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Bullish Investors Sprinkle Optimistic Spread Trades on Alcon

Today’s tickers: ACL, VIX, FEED, ODP, NRG, NVTL, LVS & MSTR

ACL – Alcon, Inc. – Medical supplies producer, Alcon, attracted long-term bullish option traders to the May 2010 contract. Shares slipped slightly lower by 0.5% to $144.02 by noontime (EDT). It looks as though one investor financed the purchase of a call spread by selling put options. The three-legged trade involved the sale of 4,200 puts at the May 120 strike for about 4.20 apiece. Next, the investor purchased the same number of call options at the May 155 strike for 7.25 each, spread against the sale of 4,200 calls at the higher May 165 strike for 4.50 per contract. The trader receives a credit of 1.45 each on the strategy. The full credit is retained by the investor as long as shares of ACL remain higher than $120.00 through expiration in May. Additional profits accumulate if the stock surges 7.5% to surpass the breakeven point at $155.00. Maximum additional profits available to the investor amount to 10.00 per contract, attainable if shares add 15% to $165.00 ahead of expiration in May.

VIX – CBOE Vix index – With equity prices sadly wilting by noon on Friday, investors were threatening to completely reverse Thursday’s giddy 2% advance. Traders were despondent after a 0.5% drop in consumer spending last month, which soured the tone following Thursday’s stimulus-stuffed GDP gain. The fear-gauge expanded by 8% to 26.70 as a result and one large options player appears to have placed a trade suggesting that volatility will be omnipresent – at least through year-end. The investor sold 10,000 December expiration puts at the 25 strike for a 1.75 premium, while buying half as many puts in the January expiration at the same strike. If the underlying Vix index settles at expiration above a value of the 25 strike price, the puts would expire worthless. This suggests this investor sees a rocky close to the year with volatility remaining elevated. The purchase of 5,000 puts for a 1.95 premium expiring 30 days later suggests the investor sees a calmer start to next year.

FEED – AgFeed Industries, Inc. – Shares of the Chinese feed and commercial hog producing company are trading 2.5% higher today to stand at $4.73. The firm received a ‘buy’ recommendation at EVA Dimensions yesterday. Option traders took to the May 2010 contract to initiate bullish positions on the stock. It appears a ratio risk reversal was established through the sale of 3,000 in-the-money puts at the May 5.0 strike for an average premium of 1.43 apiece, spread against the purchase of approximately 9,000 calls at the higher May 7.5 strike for 45 cents each. The transaction results in a net credit of 8 pennies per contract. Shares of FEED must rise and subsequently remain higher than $5.00 in order for investors to retain the full 8 cent credit received on the trade. Additional profits are available in the event that the stock rallies a whopping 59% from the current price to surpass the $7.50-level by expiration in May. Options trading volume of approximately 14,000 contracts today represents about 47% of total existing open interest on the stock of 29,805 lots.

ODP – Office Depot, Inc. – The global supplier of office products and services attracted bullish option traders today despite the more than 2.5% decline in shares to $6.27. It looks like one investor sold in-the-money put options in the January 2011 contract in order to finance the purchase of in-the-money calls expiring in January of 2010. The trader sold 4,000 in-the-money puts short at the January 2011 7.5 strike for an average premium of 2.34 apiece, and purchased 4,000 in-the-money calls at the January 6.0 strike for 1.03 per contract. The investor pockets a net credit of 1.31 apiece on the trade and may retain the full credit if ODP shares rise above $7.50 by expiration in January of 2011. Additional profits accumulate to the upside as long as shares remain higher than $6.00 through expiration day in January 2010.

NRG – NRG Energy, Inc. – The power generation company posted weaker-than-expected third-quarter profits of $1.02 per share versus the consensus view of $1.12 per share previously forecast for the firm. NRG launched to the top of our ‘most active by options volume’ market scanner after one bullish investor initiated a massive calendar spread. Shares are currently 2.25% lower to $23.58. It appears the trader purchased 30,000 in-the-money calls at the January 22.5 strike for about 2.85 apiece, and partially financed the long position by selling 30,000 calls at the March 30 strike for 65 cents each. The net cost of buying the nearer-term calls amounts to 2.20 per contract. Shares of NRG must rise 3.5% from the current price for the investor to breakeven at $24.70. The trader could choose to exercise the call options and take delivery of an equivalent number of underlying shares for $22.50 each. If the investor does take delivery of the shares the short calls in the March contract effectively create a covered call strategy. This implies that the underlying shares may be called from the trader if the stock trades higher than $30.00 by expiration in March 2010. If the shares are called away, the investor will have successfully exited the position and walked away from the table with 33% gains on the appreciation in share price. Finally, near-term bullish investors sold 5,100 puts short at the November 25 strike to take in an average of 1.54 in premium.

NVTL – Novatel Wireless, Inc. – Shares of the telecommunications company are trading more than 26% lower this morning to $9.02. The stock tumbled after the firm warned that sales of its mobile wi-fi product will likely plateau or even decline. Investors are apparently focusing on the dismal fourth-quarter guidance from NVTL rather than on the better-than-expected third-quarter earnings of 20 cents per share. Traders initiated fresh positions at the out-of-the-money January 2010 7.5 strike where approximately 2,250 puts changed hands for about 35 cents each. Option implied volatility fell 9% from the opening reading of 65% to the current value of 59%.

LVS – Las Vegas Sands Corp. – The casino resort operator posted a wider-than-expected third-quarter loss of 19 cents per share, but experienced a 3.2% increase in net revenue to $1.14 billion. Shares are up 8% to $15.93 on sentiment business may have reached a bottom in Las Vegas. Investors exchanged nearly 60,000 contracts on the stock by 10:25 am (EDT). Approximately two call options changed hands for each put option in action.

MSTR – Microstrategy, Inc. – Third-quarter results at the software company blew average forecasts out of the water. Shares surged as much as 24% to $90.98 at the start of the trading session after MSTR posted earnings of $1.73 per share versus the Street consensus of just 94 cents per shares. The stock is currently trading 17.5% higher to $86.44. Fresh call positions were established at the out-of-the-money November 95 strike for about 1.10 apiece. Call premium at that strike has exploded 2,100% since yesterday. Option implied volatility jumped 31% from an opening value of 32% to the current reading of 42%.


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