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Friday, May 24, 2024

Cemex Share Issue Has Bears Target Option Risk-Reversals

Today’s tickers: CX, RIMM, FCX, LAVA, XLF, M, MBI, JDSU & SHPGY

CX – The Mexican cement company’s shares have edged slightly lower by less than 0.5% to $13.04 this afternoon due to the firm’s plan to issue stock to pay down debt. Option traders have braced for further declines by employing bearish risk reversals in the October contract. It appears investors shed 6,500 calls at the October 14 strike for 43 cents apiece in order to partially finance the purchase of 6,500 puts at the lower October 12 strike for 45 cents each. The net cost of picking up protective put options is reduced to just 2 pennies per contract. If traders are long the underlying stock, downside protection will kick in if shares slip beneath the breakeven point at $12.98 by expiration next month. – Cemex SAB de CV –

RIMM – Blackberry producer, Research in Motion, attracted bullish investors who initiated call spreads on the stock today. Shares are slightly higher by less than 0.25% to stand at the current price of $84.25. One investor targeted the November contract where it appears put options were sold to offset the cost of purchasing a call spread. The spread involved the purchase of 6,000 calls at the November 105 strike for 1.28 each against the sale of 6,000 calls at the higher November 120 strike for 33 cents per contract. Finally, the November 70 strike had 6,000 puts shed for an average premium of 1.87 apiece. The investor receives a net 91 cent credit on the three-legged strategy. He will retain the full premium as long as shares of RIMM remain higher than $70.00 by expiration day. Additional profits are available to the trader if the stock surges 25% from the current price to breach the $105.00 level. Maximum potential profits of 15.00 per contract would be attained if Research in Motion skyrocketed 42% to $120.00. Another trader put on a ratio call spread in the January contract. The bullish trade was established through the purchase of 1,500 calls at the January 90 strike for 6.81 spread against the sale of 3,000 calls at the higher January 115 strike for a premium of 1.42 apiece. The net cost of the transaction amounts to 3.97 per contract. The investor will begin to garner profits if shares rise through the breakeven point at $93.97 by January’s expiration. – Research in Motion Limited –

FCX  – Shares of the metals and mining company have added 4% during the trading session to arrive at $72.85, a scant 1.45 beneath the current 52-week high on the stock of $74.30. At least one investor observed in options land today is expecting continued bullish movement in the price of the underlying. The trader initiated a call spread by purchasing 10,000 calls at the November 75 strike for an average premium of 4.40 each, and selling 10,000 calls at the higher November 80 strike for 2.75 apiece. The net cost of the bullish strategy amounts to 1.65 per contract and yields maximum potential profits of 3.35 if shares rally up to $80.00 by expiration. Profits will begin to accumulate in the event that shares of FCX increase 5% over the current level to breach the breakeven point at $76.65. – Freeport-McMoran Copper & Gold, Inc. –

LAVA – Perhaps the upgrade Magma received to ‘buy’ from ‘hold’ at Canaccord Adams this past Friday inspired the covered call strategy we observed on the software company today. Friday’s upgrade was accompanied by a 12-month target price of $2.50, which also happens to be the value of the lowest strike price in the October contract on the stock. Shares of the software company are currently unchanged at $1.82. It seems one investor put on a covered call by selling 10,000 calls at the October 2.5 strike for about 5 pennies per contract and simultaneously purchasing shares of the underlying for $1.85 each. The sale of the calls effectively reduces the cost of getting long the stock to $1.80 per share. Shares of LAVA will be called away from the investor in the event that LAVA rallies higher than $2.50 by expiration. If this occurs, the investor will exit the position with gains of about 39% in his pocket – not including almost 3% from the additional call option income. – Magma Design Automation, Inc. –

