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Masco options bearish ahead of earnings

Today’s tickers: MAS, HES, WHR, ORCL, NVAX, BMRN, TIVO & OI

MAS Masco Corporation – The manufacturer and distributor of home improvement and building products has experienced a share price decline of more than 2% to $9.85 ahead of its earnings report scheduled for release after the market closes today. One option investor took a decidedly bearish stance on the stock by selling short 10,000 calls at the May 10 strike price for an average premium of 69 cents per contract. On the put side, some 2,700 contracts were purchased for an average of 24 cents apiece at the May 7.5 strike price as investors appear to be looking to profit from continued downward movement in shares by expiration in May. In order to profit to the downside, shares would need to continue to fall by another 26% from the current price to breach the breakeven point at $7.26.

HES Hess Corporation – Shares of the global energy company have dipped by more than 3% to $54.34. Despite the share price erosion, option traders have been getting bullish on the stock by jumping into calls in the May contract. The May 65 strike price had more than 6,100 calls purchased for an average premium of 53 cents apiece while the May 70 strike attracted a smaller volume of some 1,800 calls picked up for 30 cents each. We are not certain of the motivation for the increased option activity on the stock today, but we did notice one news report which stated that Credit Suisse posited Hess Corp. was unlikely to be acquired by Exxon. Option implied volatility on the stock jumped as high as 61% today up from the closing value on Friday of 51%.

WHR Whirlpool Corporation – The home appliances manufacturer has jumped more than 8.5% to stand at $44.28 per share. Earlier in the day shares were up 20% – the biggest intraday climb for WHR in at least 29 years – after the company reported first-quarter earnings that beat analyst expectations. The company has cut costs as well as curtailed a post-retirement benefit plan which added about 84 cents to earnings surprising the street which had anticipated a loss of 18 cents per share for the company. Whirlpool also reported that it expects to earn a profit of between 3 to 4 dollars for 2009. Option traders gobbled up the bearish breakfast and were seen buying some 3,000 puts at the May 50 strike price for an average premium of 2.06 apiece. Shares would need to rally by about 13% from the current price in order for the May 50 calls to land in-the-money by expiration. Further evidence of optimism was seen in the sale of about 5,000 puts at the in-the-money May 45 strike price for 2.09 each. Shares of WHR have now more than doubled since reaching a 52-week low of $19.20 on March 9, 2009.

ORCL Oracle Corporation – The software company, which last week acquired Sun Microsystems, Inc. (JAVA) for $9.50 per share, has experienced a slight share price decline of less than 0.5% to stand at $19.72. On the heels of Oracle’s acquisition, Barron’s has reported in an article today that the merger, “may trigger an unprecedented and once-unthinkable flurry of takeovers in Silicon Valley” as hardware and software vendors vie for control of, “budget-crimped corporate customers.” ORCL popped up on our ‘most active by option volume’ market scanner after one investor established a large-volume credit spread in the June contract. It appears that this individual has sold 24,000 calls at the June 20 strike price for 1.15 each spread against the purchase of 24,000 calls at the June 23 strike price for 17 cents apiece. The net credit amounts to 98 cents for the trade which will be retained by this investor at a share price below $20.98. The short position at the June 20 strike, however, is a risky position to be in as the underlying shares may be called from him should shares land in-the-money by expiration. The long position held at the upper June 23 strike effectively caps this trader’s losses at a maximum of 2.02 if shares were to rise by more than 16% to $23.00 by expiration in June.

NVAX Novavax, Inc. – Shares of the innovative biopharmaceutical company have exploded upwards by 107.75% to $2.95, attracting the interest of option investors who have traded more than 9,300 contracts on the stock up from the existing open interest of just over 1,000 lots. The Maryland-based, flu vaccine maker has been developing a vaccine that has apparently been effective in treating patients with a deadly strain of bird flu. Thus, the firm’s shares surged as the swine flu outbreak continues to spread and the demand for flu vaccines soars. Option traders looking to take delivery of the underlying stock targeted the June 5.0 strike price and purchased about 1,000 calls for an average premium of 65 cents apiece. In order for these call options to land in-the-money by expiration, shares would need to continue upwards by another 69%. Elsewhere, investors looking to take in call premium on today’s share price rally sold about 1,500 calls at the in-the-money May 2.5 strike price for 1.18 apiece as well as shed some 1,100 calls at the June 5.0 strike for about 65 cents each. The premiums enjoyed by investors at both strike prices will be fully retained if shares fall below $2.50 by May’s expiration and below $5.00 by expiration in June. Currently, shares are just a scant 46 cents off of the 52-week high of $3.41 attained back on September 19, 2008.

BMRN BioMarin Pharmaceuticals, Inc. – The biopharmaceutical company has experienced a share price rally of more than 5% to $13.08 amid unconfirmed rumors reported by one news source regarding a potential takeover of the company by global biotechnology firm, Genzyme Corporation (GENZ). We observed investors taking a near-term bearish stance on the company by picking up more than 2,100 calls at the May 15 strike price for an average premium of 63 cents per contract. Shares would need to continue upwards by about 15% in order for these options to land in-the-money by expiration. Option implied volatility has spiked as high as 97.5% today up from Friday’s reading of 72%.

TIVO TiVo, Inc. – Shares of the provider of technology and services for digital video recorders have rallied by about 1% to $7.70 which is still 1.36 off of the 52-week high for the stock of $9.06 attained back on September 4, 2008. One option trade we observed this morning indicates that one investor is looking for shares to break through the 52-week high by expiration in August. It appears that this individual banked gains on the sale of 5,000 calls at the in-the-money May 7.5 strike price for 72 cents each, and then reestablished a long position at the August 10 strike price where he purchased 10,000 calls for an average premium of 69 cents apiece. Shares would need to experience an additional rally of about 30% in order for the August 10 calls to land in-the-money by expiration. Option implied volatility is up on the stock from Friday’s average reading of 89% to the current value of 95%.

OI Owens-Illinois, Inc. – The world’s largest manufacturer of glass containers for various food, beverage, and pharmaceutical products has experienced a share price decline of more than 4.5% to $18.55. The fall in shares seems to run counter to the news that S&P’s Ratings Service has revised its outlook on OI to ‘positive’ from ‘stable’ and reaffirmed the ‘BB’ corporate credit rating on the company. Additionally, with all of the hype surrounding the potentially harmful chemical bisphenol A (BPA), a principal chemical in the manufacture of polycarbonate plastics and epoxy resins, one might have expected consumer’s preference for glass containers to be on the rise. One option trader took a bearish stance on the company, in line with the erosion in share price today. It appears that this investor sold 5,000 calls at the August 22.5 strike price for 1.17 per contract in order to finance the purchase of 5,000 puts at the August 15 strike for 1.20 apiece. The net cost amounts to 3 cents for the trade and yields a breakeven point at $14.97 where profits would amass if shares were to fall below that point by expiration.


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