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Straddle-Seller Sees Range-Bound Shares for Avanir Pharmaceuticals

Today’s tickers: AVNR, S, ORCL, TSN, PSS, XRT & BX

AVNR – Avanir Pharmaceuticals, Inc. – Shares of the pharmaceuticals firm fell as much as 9.6% this afternoon to an intraday low of $2.64 on news the company filed for a mixed shelf offering for up to $75 million. Options volume on the stock surged late in the session after one strategist sold a straddle in the December contract. The short straddle suggests the trader expects AVNR’s shares to trade within a specified range through expiration day in the final month of the year. The investor sold approximately 8,440 puts at the December $2.5 strike and sold 8,440 calls at the same strike to take in gross premium of $2.025 per contract. The straddle-seller retains the full amount of premium received if Avanir’s shares settle at $2.50 at expiration. However, the short stance taken in both call and put options expose him to losses should shares shift significantly in either direction away with from the strike price selected. Losses are certainly limited to the downside because shares cannot fall below $0.00. Thus, the investor faces maximum potential losses of $0.475 per contract in the event that Avanir’s shares are worthless at expiration. Losses could be more painful if AVNR shares suddenly fly upward. Shares would need to jump 71.4% to shatter the current 52-week high on the stock of $3.72 in order for losses to start to accumulate for the trader above the effective breakeven price to the upside at $4.525 by expiration. The strategy seems to indicate that the investor does not see AVNR shares collapsing to $0.00, but also suggests shares are not likely rally substantially any time soon.

S – Sprint Nextel Corp. – The wireless and wireline telecommunications company was one of the 10 most actively traded stocks on the New York Stock Exchange as of 1:00 pm ET this afternoon, and was also one of the most actively traded in terms of options volume today. Sprint’s shares earlier rallied 2.30% to record an intraday high of $4.44, but are currently up a lesser 1.15% at $4.39 as of 2:30 pm ET. Shares were perhaps higher on reports out this morning that suggested Sprint is currently looking at a possible November release date for Samsung’s Galaxy Tablet, which is a device aimed at rivaling Apple’s iPad. The vast majority of contracts exchanged on Sprint Nextel Corp. today were put options, but it does not look like investors are initiating bearish positions. One cautiously optimistic investor likely initiated the delta neutral transaction initiated in the January 2011 contract this afternoon. It appears the trader bought 8,000 puts at the January 2011 $4.0 strike at an average premium of $0.375 each and purchased a large chunk of shares of the underlying stock at approximately $4.35 apiece. The transaction suggests the trader expects shares to appreciate over the next 5 months. But, he has shelled out additional premium to get long downside protection in case Sprint’s shares falter. Protection kicks in if shares slip beneath the average breakeven price of $3.625 ahead of expiration day in January 2011. Finally, activity in the September contract involves put options as well, but is a much different trading strategy. It looks like a large chunk of 20,000 put options were purchased at the September $4.0 strike for premium of $0.04 apiece. But, we suspected the trade may not be as bearish as it first appears because open interest at that strike is sufficient to cover all 20,000 lots and then some. After taking a look at past trades that contributed to the 29,375 lots of put open interest at the September $4.0 strike, it seems like the purchase of puts today is the work of a bullish player booking profits by closing out previously established short put stances. Back on August 3, an investor sold 10,000 September $4.0 strike puts at a premium of $0.10 each. Twenty days later, on August 23, another chunk of 10,000 puts were sold at the same strike for approximately $0.11 in premium apiece. The transactions may or may not be related, but if they are it is certainly one way for a Sprint-bull to reel in profits. In this scenario, the investor banks net profits of $0.065 per contract or total gains of $130,000.00, by buying back the 20,000 lots at the significantly cheaper price of $0.04 each. The put transaction was untied.

ORCL – Oracle Corp. – Investors are employing a number of diverse options trading strategies, some bullish and others bearish, on the software company this afternoon. Oracle’s shares are currently up 0.70% at $22.64 as of 12:30 pm ET, but earlier increased 2.05% to an intraday high of $22.94. Near-term sentiment on the software developer looks fairly bullish with investors picking up approximately 7,200 calls at the September $23 strike for an average premium of $0.37 each. Investors buying the calls outright are prepared to make money if Oracle’s shares rally 3.2% over the current price of $22.64 to exceed the average breakeven price of $23.37 by September expiration. Optimism spread to the higher September $24 strike where it looks like traders purchased 1,500 calls at an average premium of $0.10 apiece. Traders long the higher-strike calls are poised to profit should ORCL shares increase 6.5% in the next couple of weeks to surpass the breakeven point to the upside at $24.10. We note that open interest at the September $23 and $24 strikes is sufficient to cover call volume traded during the session so far, which suggests buyers could potentially be closing short positions rather than initiating outright bullish bets on the stock. Finally, Oracle Corp. puts were also in use today by investors populating the January 2011 contract. It looks like some traders employed debit put spreads, buying about 3,000 puts at the January 2011 $22.5 strike for premium of $1.61 each, and selling roughly the same number of contracts at the lower January 2011 $20 strike at a premium of $0.76 apiece. Net premium paid to establish the bearish spread amounts to an average of $0.85 per contract. Thus, put players are positioned to profit if Oracle’s shares reverse course and decline 4.4% to slip beneath the average breakeven point at $21.65 by expiration day next year.

