GE – General Electric Co. – Shares of jet engine manufacturer, General Electric Company, are trading 2.30% higher today to a new 52-week high of $17.69 after the company’s Chief Financial Officer, Keith Sherin, said the firm expects to raise its dividend in 2011. Bullish options investors celebrated GE’s rally by positioning for continued upward momentum in the price of the underlying shares. Optimistic individuals purchased more than 11,100 calls at the April $19 strike for an average premium of $0.17 per contract. Call-buyers stand ready to accrue profits should shares of the underlying stock rally another 8.35% over the current price to surpass the effective breakeven point on the calls at $19.17 by April expiration. Total options volume is fast approaching 250,000 contracts as of 12:15 pm on the east coast.
XLB – Materials Select Sector SPDR ETF – Options trading on the materials exchange-traded fund, which tracks the performance of the materials economic sector, indicates one option investor believes the recent climb may have overshot the mark. The investor appears to have sold short a strangle combination but has taken steps to iron-clad any losses in the event that the XLB magnifies gains or that the u-turn is harsher than expected. Shares of the underlying fund are up 1.20% today to $33.68. The investor essentially transacted two credit spreads on the materials fund. At-the-money calls and puts were sold but the trader bought protection at out-of-the-money strikes to protect the trade from adversity. On the call side, the trader sold 10,000 in-the-money contracts at the June $32 strike for a premium of $2.58 apiece, in order to buy the same number of calls at the higher June $35 strike for $0.96 each. As for the puts, the investor sold 10,000 lots at the June $32 strike for a premium of $1.16 each, and purchased 10,000 puts at the lower June $29 strike for $0.49 apiece. The investor pockets a net credit of $2.29 per contract, and keeps the full amount if shares of the XLB settle at $32.00 at expiration. The strategy is not without risk. The trader is vulnerable to maximum potential losses of $0.71 per contract should shares blow right through the upper strike price of $35.00, or if shares plummet beneath the lower strike price of $29.00, ahead of June expiration.
WMT – Wal-Mart Stores, Inc. – The world’s largest retailer attracted bullish options investors to the field today as shares climbed 0.75% to attain a new 52-week high of $55.84. Wal-Mart’s shares gained ground during the previous session on an upgrade to ‘buy’ from ‘hold’ at Citigroup where WMT’s target share price was upped to $65.00 from $54.00. Options traders established bullish stances on the stock in the April contract by buying up call options. Investors coveted nearly 5,000 contracts at the April $57.5 strike for an average premium of $0.43 apiece. The higher April $60 strike attracted optimistic traders who purchased 5,600 calls for an average premium of $0.06 per contract. Investors long the April $60 strike calls profit only if Wal-Mart’s shares rally 7.5% over the current price to breach the breakeven point on the calls at $60.06 by expiration day next month.
BAC – Bank of America Corp. – Options activity was once again bullish at BAC with the shares higher by 1% at $17.00 on the day. However, one curious position caught our eye and we’re still head-scratching to an extent. Open interest at the $12.00 strike in the May contract is 6,685 lots. Overall option volume at the strike today totals 9,200 contracts. It appears to us that an investor may have sold call options perhaps as a way to lock-in to a long stock position. In other words the seller might be creating a covered call having bought shares days, weeks or months ago and is using a deep in-the-money call to achieve an exit strategy. This is an unusual trade given the $5.00 intrinsic value the premium carries, yet could also represent an investor banking open gains on a well-established call position when shares where in the dog-house.
COF – Capital One Financial Corp. – A Capital One-bull banked profits on a previously established long call position today and extended optimistic sentiment on the stock by picking up fresh calls at a higher strike price in the June contract. Capital One’s shares edged slightly lower during the session, falling 0.80% to stand at $39.66. It appears the investor originally purchased 6,498 April $40 call options for an average premium of $1.16 apiece back on March 9, 2010, when shares were trading at $37.68. Today the trader sold the calls for an average premium of $1.39 each, thus pocketing average net profits of $0.23 per contract. Next, the investor extended bullish positioning on Capital One by purchasing 6,498 calls at the higher June $42 strike for a premium of $2.00 apiece. The new call stance readies the trader to accrue profits if shares of the underlying stock rally above the breakeven price of $44.00 by June expiration.
