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Calls Hot on OSI Systems After Failed Terror plot

Today’s tickers: OSIS, SEED, AMZN, KONG & TER

OSIS – OSI Systems Inc. – Investors were keen to put a name on the company that might benefit from a boost to security spending, which is behind the 12.5% rally in shares of OSI Systems today to $28.22. The previous 52-week high stood at $25.64 in the California-based company that makes critical electronic gadgetry to include complex security and inspection systems. The fallout from the Christmas Day arrest of a young Nigerian who apparently attempted to set off an explosive device on a Detroit-bound airplane is fast trickling through to who might win orders from the office of homeland security. Option volume in OSI Systems is a rare thing as indicated by the scant vale of open interest at 4,341 lots. Call option buyers at the January expiration saw to it that the company remains on investors’ radar after they likely doubled the prevailing number of option positions on Wednesday. Some 4,700 calls at the $30 strike were bought starting at 25 cents per contract and rising to as much as $1.00 each as the shares rose in value. The delta reading of 33% implies a one-in-three chance that the share price will rise by a further 6.3% within the next 18 days.

SEED – Origin Agritech – There was a wave of call option activity at Origin Agritech following the technology-focused seed development company’s announcement that it had bought back the remainder of its outstanding notes. The move will probably strengthen its balance sheet and helped spur its share price 25% higher to $12.15. Last month the stock rose to about $15 after the Chinese government said it would work with the company to grow modified corn and rice. Heaviest call volume was seen at the January $12.5 strike where 4,400 lots have traded from Tuesday’s close of 10 cents to 90 cents. The $15 strike calls have traded 1,600 times at an unchanged 30 cents. Option implied volatility spiked from 80% to 103% as uncertainty grew as investors demanded higher premiums to sell options. At the January 10 strike investors appeared swift to sell more than 4,000 put options as low as 40 cents, down from Tuesday’s closing price of $1.10 in the expectation that Origin will remain firm.

AMZN – Amazon Inc. – One investor appeared to take out some protection against a possible decline in shares of online-retailer Amazon.com where shares slipped 2.6% to stand at $135.85. The company today recently that customers bought more ebooks for use with the Kindle electronic device than it sold physical books for the first day ever. On Tuesday shares rose but couldn’t take out the post-Thanksgiving 52-week high of $145.91. Today the decline in shares of Amazon.com prompted one investor to buy an April put spread covering strike prices between $115 and $85. Shares would need to decline around 15% in order for the upper strike price to be reached. The investor sold 2,500 put options at the $85 strike for 90 cents in order to reduce the premium paid for the same amount of puts at the $115 strike for a $5.20 premium. The trade therefore breaks even a little higher as the net premium is reduced to $4.30. This activity ran counter to other bullish posturing from investors who exchanged more than 1,000 call options expiring in January at each strike price ranging from $135 to $155.

KONG – Kongzhong Corp. ADR – The company provides wireless entertainment and media to cell phone uses in the People’s Republic of China and we have yet to find out why its ADR shares have popped higher by more than 11% to $11.54. However, the move has prompted investors to put into play almost 7,000 option contracts, which matches the total extent of all option positions outstanding as at Tuesday’s close. Most popular today is the February $12.5 strike price where the 70 cent premium that sellers command today is 180% up on yesterday’s close. Some 6,983 lots have traded at the strike where only 31 previously held positions are recorded.

TER – Teradyne Inc. – Shares in semiconductor test product and services maker Terdayne are higher by 0.5% at $10.75. For the second day in a row an option investor has placed a bearish put spread extending protection against a decline in its shares through January 2012. The investor bought 5,000 $7.5 strike puts and sold the same number of puts at the $5.0 strike at a net premium of 65 cents. The same trade pattern emerged yesterday when the bear paid a 70 cent premium to establish the same trade.


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