XLF – The financials exchange-traded fund rose nearly 2.5% today to $15.34. Despite the bullish movement in shares, we noticed pessimistic trading in the November contract. It appears one investor shed 5,000 calls at the November 15 strike for 95 cents each to offset the cost of purchasing 5,000 puts at the same strike for 74 cents premium. The bearish risk reversal results in a net credit to the trader of 21 cents, which he will retain in full if shares settle at $15.00 at expiration. Finally, additional profits are available to the investor if shares of the XLF slip below $15.00 ahead of expiration day in November. – Financials Select Sector SPDR –

M – An upgrade to ‘buy’ from ‘hold’ at Citigroup sent shares 6.5% higher today to $18.95 after Citi analysts assigned the department store operator a price target of $30.00. The options activity, however, didn’t seem to jive with the prediction for a near doubling in shares at the retailer. Notable options activity took place at the October 19 strike as investors dabbled in both calls and puts. Bullish individuals purchased about 1,000 calls at the October 19 strike for approximately one dollar per contract. Traders looking to lock in gains picked up 2,500 in-the-money puts at the same strike for 1.20 apiece. Call-buyers will begin to amass profits if shares rally about 6% from the current price to breach the $20.00 level by expiration. Traders holding put options are protected in case the stock slips 6% and falls beneath the breakeven price of $17.80 by expiration day next month. – Macy’s, Inc. –

MBI – Shares of the insurance company closed 2% lower to end yesterday’s trading session at $6.76. Bullish momentum has taken hold of the stock today as shares burst 19% higher to $8.05. Call options in the October contract are in high demand this afternoon as investors strive to take part in the rally. The now in-the-money October 8.0 strike had some 7,000 calls picked up for 65 cents apiece. The higher October 9.0 strike price attracted option bulls who bought nearly 3,000 calls for 40 cents premium. Finally, the most bullish individuals looked to the October 10 strike to purchase 1,400 calls for 30 cents per contract. Shares would need to increase another 28% by October’s expiration day for call-buyers at the October 10 strike to begin to accrue profits at the breakeven price of $10.30. Option implied volatility on MBI jumped 31% during the session from a low of 95% to an intra-day high of 124%. – MBIA Inc. –

JDSU – The provider of telecommunications equipment saw a large gain in implied volatility earlier, jumping more than 26% to a reading of 57%. Shares of JDSU have jumped 9% during the session to stand at $8.08. Option traders established bullish positions by purchasing 4,000 in-the-money calls at the nearby October 7.0 strike for an average premium of 73 cents each. Optimism spread to the November 8.0 strike where more than 2,000 calls were bought for 65 cents per contract. Investors long the higher strike calls are hoping to see shares rally 7% higher to breach the breakeven point at $8.65 by expiration in November. We note that the rise in volatility, the increase in demand for call options, and the jump in shares today has boosted call premiums significantly. Thus, traders who picked up the call options early in the session could yet take profits by selling to close ahead of the closing bell. For example, investors who paid just 65 cents for the now in-the-money November 8.0 strike calls could bank gains by selling the options at the current premium of 90 cents each. – JDS Uniphase Corp. –

SHPGY – The maker of attention-deficit hyperactivity disorder drug, Adderall XR, received an upgrade to ‘hold’ from ‘underperform’ at Jeffries, sending shares of the pharmaceutical company up 2% to reach a new 52-week high of $53.43. One Shire-bull reeled in hefty profits today by shifting a long call position to a higher strike. It seems the investor originally purchased 2,500 calls for about 2.33 each at the October 42.5 strike back on June 23, 2009. Today he closed out the position by selling the calls for a whopping 11.25 per contract. Net profits on the sale amount to approximately 8.92 apiece for a total of $2,230,000. The investor has maintained a bullish stance on the stock by reestablishing a long call position at the higher November 55 strike where he coveted 2,500 calls for 2.35 each. Additional profits will begin to amass in the event that shares of SHPGY rise 7% from the current price to surpass the breakeven point at $57.35 by expiration in November. – Shire PLC –

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