4.5% today, reaching an intraday high of $12.93. Bullish investors positioned for continued upward movement in the price of AMAT’s shares by initiating plain-vanilla call-buying on the stock. The near-term December 13 strike had approximately 23,000 calls picked up for an average premium of 29 cents each. Investors long the December 13 strike calls may amass profits if shares surpass the breakeven price of $13.29 by expiration in a few weeks.
