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Tuesday, February 7, 2023


Sizeable Combination Trade in Regions Financial

Today’s tickers: RF, GNW, EEM, RHT, MRVL, CMCSA & LEAP

RF – Banking services firm, Regions Financial, jumped onto our ‘most active by options volume’ market scanner this afternoon after one investor exchanged 120,000 option contracts on the stock. The investor made bullish moves on RF despite the more than 3.5% decline in shares to $5.97. It appears the trader sold puts short 40,000 times at the May 6.0 strike for an average premium of 1.30 apiece, in order to finance the purchase of a bull call spread. The investor constructed the spread by buying 40,000 calls at the January 6.0 strike for one dollar each and simultaneously selling 40,000 calls at the higher January 10 strike for 12 pennies apiece. The trader receives a net credit of 42 cents per contract on the three-legged strategy. He retains the full credit of $1,680,000 as long as shares remain higher than $6.00 through expiration in May of 2010. However, additional profits are available if shares of Regions Financial rally by expiration in January. Maximum potential profits on the call spread amount to 4.0 per contract – or a total of $16,000,000 – if shares of RF surge 68% from the current price to $10.00 before the calls expire in January. – Regions Financial Corp. –

GNW – The financial security company experienced a more than 5.5% decline in shares to arrive at the current price of $11.28. Bearish investors active on GNW today exchanged more than 3.5 put options to every single call option in play on the stock. One investor took a long-term pessimistic stance by initiating a ratio calendar spread. The transaction involved the purchase of 10,000 puts at the December 10 strike for an average premium of 1.22 per contract, spread against the sale of 15,000 puts at the lower January 2011 7.5 strike for 1.70 each. The investor takes a credit on the trade because he received richer option premium on the sale of a greater number of puts set to expire in January 2011. The placement of this trade suggests the investor is bracing for potential declines in GNW through expiration in December. – Genworth Financial, Inc. –

EEM – Shares of the emerging markets exchange-traded fund have dipped 2.5% lower to $37.90, prompting one trader to establish a bearish risk reversal in the January contract. The trader targeted the January 38 strike to sell 12,000 just out-of-the-money calls for 2.65 each. The sale of the call options helped finance the purchase of 12,000 puts at the same strike for an average premium of 2.95 apiece. The reversal play results in a net cost of 30 cents per contract. We believe the investor likely expects further erosion in shares through expiration in January. Thus, he has exchanged calls for puts in an attempt to perhaps accumulate profits beneath the breakeven point at $37.70. The investor could be long the stock and seeking downside protection rather than profits if shares of the EEM slip beneath $37.70 over the next four months. – iShares MSCI Emerging Markets Index –

RHT – A sharp rise in the software company’s option implied volatility reading pushed the RHT ticker symbol onto our ‘top option implied volatility % gainers’ market scanner this morning. Shares of the firm have slipped 1% lower to $27.36, but the increase in volatility suggests investors expect greater fluctuations in the price of the underlying shares going forward. Volatility surged 21% from an opening reading of 38% on the stock to the current reading of 46%. Investors dabbled in near-term call options on Red Hat, making predominantly bullish plays, despite the decline in shares today. Nearly 4,000 calls were picked up at the October 30 strike for an average premium of 33 cents apiece. Investors holding these contracts hope to see shares rally at least 11% from the current price to surpass the breakeven point at $30.33 by expiration this month. Bullishness spread to the November contract where traders coveted some 3,000 calls for about 1.04 each. Finally, the higher November 35 strike had 1,500 calls purchased for an average premium of 19 pennies per contract. Investors holding the higher strike calls will begin to accumulate profits if Red Hat’s shares rally 29% to $35.19 by expiration day in November. – Red Hat, Inc. –

MRVL – Shares of the semiconductor maker have edged more than 5% lower during the session to the current price of $15.33. Some investors were prepared for the decline in the stock, as evidenced by early-bird put activity we observed in the November contract. Traders purchased more than 6,300 now in-the-money puts at the November 16 strike for an average premium of 1.20 per contract. Put-buyers received a first-mover advantage of sorts by pursuing bearish tactics early in the session. Any investors attempting to buy the same November 16 strike puts now (11:30 am EDT) will find the contracts tote an asking price which is 29% greater at 1.55 each. Profits are available to the put-purchasers in the event that shares of MRVL continue lower by another 3% to breach the lower breakeven point at $14.80. – Marvell Technology Group Ltd. –

CMCSA – We noted in Monday’s options activity that an investor bullish on the prospects for this media-giant was employing a bullish risk reversal in January 2010 expirations. At the time the investor took a net credit on the sale of 16 strike puts used to finance 17.5 strike calls. Sticking to his guns, it’s likely we’re seeing the same investor implement more of the same combination in Thursday’s session despite an adverse movement in the share price. Comcast’s shares have slipped 7.5% to $15.62 on emerging reports that it might buy between 20-50% of NBC Universal, which is jointly owned by General Electric and French conglomerate Vivendi. The Associated Press cites people apparently familiar with the deal that a Comcast stake depends on Vivendi’s sale of its stake. We’re wondering whether investors are reacting negatively on account of what could be a $10 billion cost to acquire an even stake in NBC. The move would increase Comcast’s cable distribution. Reversals were trading on those same strikes today at a 90 cent credit on account of the decline in the share price, which raises the value of the puts. We can see a 5,000 lot transaction using time and sales today. – Comcast Corp. –

LEAP – The mobile telecommunications company received a downgrade to ‘neutral’ from ‘overweight’ with an 18-month price target of $22.00 by an equity analyst at JPMorgan today. Shares of LEAP are currently off more than 9.5% to $17.68. We observed one investor bucking the bearish trend and market pessimism on Leap Wireless in the January 2010 contract this afternoon. It appears the trader initiated a bull call spread by purchasing 12,000 calls at the January 20 strike for 2.34 apiece, and by selling 12,000 calls at the higher January 30 strike for 45 cents premium each. The net cost of the spread amounts to 1.89 per contract. The investor apparently expects LEAP to recover significantly by expiration at the start of 2010. Shares must increase at least 24% from the current price for the call-spreader to breakeven at $21.89. Maximum potential profits of 8.11 per contract – or $9,732,000 – is attainable if the stock surges a whopping 70% to $30.00 by expiration. – Leap Wireless International, Inc. –

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