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Blackberry Bull Banks Profits as RIMM Shares Rebound

Today’s tickers: RIMM, BAC, VZ, CAG, NYB, RMBS, TEVA, DIS & NVDA

RIMM – Research in Motion Limited – Blackberry maker, Research in Motion, revealed a distribution deal with Digital China – a unit of Legend Holdings – aimed at expanding its business in China. Shares stood 2.5% higher to $60.22 thirty minutes before the closing bell. One option investor banked profits on a previously established call position in the January 2010 contract today. It appears the trader originally purchased 25,000 calls at the January 80 strike for 30 cents apiece on December 4, 2009. Today the investor shed all 25,000 lots for 43 cents each. Net profits on the closing sale amount to 13 cents per contract for total gains of $325,000. Option implied volatility on the stock is up slightly on the day to 59.91%.

BAC – Bank of America Corp. – A bearish risk reversal on Bank of America this afternoon suggests one investor expects shares to suffer significant declines by expiration in May 2010. BAC’s shares slipped 2% to $15.98 in late-day trading. It appears the pessimistic player shed 7,500 calls at the May 22 strike for 36 cents apiece in order to partially offset the cost of buying the same number of put options at the lower May 13 strike for 70 cents premium each. The net cost of the transaction amounts to 34 cents per contract. The effective breakeven point on the put options of $12.66 is 20.77% lower than the current price per BAC share. The investor responsible for the reversal could be taking an extremely bearish bet on Bank of America. If this is the case, the investor expects shares to nosedive down to lows experienced at the end of July 2009. Alternatively, the trader could be long the stock, and financing cheap downside protection by selling covered call options. The long puts serve as protection in case the stock tumbles, whereas the short calls suggest the investor is happy to have the underlying stock position called from him at $22.00 each. Shares of BAC would need to rally 38% from the current price in order for the March 22 strike calls to land in-the-money.

VZ – Verizon Communications, Inc. – Option traders displayed mixed near-term sentiment on the communications company this afternoon. Shares edged 2% higher to a new 52-week high of $33.36 with less than one hour remaining in the trading session. Bullish traders picked up roughly 2,800 calls at the December 34 strike for an average premium of 22 cents per contract. Call-buyers profit if Verizon’s shares rally at least 2.5% to surpass the breakeven price of $34.22 by expiration day. Near-term bears bought nearly 2,000 puts at the December 33 strike for 31 cents apiece. Perhaps put buyers are long shares of the underlying stock. Investors long the stock and long the puts are protected by the options in the event that shares of VZ decline beneath the breakeven price of $32.69 by expiration day.

CAG – ConAgra Foods, Inc. – The food company responsible for such brands as Chef Boyardee, Hebrew National, and more, attracted bullish option players today. Shares rose slightly by 0.05% to $22.61. One trader banked gains on a previously established long call position. It appears the investor originally purchased 5,400 calls at the December 22.5 strike for 15 cents apiece back on November 4, 2009, when shares were at $20.89. Today the trader sold all 5,400 calls for an average premium of 37 cents per contract to secure net profits of 22 cents per contract. The same investor ramped up optimism on the stock by initiating a new long call position in the March 2010 contract. The trader purchased 5,400 calls at the higher March 25 strike for 25 cents premium apiece. The optimistic investor breaks even on the new position if shares rally 12% from the current price to surpass the breakeven point at $25.25 by expiration in March 2010.

NYB – New York Community Bancorp – News last week that this 212-branch community lender would take on the seized assets of AmTrust Bank saw its shares jump 10%. Lucky investors were treated to a further 8.5% on Monday to $13.40 as the bank said it would finance the takeover with the sale of 60 million shares. While the medium-term outlook maybe pretty bullish since it will expand by more than one third its number of accounts at a stroke, near term bears spent an average of 19 cents to lock into protective put option plays that would compensate them in the event that shares suffered a hiccup before options expire in two weeks time. Elsewhere happy banking bulls were keen to buy calls expiring in January at the 12.5, 14 and 15 strikes indicating that a successful takeover at AmTrust will attract more investors in the coming months.

RMBS – Rambus Inc. – The designer of chip interface technologies for digital electronic products experienced a 2.5% rally in shares to a new 52-week high of $21.82. The upward move in shares prompted bullish options activity in the February contract. Rambus-bulls initiated credit put spreads to finance call spreads. It appears 2,500 puts were sold at the February 17 strike for 1.33 apiece, and spread against the purchase of the same number of puts at the lower February 15 strike for 79 cents premium each. The net credit received on the spread amounts to 54 cents per contract. At the same time, traders purchased 2,500 calls at the February 30 strike for 2.03 each, marked against the sale of 2,500 calls at the higher February 35 strike for 1.37 apiece. The 66 cent net cost of the call spread is offset by the 79 cent credit received on the put spread. Thus, investors assuming a bullish stance on RMBS pocket a net credit of 13 cents per contract, which they keep if shares remain above $17.00 through expiration in February. Additional profits accrue if shares surge 37.50% over the current price to breach the lower $30.00 strike price. Maximum potential profits – excluding the credit received today – of 2.50 per contract are available to investors if the stock trades up to $35.00 by February’s expiration day.

TEVA – Teva Pharmaceutical Industries Ltd. – The Israel-based manufacturer of generic and branded drugs attracted optimistic option traders despite the 1% decline in shares today to $53.49. Perhaps bullish sentiment on the stock was bolstered by the new rating of ‘outperform’ with a target price of $66.00 per share on TEVA by an analyst at Exane BNP Paribas this morning. One option player reduced the cost of establishing a bullish stance in the January 2010 contract by initiating a bearish play in the near-term December contract. The investor sold 10,000 calls at the out-of-the-money December 55 strike for 28 cents per contract in order to partially finance the purchase of 10,000 calls at the same strike price in the January 2010 contract for 1.00 each. The short sale of call options in the front month reduced the net cost of picking up the calls at the January 55 strike to 72 cents per contract. The investor responsible for the transaction does not expect Teva’s shares to exceed $55.00 by expiration in December. However, the trader does expect shares to appreciate by expiration in January. Profits accumulate for the investor if shares rally through the breakeven price of $55.72 by January’s expiration day.

DIS – The Walt Disney Company – Investors are hankering after call options on Disney this morning with shares having rallied up to a new 52-week high of $31.20 in early trading. The increased demand for calls lifted option implied volatility on the stock 3.7% to an intraday high of 26.50%. Option traders exchanged more than three call options on DIS for each put options in play today. Nearly 6,000 option contracts changed hands on Disney as of 10:15 am (EDT).

NVDA – NVIDIA Corp. – News that Intel Corp. has postponed the launch of its standalone graphics chip sent shares of NVDA up sharply by 12.5% to $16.02. Option traders are exchanging call options over puts on the stock by a factor of more than 2-to-1. Investors traded nearly 29,000 option contracts on NVDA within the first hour of the trading day. Option implied volatility surged 24.29% from an opening reading of 35.40% to an intraday high of 44.00%.


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