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Savient-Bull Buys Ratio Call Spread

Today’s tickers: SVNT, JBLU, ROST, RVSN, MRVL, RYL, ARIA, WLP, S, BCR & ORCL

SVNT – Savient Pharmaceuticals, Inc. – A ratio call spread implemented on biopharmaceutical company, Savient Pharmaceuticals, this afternoon indicates shares may shift higher by expiration in January 2010. SVNT’s shares increased 1% during the session to stand at $12.80. The spread involved the purchase of 2,400 calls at the in-the-money January 12.5 strike for an average premium of 1.34 apiece, marked against the sale of 4,800 calls at the higher January 14 strike for 62 pennies each. The net cost of the trade amounts to just 10 cents per contract. The investor responsible for the bullish play stands ready to accrue maximum potential profits of 1.40 per contract if the stock jumps to $14.00 by expiration. The increase in demand for option contracts on the stock boosted Savient’s option implied volatility reading 15% during the trading day from an opening reading of 75.22% to an intraday high of 86.56%.

JBLU – JetBlue Airways Corp. – Investors initiated bullish stances on JetBlue this afternoon despite the 2% decline in value of the underlying shares during the trading session to $5.48. Fresh call positions were taken in the March and June contracts by traders preparing for a JBLU-rally. A chunk of 5,000 calls were purchased at the March 6.0 strike for a premium of 40 cents per contract. The investor responsible for the transaction breaks even if shares of the airline increase 17% over the current price to $6.40 by March’s expiration. Option traders purchased at least 1,700 calls at the June 6.0 strike for 65 cents premium apiece. Profits accumulate if and when JBLU’s shares rise 21.5% to surpass the breakeven point at $6.65. The increase in investor demand for option contracts on the stock lifted option implied volatility 13.57% to an intraday high of 55.55%.

ROST – Ross Stores, Inc. – The second-largest off-price retailer of brand-name apparel and home accessories in the U.S. appeared on our ‘hot by options volume’ market scanner in late-afternoon trading. One investor established a ratio put spread on the stock in the February 2010 contract. Shares are down 1% to $43.88 with approximately one hour remaining in the trading session. The option trader purchased 2,000 puts at the in-the-money February 45 strike for 2.60 apiece, and sold 4,000 puts at the lower February 42.5 strike for 1.40 each. The investor receives a net credit of 20 cents per contract on the transaction. Perhaps the trader expects shares to rebound above $45.00 by expiration in February, in which case he retains the 20 cent credit as profit. However, the spread is more likely the work of a trader seeking downside protection on a long position in the underlying stock.

RVSN – RADVision Limited – Shares of the telecommunications equipment provider edged 0.25% higher during the day to $5.87. Put activity by one investor today suggests shares are unlikely to experience significant bearish movement within the next month. The optimistic trader sold 10,000 puts at the January 5.0 strike for a premium of 10 cents per contract. The trader keeps the full 10 cent premium on the sale as long as shares of RVSN trade higher than $5.00 through expiration in January. The short sale of the puts implies the trader is happy to have shares of the underlying put to him at an effective price of $4.90 apiece in the event that the puts land in-the-money ahead of expiration day.

MRVL – Marvell Technology Group Ltd. – Near-term bullish investors flooded the February 2010 contract on the global semiconductor company today as shares of the firm climbed more than 3% to a new 52-week high of $19.85. Some traders anticipate MRVL’s shares will appreciate significantly in the next two months. These investors purchased 12,600 calls at the February 21 strike for an average premium of 90 cents per contract. Call-buyers break even if shares rally 10.3% to $21.90 by expiration. Optimists also shed 3,200 puts at the February 19 strike for an average of 1.04 apiece. Longer-term bulls bought 1,000 calls at the January 2011 22.5 strike for a premium of 2.74 per contract. Investors holding these call options expect to garner profits if MRVL’s shares surge at least 27% over the current price to surpass the breakeven point at $25.24 within the next 12 months. Option implied volatility on the stock increased 8.5% during the session to an intraday high of 40.67%.

