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Wednesday, February 21, 2024

Dow Chemical Option Bulls and Bears on the Prowl

Today’s tickers: DOW, GLD, ISIS, DTV, SINA, XOM, SPWRA, AGO & SINA

DOW – The Dow Chemical Co. – Shares of the manufacturer of chemicals and plastic materials increased 2% during the trading session to $29.45. We observed a mix of bullish and bearish option plays on the stock today. One investor appears to have unraveled an in-the-money ratio call spread in the December contract in order to finance the purchase of 7,500 calls at the December 28 strike for 1.92 apiece. Further along, in the January 2010 contract, another bullish player rolled a long call position to a higher strike price. It looks like the investor originally paid between 2.35 to 3.30 in premium to buy 5,000 calls at the now deep-in-the-money January 24 strike back on September 14, 2009. Today the trader closed out the December 24 strike calls by selling 5,000 contracts for 5.30 each. The closing sale of the calls was spread against the purchase of 5,000 fresh call options at the higher January 28 strike for about 2.45 premium per contract. Finally, protective plays dominated the March 2010 contract. Two put spreads were established this afternoon. The first transaction involved the purchased of 5,000 puts at the March 27 strike for 2.08 each, marked against the sale of the same number of puts at the lower March 20 strike for 47 cents apiece. The net cost of the trade amounts to 1.61 per contract and yields protection beneath the breakeven price of $25.39. The other put spread involved the same number of put options but was transacted at the March 26/19 strikes at a net cost of 1.38 per contract. Downside protection on this play kicks in if shares decline through the breakeven point at $24.62 by expiration day in March.

GLD – SPDR Gold Trust ETF – More than 253,800 option contracts changed hands on the GLD with about 30 minutes remaining in the trading day. Investors traded calls on the exchange-traded fund more than 1.8 times to each put option in play. Shares of the GLD, which replicates the performance of the price of gold bullion, are up 0.25% in late-day trading to stand at $111.90. A large-volume ratio call spread on the fund suggests some investors expect the price of gold to rise sharply by expiration in January 2010. Bullish traders bought approximately 15,000 calls at the January 112 strike for an average premium of 3.88 apiece, spread against the sale of 30,000 calls at the higher January 122 strike for about 1.14 each. The net cost of putting on the ratio spread amounts to 1.60 per contract. Investors employing the call spread strategy stand ready to accumulate maximum potential profits of 8.40 per contract if shares of the GLD surge 9.5% to $122.00 by expiration. Traders populating the January 2010 contract with bullish transactions foresee greater heights for the price of gold over the next few months.

ISIS – Isis Pharmaceuticals Inc. – Very heavy share volume is apparent at Isis, the drug-maker that, with Genzyme Corporation produces mipomersen, a drug that reduces bad cholesterol in patients genetically disposed to high levels. Typically daily volume in shares of Isis stands at about 1 million, which compares to more than 7 million so far on Tuesday. The drug attained its primary goal of reducing bad cholesterol by 25% compared to a 3% reduction in patients taking a placebo but the fact that Isis announced perhaps a one-year delay in seeking FDA and EU approval sent its shares tumbling by 20% at one stage. There was also some mention today of a possible concern over elevated liver enzyme readings in some patients. Having settled by noon, shares are currently trading at $11.72. The volume suggests some investors are perhaps walking away and may return when the company has a better time horizon in place. Options trading patterns suggest that investors do not think that shares of Isis will slip below $10.00 judging by put options sold at that strike expiring in both November and December. Previously held positions at both strikes was non existent before today. There was also healthy volume at Friday’s expiring call strike at the 12.5 line where 2,300 lots was bounced between buyers and sellers for a premium reduced to 35 cents by lunch. Option implied volatility on its options rose sharply to stand at 80% following today’s news.

DTV – The DIRECTV Group, Inc. – The provider of subscription television services enticed one bullish trader to initiate a ratio call spread in the January 2010 contract. DTV’s shares are currently up 1% to $30.61 as of 12:05 pm (EDT). It appears the investor purchased 2,500 calls at the now in-the-money January 29 strike for 2.85 each, and shed 5,000 calls at the higher January 32 strike for 1.27 apiece. The net cost of the transaction amounts to 31 cents per contract. The financing provided by selling twice as many out-of-the-money calls lowers the effective breakeven point on the trade to $29.31. Thus, the investor stands to accrue maximum potential profits of 2.69 per contract if shares of DTV rally up to $32.00 by January’s expiration day.

SINA – SINA Corp. – An investor placed a calendar call spread using around call options expiring in January and March in the hope of capturing further gains on the surge in shares of online Chinese media portal, Sina Corp. Earlier the company beat earnings on solid advertising revenues topping a 31 cent estimate with an actual 34 cent per share performance. The share price jumped through its 52-week high and is currently higher by 10% at $47.20 although today’s noteworthy options took place when shares were trading at $46.75. The investor bought more than 3,000 calls at the January 45 strike paying a 4.20 premium, while simultaneously selling the identical amount of March calls at the 50 strike for a 3.20 premium. The trader is essentially long at a vastly reduced 1.0 point premium rather than 4.20 points. The maximum profit on the trade is that 5.0 point spread between the two call strikes less the net premium paid, or 4.0 points in the event the share price continues to or above $50 by the spring.

XOM – Exxon Mobil Corp. – Analyst upgrades and reports that Warren Buffet’s Berkshire Hathaway, Inc., increased its stake in XOM inspired a flurry of options activity on the oil and gas company today. Shares of Exxon Mobil are 0.5% higher at lunchtime to stand at $74.82. Bullish signals on XOM are an upgrade to ‘overweight’ from ‘equal weight’ with a $92.00 share price target at Barclays, as well Berkshire Hathaway’s buying spree. One option trader increased bullish sentiment on the stock by rolling a long call position forward to a higher strike price. The investor sold 10,000 calls at the January 2010 75 strike for 2.45 each, and purchased the same number of calls at the higher April 80 strike for 1.95 apiece. We’re going out on a limb here and suggesting that this trader held an established long position and now expects greater things from Exxon. It looks like the same investor also traded 10,000 puts at the April 70 strike for 2.66 each. The trader may have purchased the puts as downside protection, or could have sold the contracts to extend his bullish stance.

SPWRA – SunPower Corp. – Shares of the manufacturer of solar power products are down more than 17% this morning to $22.49 on news the firm may have to correct millions of dollars in accounting mistakes over the past three quarters. Investor uncertainty, as measured by option implied volatility, surged 31.73% to 66.89%. Option traders exchanged more than 19,200 contracts on the stock by 10:10 am (EDT). Fresh put positions were initiated at the November 22.5 and November 20 strike prices.

AGO – Assured Guaranty Ltd. – The insurance company reported better-than-expected third-quarter profits of 44 cents per share, beating average analyst estimates by 13 cents per share. Shares of AGO are trading 21% higher this morning, reaching a new 52-week high of $25.55. Investors exchanging call options at the November 30 and December 30 strike prices are perhaps positioning for continued bullish movement in shares.

SINA – SINA Corp. – The online media company’s shares rose 9% to a new 52-week high of $46.68 this morning. Third-quarter earnings of 34 cents per share bested analyst expectations by 3 pennies per share. Option implied volatility on the stock contracted 17.46% to 40.03% following earnings. More than 8,200 option contracts traded on SINA as of 10:25 am (EDT).

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