TSN – Tyson Foods, Inc. – Call options on the food products company are a hot commodity this morning for bullish players positioning for a near-term rally in the price of the underlying shares. Tyson Foods’ shares rallied as much as 1.7% at the start of the session to an intraday high of $16.31. Shares of the producer and distributor of chicken, beef, pork, prepared foods and other products are perhaps higher following an upgrade to Ba2 from Ba3 by ratings agency, Moody’s Investors Service, on Thursday. Moody’s also lifted Tyson’s outlook to ‘positive’ from ‘stable’, citing continuing debt reduction for the food firm. Optimistic options investors breakfasted on call options, buying up roughly 5,600 calls at the September $17 strike for an average premium of $0.16 each. Call buyers at this strike are prepared to make money should Tyson’s shares surge 5.2% over today’s high of $16.31 to surpass the average breakeven price of $17.16 by September expiration. Bullish sentiment spread to the October $17.5 strike where traders purchased some 2,100 calls at an average premium of $0.33 apiece. These traders are poised to profit if TSN shares jump 9.3% to trade above the breakeven point to the upside at $17.83 ahead of expiration day in October. Increased investor demand for calls helped fuel a 20.4% hike in the stock’s overall reading of options implied volatility to 37.73% as of 11:00 am ET.

PSS – Collective Brands, Inc. – Long-term bullish action in Collective Brands’ LEAPs inspired a sense of déjà vu this morning as the same strategy observed today was also implemented on the holding company for Payless and Stride Rite during afternoon trading on Thursday. Collective Brands’ shares are currently up 1.75% to stand at $12.73 as of 11:20 am ET. The stock hit a new 52-week low of $12.41 yesterday after posting disappointing second-quarter results after the closing bell on Wednesday. A bullish risk reversal enacted by a contrarian strategist in the October contract in the previous trading session appears to be the same tactic utilized in the longer-dated January 2012 contract by optimistic players in the first 30 minutes of today’s session. Traders hoping Collective Brands’ shares continue to rally sold 5,000 puts at the January 2012 $10 strike for premium of $1.75 apiece and purchased the same number of calls at the higher January 2012 $12.5 strike at a premium of $3.30 each. The net cost of the bullish risk reversal amounts to $1.55 per contract. Thus, investors stand ready to profit should PSS shares jump 10.4% over the current price of $12.73 to surpass the effective breakeven price of $14.05 by expiration day in January 2012. Collective Brands was downgraded to ‘neutral’ from ‘positive’ with a target share price of $23.00 by analysts at Susquehanna this morning.

XRT – SPDR S&P Retail ETF – The purchase of a plain-vanilla debit call spread on the retail ETF indicates on options investor is itching for a significant rally in the price of the underlying shares by December expiration. Shares of the XRT, an exchange-traded fund designed to replicate the performance of the S&P Retail Select Industry Index, are up 1.20% to stand at $38.65 minutes before 12:00 pm ET. On Thursday, shares of the fund were helped higher by better-than-expected August same-store sales data. The bullish options strategist positioned for continued appreciation in XRT shares by picking up 5,000 calls at the December $41 strike for a premium of $1.36 each, spread against the same of the same number of calls at the higher December $45 strike at a premium of $0.33 a-pop. The net cost of the spread amounts to $1.03 per contract. Profits start to accumulate for the investor if the fund’s shares rally 8.745% over the current price of $38.65 to surpass the effective breakeven price on the spread at $42.03 by expiration. Maximum potential profits of $2.97 per contract pad the investor’s wallet if shares of the ETF surge 16.4% in the months leading up to expiration in December. Shares of the fund earlier increased as much as 2.95% to secure an intraday high of $39.31 within the first 15 minutes of the trading session. The XRT’s shares last traded above $45.00 – or the price at which the call spreader realizes maximum profits – on April 27, 2010.

BX – The Blackstone Group, L.P. – Asset manager and financial advisory services provider, Blackstone Group, was the target of long-term bullish options traders right out of the gate this morning. BX shares rallied as much as 2.45% thus far in the session to touch an intraday high of $10.48. The overwhelming majority of trading took place at the January 2012 $15 strike where bullish investors appear to have purchased approximately 18,000 calls at an average premium of $0.86 apiece. Open interest at that strike is sufficient to cover today’s volume, however, upon further examination; it looks like interest was generated by like-minded call buyers at the end of July. Investors purchasing the calls likely expect Blackstone’s shares to appreciate significantly by expiration. Today’s call buyers are prepared to make money should the asset manager’s shares surge 51.3% to surpass the average breakeven price of $15.86 by January 2012 expiration.


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  1. pstas

    test

  2. cemmy

    Hello; any recommendations on  Cimarex Energy (XEC) options. thinking a bull spread on Jan 11 expiry

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