RYL – The Ryland Group, Inc. – Large lots of put options traded on homebuilder and mortgage-finance company, Ryland Group, today. Shares edged 1% lower during the session to $18.70. One investor initiated a large-volume put spread in the April 2010 contract. The trader purchased 20,000 puts at the in-the-money April 20 strike for 3.00 apiece, and sold 20,000 puts at the lower April 16 strike for a premium of 1.10 each. The net cost of the bearish play amounts to 1.90 per contract. The investor is very likely establishing downside protection on a long underlying stock position. The put options provide insurance against losses in the event that RYL’s share decline beneath the breakeven price of $18.10 by expiration in April. The investor’s stock position is protected down to the lower strike price of $16.00. Finally, contrarian traders purchased roughly 2,300 calls at the April 21 strike for an average premium of 1.45 apiece. Call-buyers amass profits if Ryland’s shares surge 20% to surpass the breakeven point at $22.45 within the next five months to expiration.

ARIA – Ariad Pharmaceuticals, Inc. – Shares of the pharmaceutical company are down nearly 3% today to $2.07, but one investor initiated a bullish strategy on the stock using short- and long-dated option contracts. The trader sold 9,900 calls at the January 2012 3.0 strike for a premium of 1.05 apiece in order to offset the cost of purchasing the same number of calls at the near-term January 2.5 strike for 20 cents premium each. The investor pockets a net credit of 85 cents per contract on the transaction. The parameters of the spread allow the investor to take delivery of the underlying shares of the stock trades above $2.50 by expiration next month. The 85 cent credit received today reduces the price paid per share to $1.65 apiece in the event that the trader exercises the call options ahead of expiration. In this case, the investor is positioned to bank 82% gains on the rise in ARIA shares – from $1.65 to $3.00 – by expiration in January 2012. The short calls in the January 2012 contract serve as an effective exit strategy for the trader if shares of ARIA rally above $3.00 in the next two years to expiration.

WLP – WellPoint, Inc. – Investors placed bullish bets on the health benefits company today despite the 1% decline in the value of its shares to $58.50 during the first half of the trading day. Plain-vanilla call buying was initiated at the January 65 strike where 10,000 lots were purchased for an average premium of 80 cents apiece. Call-buyers at this strike profit if shares jump 12.5% to breach the breakeven price of $65.80 by next month’s expiration day. A more conservative bullish strategy was implemented in the March 2010 contract. One investor established a call spread on the stock by purchasing 10,000 calls at the in-the-money March 55 strike for a premium of 6.70 apiece, marked against the sale of 10,000 calls at the higher March 60 strike for 4.00 each. The net cost of the transaction amounts to 2.70 per contract. The investor is rewarded with maximum available profits of 2.30 per contract if WLP’s shares rise 2.5% from the current price to $60.00 by expiration day in March 2010.

S – Sprint Nextel Corp. – Early-morning bearish risk reversals on Sprint reveal investor pessimism on the stock through expiration in February 2010. Shares are down nearly 2% to $3.70 as of 10:25 am (EDT). Option traders sold 20,000 calls at the February 4.0 strike for an average premium of 29 cents apiece to finance the purchase of the same number of put options at the lower February 3.0 strike for 13 cents each. Bearish investors receive an average net credit of 16 cents per contract on the transaction. The traders retain the full credit if shares trade below $4.00 through expiration in February. Additional profits accrue if Sprint’s shares decline beneath $3.00.

BCR – C.R. Bard, Inc. – Option implied volatility on medical supplies manufacturer, C.R. Bard, Inc., jumped 27.57% to 22.06% this morning, while shares of the company fell 8.25% to $77.22. We observed investors abandon previously bullish stances on the stock by ditching out-of-the-money call options in the January contract. One trader sold 2,620 calls at the January 80 strike for a premium of 1.00 apiece. Open interest at the strike suggests the investor may be selling-to-close a long call position.

ORCL – Oracle Corp. – Better-than-expected profits of 39 cents per share for business software giant, Oracle Corp., sent shares of the firm up more than 6% to a new 52-week high of $24.27. Fiscal second-quarter earnings of 39 cents exceeded average analyst expectations by three pennies per share. Option implied volatility contracted 23.26% to 25.33% following earnings. Investors exchanged just about 95,000 option contracts on the stock by 10:40 am (EDT).


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