Today’s tickers: CNO, OSIP, HIG, FXI, JDSU, ARQL, GNW, TEVA, KO & UBS
CNO – Conseco, Inc. – The holding company for a number of insurance companies, such as Colonial Penn Life Insurance Co. and Washington National Insurance Co., popped up on our ‘most active by options volume’ market scanner late in the session after a massive bullish risk reversal was established on the stock in the January 2011 contract. Conseco’s shares declined 0.80% during the course of the trading day to stand at $6.18. It looks like one optimistic options player sold 33,727 puts at the January 2011 $5.0 strike for a premium of $0.50 apiece in order to partially finance the purchase of 33,727 calls at the same strike for $1.80 each. The net cost of the transaction amounts to $1.30 per contract. Thus, the investor responsible for the reversal is prepared to amass profits if Conseco’s shares rally through the breakeven price of $6.30 ahead of expiration day in January. The 67,454 contracts involved in the spread trump existing open interest on the stock of 48,756 lots.
OSIP – OSI Pharmaceuticals, Inc. – The outline of a slightly lopsided iron condor appeared in the May contract on OSI Pharmaceuticals, indicating one options investor expects shares of the biotechnology company to trade within a specified range through expiration. OSIP’s shares surrendered 0.85% during afternoon trading to stand at $59.55 perhaps after The Wall Street Journal reported that Astellas Pharma, Inc. is extending its tender offer for OSI Pharmaceuticals – valued at $3.5 billion – by three weeks to April 23, 2010. The investor responsible for the iron condor play essentially enacted two credit spreads, one using put options and the other calls, in order to pocket options premium. On the call side, the trader shed 4,000 contracts at the May $60 strike for a premium of $1.90 apiece, spread against the purchase of the same number of calls at the higher May $62.5 strike for $0.90 each. As for the puts, the investor sold 4,000 lots at the May $55 strike for a premium of $0.94 per contract, marked against the purchase of 4,000 puts at the lower May $50 strike for $0.62 each. Notice that the put credit spread is wider than the spread on the call side, which creates a lopsided iron condor in this case. The net credit pocketed by the trader amounts to $1.32 per contract and is safe in the investor’s piggy bank as long as OSIP’s shares trade within the range of $55.00 to $60.00 through expiration. Maximum potential losses are capped at $1.18 should shares of the underlying stock rally through $62.50 ahead of expiration day. However, loss potential is greater to the downside, and maxes out at $3.68 per contract in the event that OSIP-shares plummet through $50.00 by May expiration.
HIG – Hartford Financial Services Group, Inc. – The insurer’s shares rallied more than 1% this afternoon after Hartford Financial Services Group repurchased preferred shares from the United States government for $3.4 billion in order to end a taxpayer-funded bailout. Bullish options investors reacted by purchasing call options in the April contract to position for continued upward momentum in the price of the underlying shares through expiration. Traders picked up 1,600 calls at the April $29 strike for an average premium of $0.56 per contract, while the higher April $30 strike had about 3,900 calls coveted by bullish players for an average of $0.28 in premium apiece. Uber-bullish individuals purchased 1,700 call options at the April $31 strike for an average premium of $0.15 each.
FXI – iShares FTSE/Xinhua China 25 Index Fund – Shares of the FXI, an exchange-traded fund that tracks the price and yield performance of the FTSE/Xinhua China 25 Index, which is an Index designed to replicate the performance of 25 of the largest and most liquid Chinese companies, improved slightly by the middle of the trading session to stand 0.05% higher on the day at $42.28. A large bullish stake was claimed by one near-term optimistic investor expecting shares to continue to appreciate through expiration in April. The trader enacted a bullish risk reversal by selling 12,000 puts at the April $42 strike for a premium of $0.82 apiece, spread against the purchase of 12,000 calls at the same strike for a premium of $0.92 each. The net cost of the reversal play amounts to $0.10 per contract, thus positioning the investor to accumulate profits to the upside above the breakeven price of $42.10 through expiration day next month.
JDSU – JDS Uniphase Corp. – Shares of the phone equipment maker surged more than 6.15% today to a new 52-week high of $12.73 after analysts at Thomas Weisel Partners LLC raised their share-price estimate for JDSU to $18.00 from $15.00. Bullish investors flocked to the June contract to display medium-term optimism on the stock by buying call options. Options players picked up roughly 12,300 calls at the June $13 strike for an average premium of $0.95 per contract in order to position for continued bullish movement in the price of the underlying shares through expiration in roughly three months. Call-buyers make money if JDS Uniphase’s shares rally 9.6% from the current price to surpass the average breakeven point at $13.95 ahead of expiration day in June. The sharp increase in demand for option contracts on the stock lifted the overall reading of options implied volatility 7.2% to 45.48% as of 12:15 pm (ET).
