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Gold Mminers ETF Attracts Bullish Option Plays

Today’s tickers: GDX, CF, S, XHB, PCLN, XLF, CX, CAR, BZH, CRI & ERTS

GDX – Market Vectors Gold Miners ETF – Shares of the gold ETF that invests in shares of precious metals mining companies are up 0.5% to $49.53 with one hour remaining in the trading session. Option implied volatility has come down from 54% to 46% recently as gold’s price has surged. Nearer-term investors sought downside protection on the fund, whereas long-term traders initiated bullish plays. Investors hoping to lock in gains experienced during the recent run-up in the price of gold purchased 4,000 puts at the January 2010 47 strike for 3.05 apiece. Further along, at the March 2010 44 strike, another 6,000 puts were picked up for an average premium of 3.10 per contract. Finally, long-term bullishness took the form of a call spread in the January 2011 contract. It appears one investor purchased about 5,000 calls at the January 50 strike for an average of 9.52 each, marked against the sale of the same number of calls at the higher January 55 strike for 7.55 each. The net cost of the optimistic play amounts to 1.97 per contract. The trader stands to accrue maximum potential profits of 3.03 each if shares of GDX rally 11% over the current price to $55.00 by expiration in January 2011.

CF – CF Industries Holdings, Inc. – Bearish option plays appeared on the manufacturer of nitrogen and phosphate fertilizer products today after the firm rejected rival Agrium Inc.’s increased takeover offer of $4.52 billion. Shares of CF are currently trading 4% lower to $77.20. Investors purchased put options at the now in-the-money December 80 strike for an average premium of 6.70 apiece. Perhaps put-buyers are protecting long stock positions. Otherwise, they are hoping to accrue profits if shares of CF decline through the effective breakeven price of $73.30. Another trader unraveled a previously established bullish play in the January 2010 contract. The investor originally placed an extremely bullish 8,500-lot call spread at the January 90/100 strikes. However, the trader abandoned bullish sentiment today by closing out the spread. Option implied volatility on CF jumped 7.5% over Monday’s closing value of 52.9% to reach an intraday high of 55.9%.

S – Sprint Nextel Corp. – Shares of the wireless communications company surrendered a portion of gains experienced during yesterday’s 20% rally to an intraday high of $3.43. The stock rebounded due to news that Clearwire Corp. is set to receive $1.56 billion. Sprint Nextel owns more than half of Clearwire, and is one of a number of companies contributing cash to the Kirkland, Washington-based firm. Sprint’s shares are currently down 5.5% to $3.24 with 80 minutes remaining before the closing bell. We observed a number of bearish transactions take place in the January 2010 contract this afternoon. One trader initiated a bearish risk reversal. The investor sold 5,000 calls at the January 4.0 strike for 16 cents apiece in order to partially finance the purchase of the same number of put options at the lower January 3.0 strike for 25 cents each. The net cost of the transaction amounts to 9 pennies per contract. Another investor threw in the towel on Sprint today. It appears some 25,000 calls were sold at the January 4.0 strike for 16 cents each. The open interest of 30,094 call contracts at that strike leads us to believe the transaction was likely a closing sale.

XHB – SPDR S&P Homebuilders ETF – The closing sale of a large chunk of call options in the December contract indicates near-term pessimism on the homebuilders exchange-traded fund. Shares of the XHB are trading nearly 1% lower to $14.78 in late-afternoon trading. It looks like one investor no longer expects to profit from a bullish options play established back on November 4, 2009. The trader originally purchased approximately 30,000 calls at the December 16 strike for 31 cents apiece. Today he sold all 30,000 calls for just 27 cents, taking a 4 cent loss on the trade, to avoid potentially greater losses ahead of expiration in December. Perhaps the investor decided to cut his losses now in case shares of the XHB fall further over the next month.

PCLN – Priceline.com, Inc. – Third-quarter sales and profit at online travel agency, Priceline.com, exceeded analyst expectations and sent shares up 19% today to a new 52-week high of $206.78. PCLN posted earnings of $3.45 per share whereas previous forecasts averaged around $2.92 per share. Priceline raked in 30% higher sales of $730.7 million for the quarter. Investors initiated bullish stances on the stock by purchasing 3,200 calls at the November 210 strike for an average premium of 2.72 apiece. Traders will profit if shares of PCLN continue to rally another 4% and surpass the breakeven price of $212.72 by expiration this month. Nearly 1,000 call options were purchased at the November 230 strike for approximately 64 cents premium each. Investors long the November 230 strike calls could already reel in short term profits by selling the contracts, which now tote an asking price of 1.15 per contract. Option implied volatility imploded following earnings, falling 24%, to an intraday low of 42%.

