EWZ – iShares MSCI Brazil Index ETF – An iron condor options strategy employed in the February contract on the EWZ implies one investor expects the underlying share price of the fund to stagnate ahead of expiration in two weeks. Shares of the exchange-traded fund, which generally correspond to the price and performance of publicly traded securities in the Brazilian market, are down 5% today to $64.37. Today’s decline merely adds salt to the wounds – The Brazil index ETF has taken a severe beating in the past few months, falling 20.5% since attaining a 52-week high of $80.93 back on December 3, 2009. The iron condor, a strategy utilized by option traders anticipating little movement in the underlying share price, is perhaps one investor’s way of indicating the worst is over and a bottom is close at hand. The iron condor’s construction is essentially the combination of two strangles, or alternatively can be thought of as two credit spreads. On the call side, the investor pockets a net credit of $0.09 per contract by selling 10,000 calls at the February $71 strike for $0.13 apiece, spread against the purchase of 10,000 calls at the higher February $74 strike for $0.04 each. As for the puts, the trader receives a net credit of $0.26 per contract on the sale of 10,000 puts at the February $59 strike for $0.44 each, marked against the purchase of 10,000 puts at the lower February $56 strike for $0.18 apiece. Therefore, the combined credit enjoyed on the iron condor amounts to $0.35 per contract. Maximum retention of the $0.35 credit, or total monetary profits of $350,000, is contingent upon the underlying share price at expiration. EWZ shares must trade within a range of $59.00 to $71.00 in order for the investor to walk away with maximum profits. The investor holding the iron condor is exposed to significant losses if his ‘neutral’ prediction is wrong. Maximum loss potential on the transaction of $2.65 per contract is far greater than the $0.35 credit received for undertaking such risk. But, apparently this trader is confident that shares of the underlying stock will move sideways – at least through February expiration. Perhaps this confidence stems from the fact that losses do not amass to the upside unless shares rebound 10.85% to surpass the upper breakeven price of $71.35. Additionally, the fund’s share price would need to fall another 8.90% before losses to the downside accrue beneath the breakeven point at $58.65. The investor responsible for the options play need only wait a couple of weeks to see if he can take the money and run.

CVX – Chevron Corp. – A bullish risk reversal play on oil and gas company, Chevron Corp., indicates one trader doubts that an all out collapse in the value of the underlying shares is likely to occur. CVX shares edged 2.30% lower during the trading day to stand at $71.51 just one hour ahead of the closing bell. The optimistic options trader sold 10,000 puts at the June $60 strike, receiving an average premium of $1.19 each, in order to buy 10,000 calls at the higher June $85 strike for $0.43 apiece. The investor pockets a net credit of $0.76 per contract, which is safe in the bank as long as Chevron’s shares trade no lower than $60.00 ahead of expiration in five months time. Additional profits accumulate for the reversal player if the price of the underlying stock rallies sharply by 18.90% over the current day’s price to surpass the $85.00-level by expiration. Options implied volatility is soaring 17.81% higher to stand at 24.86%.

WFC – Wells Fargo & Co. – A large-volume ratio put spread enacted on Wells Fargo today is likely the work of an investor bracing for continued bearish movement in the price of the underlying ahead of expiration in March. Shares of the financial firm dropped 3% today to $27.28. The spread involved the purchase of 25,000 puts at the March $25 strike for an average premium of $0.69 apiece, marked against the sale of 50,000 puts at the lower March $20 strike for about $0.16 each. The net cost of the bearish play amounts to $0.37 per contract. The investor responsible for the trade is likely seeking downside protection on a long underlying stock position. If this is the case, protection kicks in if Wells Fargo’s shares trade beneath the effective breakeven price of $24.63 ahead of expiration. Options implied volatility is up 13.6% in late afternoon trading to stand at 38.83%.

DAL – Delta Air Lines, Inc. – The 4.35% decline in shares of Delta Air Lines to $11.87 and a downgrade to ‘neutral’ from ‘overweight’ at JPMorgan this morning prompted one options investor to extend a previously established bearish put position on the stock. The trader rolled a 10,000 lot put position at the February $11 strike to a lower strike price in the March contract. It appears the investor sold 10,000 puts at the February $11 strike for an average premium of $0.31 apiece, and purchased the same number of puts at the lower March $10 strike for an approximate premium of $0.42 each. It is unclear how much the investor initially paid for the February contract put options, but the net cost of the calendar roll in isolation amounts to $0.11 per contract. This bearish move suggests the trader is expects shares of the underlying stock may fall another 25% from the current price to breach the breakeven point on the puts at $9.49 ahead of March expiration. Options implied volatility is up 14.57% over Wednesday’s closing reading of 51.61% to an intraday high of 59.13%.