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AAPL-Bull Buys Call Spread

Today’s tickers: AAPL, GLD, XLU, AEP, CI, CHK, XEL, OSK, LLL, JAVA & BSX

AAPL – Apple, Inc. – A long-term bullish play on the iPod manufacturer suggests the price of the stock could skyrocket by July 2010. Apple’s shares increased more than 1% during the session to $196.96. It looks like one trader initiated a call spread in the July contract to position for a significant jump in the price of the underlying in the next seven months. The investor purchased 3,000 calls at the July 220 strike for a premium of 13.60 apiece, and sold the same number of calls at the higher July 250 strike for about 6.18 each. The net cost of the bullish play amounts to 7.42 per contract. AAPL’s shares must surge 15.5% from the current price in order to reach the breakeven point on the trade at $227.42. Maximum potential profits of 22.58 per contract are available to the investor if the stock jumps 27% to $250.00 by expiration in July.

GLD – SPDR Gold Trust ETF – A bullish risk reversal on the gold ETF today points to a rebound in gold bullion prices by expiration in February 2010. Shares of the GLD added nearly 1% during the trading day to stand at $110.23. One trader sold 9,650 puts at the February 110 strike for 4.70 each in order to partially finance the purchase of 9,650 calls at the same strike for 4.90 apiece. The net cost of the reversal amounts to just 20 cents per contract. Profits amass on the transaction if shares of the fund rally through the breakeven price of $110.20 by expiration day in February 2010.

XLU – SPDR Utilities Select Sector ETF – Shares of the exchange-traded fund comprised of common stocks of companies from the electric utilities, multi-utilities, independent power producers, energy traders and gas utility industries, increased 0.75% during the trading day to a new 52-week high of $32.08. The fresh high for the fund perhaps inspired the bullish options activity we observed on the XLU today. One investor banked profits on a previously established long call position in the January 2010 contract. The trader originally bought 5,000 calls at the January 29 strike for a premium of 92 cents apiece back on November 6, 2009, when shares were at $28.90. The investor sold the calls today for 2.95 apiece and took in net profits of 2.03 per contract. It seems the same trader extended optimism on the XLU to the March 31 strike where another chunk of 5,000 calls were scooped up for an average premium of 1.53 each. Additional profits amass if shares of the fund rally through the breakeven point at $32.53 by expiration day in March.

AEP – American Electric Power Company, Inc. – Shares of the energy company reached a new 52-week high of $36.01 in morning trading, but slipped 0.5% beneath Friday’s closing value to $35.40, as of 2:20 pm (EDT). Investors placed bullish bets on the stock by initiating plain-vanilla call buying activity on the stock. Approximately 10,000 calls were purchased at the December 36 strike for an average premium of 30 cents apiece. Traders long the calls profit if shares surpass the breakeven price of $36.30 before the options expire on Friday. Optimism spread to the higher January 37 strike where about 1,200 calls were picked up for 47 cents premium per contract. Shares of AEP must rally 6% over the current price for call-buyers to breakeven at $37.47 by January’s expiration day.

CI – CIGNA Corp. – The health care and related benefits company attracted near-term option bulls today with shares up more than 2% to a new 52-week high of $36.24. One trader banked significant profits by unraveling a previously established long call position in the December contract. It appears the investor originally purchased 5,000 calls at the December 33 strike for 1.25 apiece back on December 9, 2009, when shares of CI were at $34.04. Today the trader enjoyed net profits of 1.80 per contract by selling the calls for 3.05 apiece. Next, it looks like the CI-bull extended bullish sentiment to the January contract by purchasing a call spread. The January 37 strike had 5,000 calls purchased for 1.55 apiece, spread against the sale of the same number of calls at the higher January 40 strike for 49 cents premium each. The net cost of the spread amounts to 1.06 per contract and yields maximum potential profits of 1.94 apiece if CI’s shares rally up to $40.00 by expiration next month. Option implied volatility on the stock jumped 5% to an intraday high of 42.53%.

