Today’s tickers: FXY, EEM, PEP, TEVA, TIF, UPS & X
FXY – Japanese Yen Shares – The exchange-traded fund, which seeks to mirror the price of the Japanese Yen, is trading more than 0.50% higher today to stand at $107.12 in the aftermath of employment data undermining the U.S. dollar. Options activity in the March contract this morning suggests the price of the Yen may decline in the next couple of months. One Yen-bear sold call options in the March contract in order to finance the purchase of a put spread. The investor sold 10,000 calls at the March $110 strike for a premium of $1.20 per contract. The put spread involved the purchase of 10,000 puts at the March $105 strike for a premium of $1.70 each, marked against the sale of the same number of puts at the lower March $100 strike for $0.40 apiece. The net cost of the three-legged combination trade amounts to just $0.10 per contract for the investor. Thus, from a pure options standpoint (assuming no underlying position in shares), the investor stands to accumulate maximum potential profits of $4.90 per contract in the event that shares of the FXY plummet to $100.00 by expiration in March. FXY’s share price must decline 2% to $104.90 before the trader breaks even on today’s transaction.
EEM – iShares MSCI Emerging Markets Index Fund – Shares of the emerging markets exchange-traded fund are up less than 0.50% today to $43.01. Near-term pessimistic sentiment clouded the February contract as one investor initiated a ratio put spread on the fund. It appears the trader purchased 5,000 puts at the February $40 strike for an average premium of $0.69 apiece, marked against the sale of 10,000 puts at the lower February $35 strike for roughly $0.17 each. The ratio spread results in a net cost of $0.35 per contract. The investor responsible for the spread is likely holding a long position in the underlying stock. In such a case, the value of the share position is protected if EEM’s shares decline 8.5% from the current price and breach the effective breakeven point at $39.65 by expiration next month.
PEP – PepsiCo, Inc. – Global beverage, snack and food company, PepsiCo, received an upgrade to ‘buy’ from ‘hold’ at Edward Jones today despite slight share price declines of less than 0.50% to $60.76. Bullish investors initiated a couple of different strategies using both call and put options on the stock. Put-sellers shed about 3,300 lots at the January $60 strike for an average premium of $0.36 per contract. More bullish, was the large chunk of 15,700 call options purchased at the April $65 strike for $0.65 apiece. Investors long the calls are positioned to accrue profits given an 8% appreciation in the value of the underlying shares above the breakeven price of $65.65 by expiration day in April.
TEVA – Teva Pharmaceutical Industries Ltd. – Shares of the Israel-based manufacturer of generic and branded drugs increased 3% today to reach a new 52-week high of $58.58. The jump in shares inspired one Teva-bull to ramp up a previously established long call position in the June contract. It appears the investor originally purchased 10,000 calls at the now deep-in-the-money June $55 strike for a premium of $2.35-$3.40 apiece back on December 22, 2009, when shares were trading at $55.77. Today the trader sold all 10,000 lots for $5.20 per contract and rolled the bullish stance up to the June $60 strike where 10,000 fresh calls were picked up for a premium of $2.65 each. Profits accrue on the new bullish position if TEVA’s shares rally 7% from the current price to surpass the breakeven point at $62.65 by expiration in June.
TIF – Tiffany & Co. – Bearish traders breakfasted on put spreads at Tiffany’s today as shares of the deluxe retailer of jewelry edged 1.5% lower to $46.22. It looks like the protective plays are likely the work of investors seeking insurance on the value of long positions in the underlying stock through expiration this month. One of the spreads involved the purchase of 1,300 puts at the January $46 strike for a premium of $0.75 apiece, marked against the sale of the same number of puts at the lower January $42 strike for $0.11 each. The investor responsible for the trade paid a net $0.64 per contract for downside protection beneath the breakeven share price of $45.36. The other transaction was similar and involved the purchase of 1,300 puts at the January $46 strike for a premium of $0.77 per contract, spread against the sale of 1,300 puts at the January $43 strike for $0.13 apiece. In this case, the trader also paid a net $0.64 for the spread to establish downside protection beneath the breakeven point at $45.36.
UPS – United Parcel Service, Inc. – The world’s largest package-delivery company’s shares rallied 5.5% to a new 52-week high of $60.53 this morning on news it plans to slash 1,800 jobs and reduce the size of management at a U.S. unit. Additionally, the firm revealed it expects fourth-quarter earnings to exceed average expectations. UPS projects profits of $0.73-$0.75 per share for the quarter versus the average consensus view of $0.63 per share. Some option traders looked to the January contract to bank profits on the rally by shedding roughly 3,000 calls at the now in-the-money January $60 strike for an average premium of $0.90 apiece. Bullish bets were placed in the February contract where nearly 1,000 calls were picked up at the February $65 strike for a premium of $0.24 per contract. Option implied volatility contracted 14.47% following news of the improved fourth-quarter forecast to stand at 18.04%.
X – United States Steel Corp. – Shares of the largest American producer of metal jumped 4.25% to attain a new 52-week high of $63.47. The rally in shares inspired near-term options activity by investors positioning for further upside movement in the stock and by traders attempting to lock in recent gains. Plain-vanilla call buying took place at the January $65 strike where 1,500 calls were purchased for an average premium of $0.90 per contract. Investors long the calls profit if shares of US Steel increase 4% from the current price to surpass the breakeven point at $65.90 by expiration. Put-traders purchased 5,300 contracts at the January $60 strike for $0.81 apiece. A portion of the volume at that strike appears to be spread against the sale of roughly 3,500 puts at the lower January $55 strike for $0.16 each. Put owners are protected in case shares of the stock reverse direction ahead of expiration.