Bulls and Bears Vie for Virgin

By option_review

July 10, 2009

275

Today’s tickers: VMED, FSLR, BDK, SNDK

VMED – Option trades in play on Virgin today reflect near-term bullish and long-term bearish sentiment by investors amid a more than 3% decline in shares to $9.52. The provider of high-speed internet access, pay-television, and telephone services in the United Kingdom attracted call-buyers to the July contract. Approximately 6,000 calls were coveted at the July 10 strike price for a premium of 40 cents apiece by traders positioning for a near-term rebound in the stock. Shares must rally 9% higher before investors begin amass profits at the breakeven price of $10.40. Elsewhere, traders singing a bearish tune were seen making reversals in the December contract. It appears that 10,000 calls were shed for 75 cents apiece at the December 12.5 strike and spread against the purchase of 10,000 put options at the December 7.5 strike price for 65 cents each. The reversal yields a net credit of 10 cents per contract. The full credit is safe in the bank if both options expire out-of-the-money by expiration. Additional profits would be enjoyed by investors long the bearish puts in the event that shares decline through $7.50. The short call position leaves traders vulnerable to potentially unlimited losses if the stock were to rebound through the breakeven point to the upside at $12.60 by the third Friday in December. – Virgin Media, Inc.

FSLR – The designer and manufacturer of solar modules appeared on our ‘most active by options’ volume market scanner after one trader put on a bearish put spread in the August contract. Shares of the firm are currently lower by 2% to stand at $143.25. The put spread involved the purchase of 11,500 puts at the August 125 strike price for an average premium of 4.90 apiece against the sale of 11,500 puts at the lower August 115 strike for 2.70. The net cost of the transaction amounts to 2.20 per contract and yields maximum potential profits of 7.80 if shares decline to $115.00 by expiration next month. The stock would need to slip approximately 14% lower before the trader starts to profit at the breakeven point of $122.80. – First Solar, Inc.

BDK – Shares of the global manufacturer of power tools and home improvement products have climbed about 2% to $27.24 following renewed takeover rumors reported by one news source, which cited Danaher (DHR) as a “possible suitor”. Notable call buying activity was observed at the near-term July 30 strike price where more than 1,700 calls were scooped up for 17 cents apiece. Shares of BDK would need to rally fast and hard by about 11% in order for investors long the July 30 calls to amass profits beginning at the breakeven point of $30.17. Bullish call-buying spread to the August 30 strike price where some 3,000 calls look to have been purchased for an average premium of 80 cents per contract. Option implied volatility on the stock is up to 52% today, up from yesterday’s closing reading of 49%. – Black & Decker Corp.

SNDK – The digital electronics company has enjoyed a 2% rally in shares to $14.27 today after receiving improved earnings outlook from analyst at Morgan Stanley. Apparently, MS has raised SNDK’s estimated earnings per share for 2010 to 22 cents from 13 cents. In addition to the EPS-revision for 2010, MS also proposed that SanDisk’s expected loss for 2009 of 1.39 per share is likely going to come in at a less gloomy loss of 1.01 per share for the year. Bullish option traders looked to get long of call options on the stock in the August contract. Nearly 2,000 calls were picked up at the August 15 strike price for 1.24 apiece while the higher August 17 strike had 1,500 calls bought for an average premium of 61 cents each. Finally, uber-bulls pocketed about 1,500 calls at the August 18 strike price, paying 43 cents for the privilege. Individuals long of calls at the closest-to-the-money August 15 strike will begin to garner profits if shares of SNDK surge 14% to breach the breakeven point at $16.24 by expiration next month. – SanDisk Corp.

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