CHK – Chesapeake Energy Corp. – The news of Exxon’s bid for XTO this morning helped send shares at fellow oil and natural gas explorer, Chesapeake jumping 6.8% to $24.58. The fact that Exxon sees value at XTO helps spur other M&A enthusiasts into seeking out the next and perhaps imminent victim, which accounts for Monday’s interest at CHK. Option activists put 60,000 options contracts into play with a definite skew for bullish call options where almost four times the number of calls traded in comparison to put options. With oil prices fading fast last week, shares at Chesapeake fell to the lowest point in three months, leaving a swollen pocket full of 31,000 options to buy the stock at a fixed $25 before expiration this weekend, look painfully optimistic. That’s where investors targeted their efforts today as 12,740 calls traded hands at around 25 cents apiece in the hopes that the bullish updraft will continue. Elsewhere in the January expiration investors focused at the same strike but also got their optimism up leading them to pay an 18-cent premium for calls at the 29 strike.

XEL – Xcel Energy, Inc. – Shares of the energy company reached a new 52-week high today on a more than 0.5% rally to $21.55. Call activity in the January 2010 contract indicates investors expect shares to continue higher in the next month. Approximately 10,000 calls were purchased at the now in-the-money January 20 strike for an average premium of 1.70 apiece. Call-buyers profit if shares of Xcel Energy appreciate through the breakeven price of $21.70 by expiration in January. Option implied volatility on the stock contracted 29.52% down to a two-year low of 14.86%.

OSK – Oshkosh Corp. – It’s all well and good wining government procurement contracts, but it’s not much fun when your competitors stand up and claim they smell a rat. That’s precisely what BAE Systems and Navistar International did when they protested a $3 billion bid awarded to rival Oshkosh – the company that makes military trucks. Today the GAO announced in its review of the record that the Army’s evaluation of what Oshkosh was offering and its treatment of Navistar’s past performance didn’t meet standards they should, and so told the Army to look again. The potential loss of $3 billion in business sent its share price down by 14.4% by lunchtime to stand at $35.06 and spawned plenty of option activity. The soon-to-expire December contract attracted selling at what are now out-of-the-money strikes. Investors expecting a turnaround at the speed of a Sherman tank sold call options at the 40 and 45 strikes for 36 and 15 cents premiums and traded them in for put options at the 30 and 35 strikes for 29 cents and 1.25 respectively. However, as slow as a turnaround might be, investors determined that the selling wouldn’t penetrate the armor-plated support at the $30 strike price and they wrote put options some 3,600 times for average premiums of 81 cents. That line in the sand held at the start of November and sellers bear the risk of downside losses below a share price of $29.19 thanks to the premium they took in today. Options implied volatility remained constant at 55%.

LLL – L-3 Communications Holdings, Inc. – Bullish options activity on the defense company suggests shares may rally higher by expiration in January 2010. LLL’s shares rose 1.5% during the session to a new 52-week high of $84.82. One investor banked profits on a previously established long call position and reestablished a new bullish stance on the stock today. It appears the trader originally bought 7,500 calls at the January 85 strike for 1.37 apiece back on December 8, 2009. Today the investor sold the call options at that strike for 2.55 each in order to secure net profits of 1.18 per contract. The bullish investor next purchased a new chunk of 7,500 calls at the higher January 90 strike for 84 cents premium apiece. Profits on the new position accumulate if shares of L-3 Communications jump 7% over the current price to surpass the breakeven point at $90.84 by expiration.

JAVA – Sun Microsystems, Inc. – Option implied volatility on computer hardware company, Sun Microsystems, plummeted 70.61% to 17.12% after Oracle “signaled an improvement in ongoing negotiations” with the European Commission regarding the Oracle/Sun Microsystems merger. JAVA’s shares jumped 9.5% to $9.15 in morning trading. Option traders exchanged nearly 54,000 contracts on the stock by 10:15 am (EDT).

BSX – Boston Scientific Corp. – Medical equipment manufacturer, Boston Scientific, appeared on our ‘hot by options volume’ market scanner this morning with shares up 1% to $8.75. January 2011 contract call activity pushed the BSX ticker symbol onto our scanners. It appears one investor may be banking profits by selling roughly 5,100 calls at the now in-the-money January 2011 7.5 strike for 2.15 apiece. Open interest at the strike suggests the trade is likely a closing sale.


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  1. For the GLD trade above, if Gld drop below $110 and never recover come Feb expiration., Is this like the buy/write Phil is doing without buying the underlying stock? what would happen?