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Tuesday, May 21, 2024

Commodity Reversal Sees Bulls Charging in Potash

Today’s tickers: POT, LVS, WYE, TGT, WMT, HGSI, AXL, SBUX & GDX

POT – Shares of the fertilizer and feed products company have rallied 2.5% during the trading session to arrive at the current price of $96.06. Bullish investors rushed in to establish optimistic positions on the stock. A bullish reversal play was established in the near-term September contract by a trader anticipating significant gains by expiration. The reversal involved the sale of 10,000 puts at the September 80 strike price for 75 cents each, which were employed to finance the purchase of 10,000 calls at the higher September 105 strike for 1.80 apiece. The net cost of the trade amounts to 1.05 per contract. The investor responsible for the transaction will begin to amass profits if shares of POT surge approximately 10% through the breakeven price of $106.05 by expiration. Bullish sentiment spread to the December contract where it appears that another trader shed puts to finance the purchase of bull call spread. The December 90 strike had about 2,000 puts shed for 7.90 apiece. Premium received on the sale was put toward the purchase of 2,000 calls at the December 100 strike for 9.25 each, which was offset by the sale of 2,000 calls at the higher December 130 strike for 2.15 per contract. The investor received an 80 cent credit for his trouble and stands ready to add to his gains if shares breach $100.00 by expiration. – Potash Corporation of Saskatchewan, Inc. –

LVS –  Profit taking in the January 2011 contract caught our attention this afternoon after one investor “made it big” by utilizing call options on the casino operator. Shares of LVS had attained upward gains earlier in the trading day but are currently lower by more than 0.5% to $12.81. It appears that the trader originally purchased 20,000 calls at the January 15 strike price for 1.70 apiece back on July 9, 2009 when shares closed at $7.42. At that time implied options volatility read 97%. Today he sold the lots to close out the position for 4.35 per contract. If this is indeed what took place, he will have banked gains of 2.65 per contract for a grand total of $5,300,000. This assumes no attached interest in the underlying shares. Implied option volatility has declined during this time to stand at 87% today, negatively impacting the premium of these options, which likely helps account for the fact that it tool a 72% rally in the stock to produce a 55% gain in the options. – Las Vegas Sands Corp. –

WYE – The pharmaceutical company has reached a new 52-week high today with shares currently up less than 1% to $47.73, which represents a 26 cent gain over the old 52-week high attained back on July 22, 2009. Option traders employed bullish tactics in the September contract. One individual purchased to close a short position of 5,000 puts at the September 42.5 strike price for 30 cents each. It appears that he originally sold the puts for 55 cents on August 13, 2009. The investor was rewarded for his optimistic foresight as he has now realized profits of 25 cents per contract, or $125,000, by closing out the position today. A bull-call spread was enacted through the purchase of 7,500 calls at the now in-the-money September 47.5 strike price for a premium of 1.05 apiece, which was spread against the sale of 7,500 calls at the higher September 50 strike for about 12 cents. The net cost of the transaction amounts to 93 cents and yields maximum potential profits of 1.57 per contract if shares continue to rally up to $50.00 by expiration. Profits will begin to amass in the event that the stock climbs about 1.5% higher to breach the breakeven point at $48.43. Option implied volatility on WYE is currently 20%. – Wyeth –

TGT – The retailer received an upgrade to ‘overweight’ from ‘neutral’ at Piper Jaffray this morning, sending shares higher by more than 1.5% to $45.08. Investors locked into gains achieved by TGT during its significant rally this week. Approximately 3,000 puts were picked up at the September 43 strike price for an average premium of 90 cents apiece. In-the-money put options were in demand at the October 46 strike price where some 5,000 lots were scooped up for 2.69 a-pop. Put-buyers at that strike are protected from potential share price erosion beneath the breakeven point at $43.31 through October’s expiration day. Investors eyeing the January 2010 contract positioned themselves to profit from further upward movement in the stock. Traders coveted some 5,000 calls at the January 47 strike for an average premium of 3.12 per contract. Individuals long these call options will realize profits in the event that Target is trading above $50.12 by expiration. We note that TGT has traded beneath $50.00 since September 22, 2008. – Target Corp. –

