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Mixed Sentiment on BAC Pits Bulls Against Bears

Today’s tickers: BAC, XRX, XLF, CAR, XLU, BIG, SLM, TTWO, MRVL & TSN

BAC – Bank of America Corp. – Investors employed two contradictory option strategies in the February contract on Bank of America today. One trader initiated a large bearish risk reversal while the other put on a bullish call spread. BAC’s shares rallied 3.5% this afternoon to $16.30. The pessimistic investor appears to have sold 30,000 in-the-money call options at the February 15 strike for 1.74 apiece in order to purchase 30,000 puts at the same strike for 84 cents each. The reversal results in a net credit of 90 cents per contract to the trader. Perhaps this individual expects shares to decline beneath the $15-level by expiration so he may retain the full 90 cent credit on the trade. Bullish trading in the same February 2010 contract suggests shares are set to rally higher in the next few months. An optimistic investor purchased 10,000 calls at the February 17 strike for 89 cents each, and sold the same number of calls at the higher February 19 strike for 34 cents apiece. The net cost of the spread amounts to 55 cents per contract. Maximum potential profits of 1.45 are available to the investor if shares increase more than 16.5% from the current price to a new 52-week high of $19.00 by expiration in February.

XRX – Xerox Corp. – One investor utilized the risk reversal strategy in order to take a long-term bullish stance on Xerox. Shares moved 1% higher this afternoon to $7.85. It looks like the trader sold 20,000 puts at the January 2011 7.5 strike for a premium of 1.15 each to partially finance the purchase of 20,000 calls at the same strike for 1.60 apiece. The net cost of the reversal amounts to 45 cents per contract. The investor profits if shares surpass the breakeven price of $7.95 within the next 12 months to expiration.

XLF – Financial Select Sector SPDR ETF – Shares of the XLF rallied 0.75% in afternoon trading to stand at $14.46. Bullish options activity on the fund suggests shares are likely to appreciate within the next several months. Optimistic investors purchased 69,000 in-the-money call options at the March 14 strike for an average premium of 1.36 per contract. XLF shares must rise 6% from the current price before profits accumulate above the breakeven point at $15.35. Shares last traded above $15.35 back on October 15, 2009.

CAR – Avis Budget Group, Inc. – The automobile and truck rental company’s shares surged 8.5% to $11.82 after Avis was awarded the “World’s Leading Business Car Rental Company” and “North America’s Leading Car Hire”, for the fourth consecutive year, at the World Travel Awards. Options activity in the May 2010 contract indicates some traders expect shares to continue higher by expiration. A bullish risk reversal was enacted through the sale of about 5,000 puts at the May 7.5 strike for 60 cents each, spread against the purchase of approximately the same number of call options at the higher May 12.5 strike for 1.82 apiece. The net cost of the transaction amounts to 1.22 per contract. CAR’s shares must jump 16% to a new 52-week high of $13.72 before reversal players breakeven on the trade.

XLU – SPDR Utilities Select Sector ETF – One option player banked profits today by unraveling a previously established bullish position in the near-term December contract. Shares of the underlying slipped nearly 1.5% during the session to $30.41. It appears the investor originally purchased roughly 15,000 calls at the December 30 strike for about 70 cents apiece back on October 1, 2009, when shares were at $28.78. Today the trader sold the options for an average premium of 1.09 each. Net profits on the transaction amount to approximately 39 cents per contract. The investor is probably kicking himself for waiting until today to close out the position because the XLU traded as high as $30.79 yesterday.

BIG – Big Lots, Inc. – Shares of the closeout retailer rallied sharply today after reporting better-than-expected third-quarter earnings of 27 cents per share, which exceeded the average 19 cents per share forecast by analysts. The stock jumped more than 18% to an intraday high of $27.80. BIG’s reading of option implied volatility collapsed down to its lowest level in more than one month, falling 26.94%, to 36.06%. Bullish traders purchased approximately 1,300 calls at the December 27.5 strike for an average premium of 73 cents per contract. Call-buyers profit if the stock continues to rally through the breakeven price of $28.23 by expiration in a couple of weeks.

SLM – SLM Corp. – Investors unloaded put options in the January 2011 contract today, indicating they do not expect SLM to collapse in the next year. Shares of the education loan lender, familiarly known as Sallie Mae, declined 1.25% today to $11.40. Put-sellers probably purchased the contracts originally to protect long underlying stock positions. But, today’s selling activity suggests traders no longer feel the need for deep out-of-the-money protective puts. Approximately 33,300 puts sold for 10 cents apiece at the January 2011 2.5 strike, while the higher January 5.0 strike had about 5,000 puts shed for an average premium of 45 cents each.

TTWO – Take-Two Interactive Software, Inc. – The videogame producer significantly reduced its earnings forecast for the current quarter to a loss of 45 cents per share from its previous estimate of a 26 cent per share loss. Take-Two’s shares plummeted 35.5% to $7.01 – the lowest level since March of 2009 – following gloomy guidance. Option implied volatility jumped 28.82% to 74.20%. Investors exchanged 10,000 option contracts on the stock by 10:12 am (EDT).

MRVL – Marvell Technology Group Ltd. – The semiconductor company posted third-quarter profits of 31 cents per share, which exceeded average analyst expectations of 27 cents per share. Shares of the Santa Clara, CA-based firm surged more than 9% this morning to a new 52-week high of $18.06 following the positive report. Call volume at the now in-the-money December 18 strike of roughly 3,100 contracts has exceeded existing open interest at that strike of 2,128 lots. It looks like some investors are buying the call options while others may be selling the contracts to take profits. Option implied volatility on the stock contracted 21.18% to 37.01% following the earnings surprise.

TSN – Tyson Foods, Inc. – Shares of the food company are up slightly this morning by less than 0.25% to $12.46. Option traders appear to be generating two-way trading traffic in call options at the December 12.5 strike where nearly 6,000 contracts changed hands by 10:25 am (EDT). The demand for calls lifted option implied volatility 15.73% from an opening reading of 29.93% to an intraday high of 34.64%.


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  1. Andrew, Would it be possible to put margin requirement as an info on these large trades??