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Tuesday, February 27, 2024

Caterpillar Sees Sizeable Options Activity

Today’s tickers: CAT, EEM, FITB, VALE, SLM, EXPE, SNDK, SLM & YHOO

CAT – Caterpillar, Inc. – A long-term bullish play on the world’s largest maker of bulldozers and excavators proved highly profitable for one investor who banked hefty gains in the January 2010 contract this afternoon. Shares of CAT are currently up less than 0.5% to $59.80 on an upgrade to ‘neutral’ from ‘sell’ at Goldman Sachs. It appears the trader originally purchased 15,000 calls at the January 55 strike for 3.50 apiece, and 20,000 calls at the higher January 60 strike for 1.95 each, back on September 25, 2009. Today the investor sold the January 55 strike calls for 6.90 and the January 60 strike calls for 3.85 per contract. Net profits to the trader amount to $8.9 million. Elsewhere, it seems a large bullish call position was partially financed through the sale of put options. It looks like a chunk of 25,000 put options sold for 68 cents apiece at the December 50 strike at the same exact moment 40,000 call options were purchased for 1.50 each at the February 70 strike. The investor responsible for the trade likely expects shares of CAT to remain above $50.00 through expiration in December. This short sale partially offsets the cost of taking a massive bullish stance through expiration in February.

EEM – iShares MSCI Emerging Markets Index ETF – Shares of the emerging markets exchange-traded fund are trading more than 1% higher today to stand at the current price of $41.45. A 100,000-lot straddle caught our attention in the November contract this afternoon. It appears one investor has taken advantage of lower volatility on the EEM by purchasing a long straddle. The transaction involved the purchase of 50,000 calls at the November 41 strike for 1.53 apiece, and the purchase of 50,000 puts at the same strike for 1.21 each. The net cost of the trade amounts to 2.74 per contract. Volatility on the EEM has fallen to 27%, the lowest reading on the fund since August of 2008. Perhaps the long-straddle player expects volatility to jump higher before the options expire in November. The nature of the strategy is such that he will benefit given a sufficient shift in the price of the EEM in either direction. Profits are available if shares swing either above the breakeven point to the upside at $43.74, or if shares dip beneath the lower breakeven price of $38.26 by expiration day. A separate transaction suggests shares of the EEM may be set to move significantly higher in the month of November. Approximately 10,000 call options were purchased at the November 45 strike for an average premium of 18 pennies apiece. Investors scooping up the calls will profit if the stock surges 9% to $45.18 by expiration.

FITB – Fifth Third Bancorp – Shares of the bank holding company managed to rise 1% during the trading session to $10.69 despite the ‘sell’ recommendation assigned the firm at EVA Dimensions. One savvy option trader took profits by closing out a short put position in the January 2010 contract. It appears the investor originally sold 10,000 puts at the January 7.5 strike for approximately 1.20 per contract on July 23, 2009. Today, the trader paid just 20 cents apiece to close out the position at a net profit of 1.00 per contract. The investor may have reeled in profits of $1,000,000 on the transaction. Further along, in the January 2011 contract, the same trader is at it again. It seems he sold 10,000 puts short at the January 7.5 strike for a premium of 1.10 each. Perhaps the investor will neutralize the position ahead of expiration in a manner similar to the profitable trade previously described.

VALE – Vale S.A. – Analysts at Barclays Plc significantly increased their forecast for iron-ore prices in 2010. In a note to clients, Barclays estimates that prices may rise 20% next year versus a previous estimate of 5%. Shares of the iron-ore producer edged 3% higher to $27.22 on speculation they may benefit the most from price upgrades. In line with the bullish news, one investor rolled a long call position to a higher strike. The trader originally purchased 8,000 calls at the November 25 strike for 71 cents apiece on October 5, 2009. Today, he sold the calls for 2.65 apiece, enjoying net profits of 1.94 per contract. Total profits pocketed on the sale amount to approximately $1,552,000. The investor reestablished a bullish stance on the stock by buying 8,000 calls at the higher December 29 strike for 1.03 apiece. Additional profits will accumulate if shares of VALE rally at least 10% to surpass the breakeven price of $30.03 by expiration in December.

SLM – SLM Corporation – Shares in the student loan provider surged after predicting a return to profitability for next year on decreased uncertainty and lower loan loss provision. Shares took out the July high and at $11.30 are up 27% today and fast approaching the 52-week peak towards $12.50 established at the start of 2009. Around 7,000 call options expiring in April were sold at 95 cents and appear to be coupled with a long position in the underlying shares. A successful covered call trade here within six months would produce total gains of 23% should shares reach the upper strike. Elsewhere bullish activity was evident in call purchases in the November contract at the 10 and 12 strikes, while puts options at the 9 and 10 strike were sold in the possible expectation that Sallie Mae won’t be revisiting those prices anytime soon. Demand for options created a post-earnings increase in implied volatility to around 65%. Options volume of 66,000 was heavily biased towards call activity today.

EXPE – Expedia, Inc. – The online travel company received new coverage yesterday with a rating of ‘outperform’ and a 12-month target price of $32.00 at RBC Capital Markets. Today, shares rallied 3% to $26.33. Option traders took to the November contract to place bullish bets on Expedia. It appears nearly 20,000 call options were purchased at the November 30 strike for an average premium of 40 cents apiece. Shares of EXPE must rise 15% from the current price in order to breach the breakeven point on the trade at $30.40 by expiration. Finally, bullish sentiment spread to the December contract where 1,100 call options were picked up for 54 cents per contract.

SNDK – SanDisk Corp. – Option traders are swarming semiconductor company, SanDisk Corp., after the firm’s third-quarter profits of 75 cents per share beat average forecasts by about 49 cents per share. SNDK shares are soaring nearly 9% higher this morning, reaching a new 52-week high of $23.40. Approximately 30,000 contracts changed hands on SanDisk by 10:00 am (EDT) with investors favoring call options over puts by a factor of more than three to one. Implied volatility on the stock retreated following earnings, falling 22.53% thus far to the current reading of 46.61%.

SLM – SLM Corp. – Shares of the provider of liquidity to the student loan marketplace are on the up-and-up today having risen more than 20.5% to $10.74. Option volume is steadily climbing toward 25,000 contracts. Investors seem to be taking fresh positions in call options which have traded more than three times for each put option in action on the stock.

YHOO – Yahoo!, Inc. – Implied volatility plummeted 19.92% to 32.92% on YHOO following the firm’s third quarter earnings report. Cost cutting measures helped the internet company post profits of 13 cents per share. The stock jumped 4.5% to $17.95 – a new 52-week high.

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