Today’s tickers: DE, XLF, V, PBR, HPQ, POT, XLB, RF & F
DE– The largest maker of farm equipment in the world has posted second-quarter earnings that exceeded analyst expectations as sales of agricultural machines remained strong even in the midst of global recession. Shares of the Illinois-based company have experienced a rally of more than 1.5% to $44.60 today after the earnings release. Ultra-optimistic Deere-hunters have targeted the July 50 strike price where more than 5,600 calls were purchased for an average premium of 1.78 per contract. The stock will need to rise at least 16% to the breakeven point at $51.78 in order for today’s tractor-enthusiasts to profit by expiration. Option implied volatility dropped as low as 44%, down from yesterday’s closing reading of 53%, but has since been driven back up to the current value of 48%. – Deere & Company
XLF– The financials ETF is off by more than 1% to $11.90, and as usual, has attracted a number of high-roller option investors to exchange more than 329,000 contracts on the fund today. One transaction that caught our eye occurred in the July contract. It appears that one banking sector-bear has sold 21,000 calls at the July 13 strike price for 54 cents each in order to finance the purchase of 21,000 puts at the July 11 strike for an average premium of 71 cents. The net cost of the protective puts amounts to 17 cents and yields profits to the downside beginning at any share price below the breakeven point at $10.83. The pessimistic investor would require that shares of the ETF fall another 9% from the current price so that profits from the long-put position would build by expiration. The XLF was trading below $10.70 back on the first of May and it appears that the put-buying pessimist highlighted above sees shares falling back down by expiration. – Financial Select Sector SPDR
V– Shares of the world’s most recognized global financial services brand have rallied more than 1% to $65.54. The company received a reinstated label of ‘outperform’ at Wachovia Capital Markets this morning and also enticed some bullish option traders to come out and play. Investors looking for significant gains in the stock have targeted the January 2010 80 strike price where more than 7,100 calls were bought for an average premium of 3.02 apiece. These Visa-optimists are hoping for shares to rally by 27% to the breakeven point at $83.02 over the next eight months in order to begin to amass profits to the upside by expiration. – Visa, Inc.
PBR– The oil and gas company has enjoyed gains of more than 3% today to stand at $41.50 amid reports that the Brazilian firm’s April output of 2.52 million barrels a day of oil, LNG and gas was 6% higher than the prior year. One option investor was observed getting bullish on PBR by initiating a calendar spread. The sale of 12,000 calls at the in-the-money June 41 strike price for 2.40 apiece was spread against the purchase of 12,000 calls at the higher July 42 strike for about 2.80 each. The net cost of the transaction amounts to 40 cents and yields a breakeven point at $42.40. On the put side, an investor banked profits by closing out a short put position. It appears that this individual originally sold 10,000 puts short for a premium of 1.05 each at the July 31 strike price back on May 15th, 2009. Today, he enjoys a net profit of 60 cents per contract realized by buying back the puts for just 45 cents per contract and closing out his position. – Petroleo Brasileiro SA ADR
HPQ – The technology behemoth reported that second-quarter earnings fell 17%, which was in-line with analyst expectations. However, HPQ also forecast continued gloominess ahead amid weakened sales across all business lines. Currently shares have declined more than 4.5% to $34.90. Option investors traded more than 113,000 contracts on the stock before 11:00 am (EDT) out of total open interest of 657,229 lots. Traders were observed selling put options apparently taking advantage of richer put-premiums contingent on the falling share price today. The November 31 strike price had 3,222 puts shed for a premium of 1.90 apiece indicating that some individuals do not see the need for downside protection below the breakeven point at $29.10 by expiration. Skipping forward to the January 2010 contract, a more bearish investor unraveled a large-volume bull call spread. It appears that he originally established the call spread at a net cost of 2.23 by buying 20,000 calls at the January 40 strike price for 3.10 apiece and selling 20,000 calls at the higher January 50 strike for an average premium of 87 cents each. Today this individual did exactly the opposite in order to close out his position. He sold 20,000 January 40 calls for 1.95 each and bought back the 20,000 calls at the January 50 strike for 35 cents. The investor is left net short of 1.60 per contract after neutralizing the spread. – Hewlett-Packard Company
POT – The integrated fertilizer and feed products company has been steadily advancing over the past few months: climbing up from $66.15 on March 6th, then surpassing $100.00 per share on May 12th, and finally adding another 2.5% to arrive at today’s price of $117.63. Some investors have positioned themselves for continued bullish movement in the stock by purchasing 2,300 calls at the September 135 strike price for a substantial average premium of 8.09 apiece. One other individual also targeted the September contract and traded 2,000 puts at the September 115 strike price for a whopping 13.90 apiece spread against 2,000 calls traded at the September 135 strike for about 8.00. The direction of the trade is unclear because the contracts traded to the middle of the market. But, this could represent an investor long of the stock who is looking to fund the purchase of protective puts by selling calls. If this is the case, he is locking in gains enjoyed on POT’s rally and establishing an exit strategy at the $135.00 level. The investor has shelled out approximately 5.90 for the downside protection. Otherwise, the trader could be selling the puts to buy the bullish call options, taking in a credit of 5.90 on the trade. In this scenario, he is looking for shares to climb more than 15% from the current price so that the September 135 calls land in-the-money by expiration. – Potash Corporation of Saskatchewan, Inc.
XLB – The materials ETF has rallied more than 2% today to stand at $27.50. XLB leapt onto our ‘most active by options volume’ market scanner after one investor got long of 50,000 calls at the near-term June 28 strike price for a premium of 89 cents per contract. In order to profit on the massive position, shares would need to rally by an additional 5% from the current price and breach the breakeven point at $29.89 by expiration. Finally, it seems another trader has taken an even more bullish stance on the fund by purchasing about 8,000 calls at the July 30 strike price for an average premium of 50 cents apiece. The underlying stock would need to rise about 11% to the breakeven price of $30.50 for the investor to garner profits by expiration. – Materials Select Sector SPDR
RF – The bank’s $1.25 billion in offerings, which is comprised of $1 billion of common shares and $250 million of new mandatory preferred shares, sent the stock down more than 4.5% to $5.00 today. Option investors sunk in razor-share bear claws by buying deep in-the-money put options in the near-term June contract. The June 8.0 strike price had some 4,500 puts coveted for an average premium of 3.05 apiece. Higher up at the June 11 strike price, another 1,600 even deeper-in-the-money puts were bought for 5.80 per contract. Finally, fast-forward to the January 2011 contract where investor pessimism was expressed in the form of 6,100 sold calls at the January 5.0 strike price for 2.54 each. – Regions Financial Corporation
F – Having testified to Congress in the Fall, executives at Ford Motor decided that the restrictions from receiving federal aid would be too onerous to allow them to operate strategically and so in the words of Bill Ford decided to ‘pull ourselves by our bootstraps and make it on our own.” Now Mr. Ford is seeking assurances from the Obama administration this decision doesn’t create an unlevel playing field leaving them battling uphill against Chrysler and General Motors. With GM’s June 1 deadline fast approaching, it will likely end up restructuring as Chrysler is doing behind a Chapter 11 filing. The majority of option activity today in Ford’s shares is taking place well down the road where an investor is targeting the January 2011 expiration contract to position in call options. There were three large blocks of call options totaling more than 55,000 contracts, which were executed on the ISE within 15 seconds of each other. We believe that this investor is buying the 10/15 call spread at around 72 cents in 20,000 lots based on previous trading patterns earlier this month. None of the trades were actually marked as spreads, making our detective work all the more difficult, but we’d bet money that this investor is looking to benefit from Ford’s long term survivability. – Ford Motor Co.