XLF – Financial Select Sector SPDR – Shares of the financial exchange-traded fund slipped nearly 1% lower during the session to $14.70. One investor appears to have purchased 40,000 married put options on the fund today by simultaneously taking a long position in both shares of the underlying fund and put contracts. The June 2010 12 strike had 40,000 puts purchased for an average premium of 75 cents apiece. The put options yield downside protection in case shares of the XLF decline beneath the breakeven point at $11.25 by expiration in June of 2010. However, the investor responsible for the transaction is likely long-term bullish on the financial sector, and hopes shares will gain far more than the cost of the added insurance premium over the next seven months.

CX – Cemex S.A.B. de C.V. – Ready-mix concrete producer, Cemex, experienced a 2% decline in shares today to $11.54. Despite the dip in shares, it looks like one investor is taking profits on an position established about a week ago, and is rolling the bullish stance to a higher strike price in the December contract. It appears the trader originally purchase 5,927 calls at the December 11 strike for about 70 cents premium apiece on November 2, 2009. The investor sold the calls today for 1.25 apiece, earning net profits of 55 cents per contract. Next, the cement-bull bought 5,927 calls at the higher December 12 strike by paying out 80 cents premium apiece. Additional profits on the new long-call position will accumulate if shares of CX rally 11% to $12.80 by expiration.

CAR – Avis Budget Group, Inc. – The 1% decline in shares of the rental car company today to $10.36 may have prompted one investor to take profits by selling in-the-money call options. The trader likely purchased approximately 5,300 calls for an average premium of 50 cents at the now in-the-money November 10 strike, back on November 2, 2009. Today the investor sold 5,300 calls at the same strike for 1.05 apiece. Perhaps the trader is taking what profits he can in case shares of CAR continue to decline ahead of expiration day in less than two weeks. Net profits on the closing sale amount to 55 cents per contract. Plain-vanilla put buying in the December contract adds to bearish sentiment on Avis today. It looks like 1,000 put options were picked up at the December 10 strike for an average premium of 1.00 apiece. Additional pessimism on CAR took the form of a stop-loss strategy. An investor possibly sold shares short on the underlying stock, spread against the purchase of 7,900 calls at the out-of-the-money December 12.5 strike, for 65 cents each. This individual is likely similarly throwing in the towel on Avis. The long call position acts to limit losses in case shares actually rally higher ahead of expiration in December.

BZH – Beazer Homes USA, Inc. – Shares of the single-family home builder and seller are soaring 15% higher this morning to $5.40 after posting fourth-quarter profit of 84 cents per share. The positive earnings report is excellent news for investors of Beazer as the firm reported devastating losses of $12.29 per share in the same quarter last year. Dismal housing market conditions were offset by federal tax credits for new-home buyers, attractive interest rates, and a slight 2.4% increase (year-over-year) in new orders from continuing operations. These mitigating factors helped the homebuilder earn $33.8 million in the fourth-quarter. Option implied volatility contracted 28% from yesterday’s closing value of 118% to an intraday low of 85%. Early morning call volume at the November 5.0 strike is probably the work of investors taking profits by selling into the rally.

CRI – Carter’s, Inc. – Children’s clothing retailer, Carter’s Inc., postponed earnings last month because it required additional time to review its accounting for margin support provided to wholesale customers. Today, the firm announced it must restate results for fiscal years 2004 through 2008, and revealed its more recent financial statements are no longer considered reliable. Shares slumped 11% as of 10:15 am (EDT) to $21.46 on the news. Investor uncertainty, as measured by option implied volatility, started the trading day higher by about 14% to 66%. Currently, volatility has come off to stand at 60%.

ERTS – Electronic Arts, Inc. – Option implied volatility on the video game software company plummeted 17.50% to 41.30% following yesterday evening’s second-quarter earnings report. Electronic Art’s shares are off nearly 6% to $18.40 because earnings per share of 6 cents failed to meet average expectations of 7 cents per share. Approximately 15,000 option contracts changed hands on ERTS by 10:25 am (EDT).


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