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Saturday, June 3, 2023



Canadian Energy Bulls Seek Call Options in Suncor

Today’s tickers: SU, EEM, IBM, AXP, MOS, GE, YHOO & MMM

SU – The Canadian energy company appeared on our ‘most active by options volume’ market scanner today following a frenzy of bullish call buying activity in the August contract. Suncor’s shares climbed more than 4% during the trading day to $30.61, leading stocks in Canada higher on the rise in price of oil and the unexpected increase in June housing starts. Option-bulls purchased more than 17,000 calls at the August 31 strike price for an average premium of 1.56 apiece. Shares of SU must rally higher by about 6% in order for investors to begin to amass profits beyond the breakeven point of $32.56. Traders expecting an even sharper rise in the price of the underlying were seen picking up 5,300 calls at the higher August 32 strike for 1.00 per contract. These individuals are hoping shares breach $33.00 by expiration next month. – Suncor Energy Inc.

EEM – The emerging markets exchange-traded fund attracted one trader to initiate a bullish reversal amid a slight 1% rally in shares today to $33.61. The August 33 strike price had 20,000 puts sell for an average premium of 1.28 apiece spread against the purchase of 20,000 in-the-money calls at the same strike for 1.65 apiece. The net cost of the bullish play amounts to 37 cents to the investor responsible for the transaction. Selling the put options reduced the cost of buying the calls such that the trader has already amassed profits. Shares are currently 24 cents higher than the effective breakeven point of $33.37. Continued upward movement in the price of EEM will fatten this investor’s wallet through expiration. – iShares MSCI Emerging Markets Index

IBM – The world’s largest computer-services provider reported second-quarter earnings of 2.32 per share, putting average analyst estimates of 2.02 per share to shame. Shares of the firm have enjoyed a more than 3% rally today to $114.35, following the bullish earnings report. Option traders in the August contract have provided some guidance as to where the stock may be trading through expiration next month. The initiation of a sold strangle indicates this investor wants shares to remain at or about where they currently stand, yet has a decent amount of latitude into expiraiton. About 2,000 puts were sold for an average premium of 97 cents apiece at the August 105 strike price in conjunction with the simultaneous sale of 2,000 calls at the August 120 strike for 1.03 each. The strangle yields a gross premium of 2.00 which will be fully banked by investors as long as the price of IBM remains within the confines of the strike prices described through expiration. We note that traders are vulnerable to losses in the event that IBM is trading below the breakeven point to the downside at $103.00 or if shares are higher than the breakeven point to the upside at $122.00. Finally, bullish option traders picked up 1,800 calls at the August 115 strike for a premium of 2.63 per contract. Profits will begin to amass for investors if the stock rallies through $117.63. – International Business Machines Corp.

AXP – Shares of the global payments company have slipped approximately 3% today to stand at $27.37. Yesterday the firm was upgraded to ‘neutral’ from ‘underweight’ by analysts at JPMorgan who gave AXP a target price of $25.00 per share. One option trader today took the price target to heart and was seen initiating a risk reversal in the October contract. The investor looked to the October 30 strike price to sell 5,000 calls for a premium of 1.65 each against the purchase of 5,000 puts at the October 25 strike for 1.80 apiece. The net cost of the transaction amounts to just 15 cents and provides downside protection for the investor beneath the breakeven point at $24.85 through expiration. Other traders seem to hope that JPM’s $25.00 price target is too conservative, at least in the near-term. Those individuals looked to the August 28 strike price to buy nearly 2,500 call options for an average premium of 1.75 apiece. Shares of AXP would need to surge 9% to the breakeven point at $29.75 in order for call-buyers to amass profits by expiration. – American Express Co.

MOS– Options activity continues to center on speculation on whether Brazil’s Vale – the world’s largest iron-ore producer – will attempt a takeover of Mosaic, the fertilizer producer. Option traders ignore the hurdle of whether or not its behemoth owner, Cargill, would let the company go. Shares rose 2% to $51 at Mosaic while option activity shifted to the August contract where bulls bought 17,600 call options at the 55 strike, which is a little higher than the current number of open positions in the company’s options at that strike. Doubtless investors defrayed some of the cost by selling some calls at the 60 strike where volume rose to 11,000 contract by noon, ahead of established investor positions totaling 7,591 lots. A Brazilian journal ran with a takeover story and floated a valuation of $25 billion, which puts a price tag in the region of $55. That might mean that buyers at strike prices north of 55 could be disappointed even if there is a deal struck. Options implied volatility is higher again today at 69%. – The Mosaic Company

GE – Options implied volatility has slumped 12.5% to 38% in the aftermath of earnings before the bell. Lower volatility usually indicates lesser uncertainty over the prospects for a stock, yet today’s 6.7% price slide leaves shares languishing in the conglomerate at $11.57. Be careful not to take the volatility plunge as a signal that all is clear post earnings. The message from the option market is a little more bearish. One of the dominant trades this morning was the purchase of 20,000 bearish put options at the 10 strike in the September contract where a buyer spent 30 cents to either cover a long stock position or to speculate that the lack of organic revenue growth at GE is going to get more worrisome over time. Earlier in July its shares traded down to $10.50. – General Electric

YHOO – Shares of the popular internet destination have jumped today after the Wall Street Journal’s All Things Digital website reported that Yahoo! and Microsoft may reveal a search and online advertising agreement in the next week. Yahoo’s shares are currently up by more than 3.5% to $16.76 on the bullish speculation. Today’s rally may also have been fueled by the increase in the firm’s target price to $19.00 from $13.25 by analysts at Oppenheimer & Co. yesterday. Option traders were observed making bullish bets in the August contract by positioning for continued upward movement in the price of the stock. One investor made an interesting play by selling to close 22,200 in-the-money call options at the August 15 strike price. He originally purchased the calls back on June 23, 2009, for a premium of 1.10 each when shares closed down at $14.59. The timing of the purchase appeared impeccable as the stock rallied higher from there. Unfortunately, the upward move proved to be a false start and shares closed lower to $14.22 just two weeks later. But, today’s surge in shares maybe the real deal. The same investor looks to have purchased a new lot of 22,200 calls at the higher August 16 strike price for a premium of 1.50 each. This individual will breakeven at a price of $17.50 by expiration. Bullishness spread as high as the August 18 strike price where it looks as though 1,200 calls were picked up for an average premium of 58 cents apiece. Option implied volatility on the stock has surged to 55.5% currently, up from the opening reading of 51%. – Yahoo!, Inc.

MMM – The expert product development firm appeared on our ‘most active by options volume’ market scanner this morning after bullish option traders had their way with calls and puts in the August contract. Shares of the firm are currently off by about 1% to $62.75. We noticed some investors taking profits by selling 2,100 in-the-money August 60 strike calls for an average premium of 3.80 apiece. The higher August 65 strike saw 6,100 calls purchased for a dollar per contract while at the exact same moment about 2,100 puts were shed at the same strike for 4.00 each. These are both bullish signals that suggest upward price movement for 3M by expiration in August. – 3M Company

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