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Put Player Portends Additional Declines in iShares MSCI EAFE Index ETF

Today’s tickers: EFA, FTI, FBR & TYC

EFA – iShares MSCI EAFE Index Fund – Shares of the EFA, an exchange-traded fund created to yield investment results that correspond to the price and yield performance of the MSCI EAFE Index – an index designed as an equity benchmark for international stock performance with stocks from Europe, Australasia and the Far East, declined as much as 1.65% in the first half of the trading session to touch an intraday low of $50.00. One options investor was seen bracing for continued bearish movement in the price of the underlying fund through October expiration. The trader purchased a plain-vanilla put spread, buying 10,000 puts at the October $50 strike for premium of $2.31 apiece, and selling the same number of puts at the lower October $45 strike at a premium of $0.86 each. The net cost of the pessimistic play amounts to $1.45 per contract. The put spreader is prepared to make money – or realize downside protection should he hold a large position in shares of the fund – if the ETF’s shares trade below the effective breakeven price of $48.55 by expiration day. Maximum potential profits of $3.55 per contract are available to the investor if the EFA’s shares plunge 10% to settle below $45.00 at October expiration. Options implied volatility on the fund is higher by 6.8% to stand at 29.77% as of 11:55 am ET.

FTI – FMC Technologies, Inc. – The global provider of technology solutions for the energy industry popped up on our ‘hot by options volume’ market scanner in the first half of the trading day after one options investor initiated a ratio put spread in the January 2011 contract. FTI’s shares are currently down 2.05% to stand at $61.00 as of 12:10 pm ET. The put player appears to have purchased 1,000 puts at the January 2011 $55 strike at a premium of $3.95 apiece, and sold 2,000 puts at the lower January 2011 $45 strike for an average premium of $1.30 each. The net cost of the spread amounts to $1.35 per contract. Profits start to accumulate for the ratio spreader if shares of the underlying stock plummet 12.05% from the current price of $61.00 to breach the effective breakeven point on the trade at $53.65 by expiration day next year. The investor stands ready to amass maximum potential profits of $8.65 per contract should FTI’s shares tumble 26.2% to settle at $45.00 at expiration day in January 2011. Increased demand for put options on FMC Technologies today lifted the stock’s overall reading of options implied volatility 7.7% to 39.65% by 12:15 pm ET.

FBR – Fibria Celulose SA – The paper producer’s shares are down 1.7% to $15.98 this afternoon, but one contrarian options player populating the stock today appears to be preparing for a rebound in the price of the underlying by December expiration. It looks like the investor initiated a bullish risk reversal, selling 2,500 puts at the December $15 strike at a premium of $1.20 each, and buying the same number of calls at the higher December $17.5 strike for premium of $1.20 apiece. Thus, the trade was put on for free and positions the bullish player to profit should FBR’s shares surge 9.5% over the current price of $15.98 to exceed $17.50 by expiration day in December. The sale of the put contracts suggests the trader is happy to have shares of the underlying stock put to him at $15.00 each in the event the puts land in-the-money at expiration. Shares last traded above $17.50 back on June 21, 2010.

TYC – Tyco International Ltd. – Shares of the provider of security products and services surged 5.8% at the start of the trading session to secure an intraday high of $38.88 on news the company is replacing Smith International to reclaim a spot in the S&P 500 Index. Tyco’s shares are currently up 4.4% to stand at $38.35 as of 12:30 pm ET. Investors rejoined in the reindexation news and positioned for continued bullish movement in the price of Tyco’s shares by picking up at least 1,000 calls at the September $39 strike for an average premium of $0.86 each. Call buyers at this strike are poised to profit should TYC shares rally 3.9% over the current price of $38.35 to surpass the average breakeven price of $39.86 by expiration day next month. Traders populating TYC options today exchanged more than 3.2 calls to each single put contract in play on the stock thus far in the session.


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