ARQL – ArQule, Inc. – The clinical-stage biotechnology company’s shares jumped more than 114% at times during the trading day to attain a new 52-week high of $7.49 after its “ARQ 197 drug showed positive results in treating patients with advanced, refractory non-small cell lung cancer.” The huge rally in the price of ArQule’s shares caught investors’ attention, and inspired bullish options trading activity on the stock. Options traders exchanged more than 9,730 contracts on ArQule in the first half of the trading session, which blows existing open interest on the stock of 399 contracts out of the water. Investors established bullish stances on ARQL by purchasing 1,500 calls at the April $7.5 strike for an average premium of $0.58 per contract. Call-coveters at this strike price make money if ArQule’s share price exceeds the average breakeven point at $8.08 ahead of April expiration day. Other bullish players opted to sell approximately 2,500 puts at the July $5.0 strike for an average premium of $0.45 apiece. Put-sellers keep the full premium received today as long as ArQule’s shares trade above $5.00 through expiration. Investors short the puts are apparently happy to have shares of the underlying stock put to them at an effective price of $4.55 each in the event that the put options land in-the-money at expiration. Options implied volatility on the stock contracted 11.9% to 101.98% following the positive news report on its ARQ 197 drug.
GNW – Genworth Financial, Inc. – Options traders populating Genworth Financial today clearly received the memo that for the first time in four years, borrowers who caught up on overdue mortgages, outnumbered those people who became newly delinquent on insured home loans. Genworth’s shares reacted positively to the news, rallying more than 6% during the trading session to secure a new 52-week high of $18.50. Bullish options players celebrated the new share price high for the year by purchasing call options in the April and May contracts. Investors scooped up 1,900 calls at the April $19 strike for an average premium of $0.34 apiece, while the higher April $20 strike attracted traders willing to shell out $0.12 per contract to take hold of 1,500 call options. The highest available strike price in the front month enticed uber-bulls to covet 2,500 calls at the April $22.5 strike for an average premium of three pennies each. Finally, optimism spread to the May $19 strike where traders purchased 1,300 call options for an average premium of $0.97 per contract. Investors long the May $19 strike calls make money only if Genworth’s share price increases another 7.95% from the current value to exceed the average breakeven price of $19.97 ahead of May expiration day.
TEVA – Teva Pharmaceutical Industries Ltd. – Bearish options trading patterns on the Israel-based manufacturer of branded and generic drugs suggests at least one investor is expecting Teva’s shares to slip ahead of June expiration. Shares of the world’s largest maker of generic drugs slipped 0.40% to $63.31 this morning perhaps on news the firm is being sued by Pfizer to prevent Teva from selling a generic form of Viagra. Pessimistic options activity appeared in the June contract where one investor enacted a bearish risk reversal by shedding 3,500 calls at the June $70 strike for a premium of $0.31 apiece in order to partially finance the purchase of the same number of put options at the lower June $60 strike for $1.26 each. The net cost of the reversal amounts to $0.95 per contract. Thus, the trader responsible for the transaction makes money if Teva’s shares fall another 6.7% to breach the breakeven price of $59.05 ahead of June expiration.
KO – Coca-Cola Co. – Global beverage manufacturer, Coca-Cola Company, attracted long-term bullish options traders in the early hours of the session with its share price edging up 0.20% to $54.98. Investors expecting Coke’s shares to rally ahead of expiration at the start of 2011 purchased approximately 5,000 call options at the January 2011 $57.5 strike for an average premium of $2.04 per contract. Call-buyers at this strike price are prepared to amass profits if Coke’s shares increase at least 8.30% from the current price to surpass the average breakeven point on the calls at $59.54 ahead of January expiration day.
UBS – UBS AG – Bullish options players displayed optimism on the global financial services provider this morning as the price of its shares gained 0.50% to stand at $16.18. Investors purchased roughly 3,600 call options at the June $18 strike for an average premium of $0.35 apiece in order to position for continued bullish movement in the price of the underlying shares through expiration. Call-coveters profit if shares of the Swiss bank surge 13.4% from the current price to surpass the effective breakeven point at $18.35 ahead of June expiration day.