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Monday, February 6, 2023


Brazilian ETF recoil has option traders on defensive

Today’s tickers: EWZ, VRSN, PFE, MSFT, Q, FXI & NSM

EWZ iShares MSCI Brazil Index ETF – Shares of the Brazil ETF have dipped by less than 1% to stand at $50.93 today. The ticker occupied prime real estate on our ‘most active by options volume’ market scanner after a large volume ratio put spread was established in the September contract. An investor looking for bearish movement on the stock purchased 15,000 puts at the September 40 strike price for a premium of 2.30 apiece spread against the sale of 30,000 puts at the September 30 strike for about 60 cents each. The net cost of the trade amounts to 1.10 and yields a maximum potential profit of 8.90 to the investor if shares were to fall all the way to $30.00 by expiration. Before the position comes good, Brazilian shares would need to decline by 23%. The trader begins to amass profits beginning at the breakeven point at $38.90.

VRSN VeriSign, Inc. – The provider of internet infrastructure services has experienced a share price rise of about 1% today to $24.48. VRSN appeared on our ‘hot by options volume’ market scanner after one investor established a large-volume ratio put spread in the September contract. Likely looking for downside protection on a long stock position, this trader purchased 25,000 puts at the September 25 strike price for 2.90 apiece and sold 50,000 puts at the lower September 20 strike for a premium of 95 cents per contract. The net cost of the transaction amounts to 1.00 to the investor and yields maximum potential gains to the downside of 4.00 should shares fall to $20.00 by expiration. The ratio spread represents some 80,000 contracts in play, trumping the existing open interest on the stock of just 64,919 lots.

PFE Pfizer, Inc. – The pharmaceuticals giant has slipped by more than 1.5% to $14.15 today, but attracted one bullish investor to populate the January 2011 contract. The January 15 strike price saw 50,000 calls picked up by one individual for a premium of 2.16 apiece. The long-call position requires that shares breach the breakeven point at $17.16 by expiration in order for the investor to begin to amass profits. The contracts have more than one and a half years until expiration and require that shares rally by at least 21% during that time period.

MSFT Microsoft Corp. – We know not why a company the size and shape of Microsoft needs to raise money through debt issuance – it already has over $30 billion in cash at hand on its books. But if this is a cost-of-capital initiative, which sees the company buy back some of its own float, shareholders maybe in for a treat. MSFT shares have remained relatively flat and currently stand at $19.45. MSFT jumped upwards on our ‘most active by option volume’ market scanner this morning after a massive spread was executed in the January 2010 contract. It appears that the investor is getting bullish on the stock as he looks to have sold 35,711 puts at the January 15 strike price for a premium of 89 cents spread against the purchase of 35,711 calls at the January 25 strike for 66 cents each. The trader enjoys a net credit of 23 cents on the trade and is looking for upward price movement for MSFT over the next eight months. Shares would need to experience about a 28% rally from the current price in order for the January 25 calls to land in-the-money by expiration. If this scenario were to come to fruition, Microsoft would be just $5.16 off of its 52-week high recorded at $30.16 back in May of 2008.

Q Qwest Communications International, Inc. – Shares of the communications company slipped slightly by less than 1% to $4.40. Qwest edged onto our ‘hot by options volume’ market scanner after one investor established a bought straddle in the January 2010 contract. It appears that the trader is looking for shares to move by the beginning of next year as he purchased 5,000 calls at the January 5.0 strike price for a premium of 58 cents and also picked up 5,000 puts at the same strike for 1.47 apiece. The net cost of the transaction amounts to 2.05 and yields breakeven points at $7.05 to the upside and at $2.95 to the downside. Shares would need to shoot through the 52-week high of $4.69 in order to surpass the upper breakeven price at which point the investor begins to amass potentially unlimited profits. Should shares move lower by expiration, the trader will garner profits at any price below the lower breakeven point described above.

FXI iShares FTSE/Xinhua China 25 Index Fund – The China ETF has experienced a more than 3.5% decline in shares to $34.55. Expecting continued bearish moves in the fund, one trader invested heavily in protective put options in the June contract. The June 32 strike price saw this individual get long of 26,100 puts at the June 32 strike price for a premium of 1.45 apiece. The position will begin to yield profits to the downside beginning at the breakeven share price of $30.55. It is likely that this strategy was initiated in order to protect a long stock position on the ETF in the event that shares continue to fall.

NSM National Semiconductor Corporation – The provider of analog and mixed-signal semiconductors is currently off by less than 1% to $12.28. We observed one investor who initiated a calendar spread on the stock in order extend a bullish position. The sale of 4,700 calls at the June 12.5 strike price for a premium of 90 cents apiece was spread against the purchase of 4,700 calls at the August 12.5 strike for 1.42 each. The net cost of the calendar roll amounts to 52 cents and yields a breakeven point to the upside at $13.02, since this looks like fresh positioning. This individual is hoping for an approximate rally of 6% or more by expiration in order to begin amassing potentially unlimited profits on bullish moves in the underlying stock.


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