WMT -The operator of discount stores attracted bearish options action to the March 2010 contract today. WMT shares are currently up less than 1% to stand at $51.70. Traders financed the purchase of protective put options by shedding calls. Approximately 4,000 calls at the March 52.5 strike price look to have been sold for 2.92 apiece and spread against the purchase of 4,000 puts at the lower March 50 strike for 3.30 per contract. Investors reduced the cost of buying puts to just 38 cents and are protected beneath a share price of $49.62. It is likely that the trade was motivated by individuals holding long positions in the underlying. If this is the case, they have protected themselves from downward movement in the stock, and have covered the short call position in case shares rally higher by expiration. – Wal-Mart Stores, Inc. –

HGSI – Shares of the biopharmaceutical company have edged slightly higher by less than 0.5% to stand at $15.65. Conservative optimism was seen in the October contract where one investor initiated a covered call on the stock. It appears the trader purchased shares of the underlying and simultaneously shed 5,000 calls at the October 19 strike price for a premium of 80 cents apiece. If we assume that shares were trading at $15.56 at the time of execution, then the sale of the calls reduced the cost of getting long the stock by 80 cents, yielding a price per share of $14.76. The short call position also provides the investor with an effective exit strategy in the event that HGSI surges through $19.00 by expiration. If this occurs, the trader could have the underlying position called from him, and he will have realized profits of 29% for a total of $2,120,000. Finally, pessimism was detected in the January 2010 contract where a ratio put spread was enacted. The transaction involved the purchase of 5,000 puts at the January 10 strike for 2.30 each against the sale of 10,000 puts at the lower January 5.0 strike for 60 cents. The net cost of the spread amounts to 1.10 and yields maximum potential profits of 3.90 per contract if the stock plummets 68% to $5.00 by expiration next year. – Human Genome Sciences, Inc. –

AXL – Building on positive news surrounding the cash-for-clunkers program this week, shares of AXL are sharply higher for the second day running. Today’s 21% price gain lifts shares to $6.91. In the rear view mirror, Monday’s low of $2.59 makes them look a bargain. Only four weeks ago shares were trading at $1.11, yet they were merely a penny stock worthy of a 26 cent price tag when the world fell apart in March. Option investors today used far-dated put options to write premium on the stock, compounded by word from General Motors that production and employment is being cranked up, opening the spigots at parts plants. Some 6,400 put options granting the right to sell shares of AXL at a fixed $2.50 at or before January 2011 raked in premium of approximately 1.12 per contract. This investor believes that the dog-days are gone for the company and the decision was made easier by an analyst upgrade today lifting the burden on the rear-axle. – American Axle & Manufacturing Holdings –

SBUX – The global coffee company appeared on our ‘most active by options volume’ market scanner after one investor made an interesting use of options on the stock. Shares of SBUX are currently up less than 0.5% to $19.07. Likely seeking delivery of the underlying at expiration, the trader purchased 5,000 in-the-money calls at the August 17 strike price for a premium of 2 dollars apiece. He simultaneously more than offset the cost of the long call position by selling a short 5,000-lot straddle at the lower October 18 strike for a gross premium of 2.70. This individual has pocketed a 70 cent credit on the transactions and is hoping to add to his gains by expiration in October. – Starbucks Corp. –

GDX – Bearish option plays were observed on the gold exchange-traded fund today despite the 0.5% rally in shares to $38.06. The sale of approximately 9,000 calls at the September 39 strike price for an average premium of 1.52 apiece could indicate that some investors do not expect to see significant gains in GDX by expiration. Given the existing open interest at the strike of 9,928 lots, we note that traders could be closing out positions and banking gains. Long-term bears lumbered into the March 2010 contract to enact risk reversals. Investors sold 7,500 calls at the March 45 strike price for 2.80 apiece, which were spread against the purchase of 7,500 puts at the lower March 30 strike for 1.80. Traders employing this tactic received a net credit of a dollar per contract and will retain the full credit if shares settle anywhere between $45.00 and $30.00 by expiration. Investors are not likely looking for a downside of this magnitude but rather expect weakness in gold prices, which would boost put premium and reduce call premium. Nevertheless, traders are currently exposed to potentially unlimited losses due to the short call position. Losses will begin to accumulate above a share price of $46.00. – Market Vectors Gold Miners ETF –

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