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Sunday, October 2, 2022

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Goldman-Bulls Foresee Greener Pastures by July

Today’s tickers: GS, AMLN, LYV, KFT, PM, IYR, MAS, VMW, BKS & CAL

GS – Goldman Sachs Group, Inc. – Option traders assumed medium- and long-term bullish stances on the global investment banking and management firm today to position for a rebound in shares in the next six to twelve months. Shares edged 1.65% lower during the session to stand at $152.43 as of 2:45 pm (EDT). One optimistic individual sold 2,500 put options for a premium of $8.90 apiece at the July $140 strike in order to finance the purchase of 2,500 calls at the higher July $175 strike for about $6.10 each. The trader receives a net credit of $2.80 per contract on the risk reversal play, and keeps the full amount as long as Goldman’s shares trade above $140.00 through expiration in July. Additional profits amass if the stock price jumps 15% over the current price to surpass the $175.00-level by expiration. Longer-term optimism appeared in the January 2011 contract where another Goldman-bull purchased a call spread. The investor bought approximately 2,300 call options at the January 2011 $160 strike for an average premium of $17.38 apiece, and sold the same number of calls at the higher January 2011 $195 strike for about $6.50 each. The net cost of the spread amounts to $10.88 per contract. Maximum potential profits of $24.12 per contract accumulate if Goldman’s shares surge 28% from the current price to $195.00 by expiration next January.

AMLN – Amylin Pharmaceuticals, Inc. – Shares of biopharmaceutical company, Amylin Pharmaceuticals, are up more than 11% to a new 52-week high of $19.39 in afternoon trading. The stock opened the session even higher at $19.97 on “optimism that the company’s new version of diabetes treatment Byetta will be approved following U.S. regulators’ clearance of a similar drug”, according to an earlier report by Elizabth Lopatto at Bloomberg. Option traders initiated bullish plays on the stock to position for upward movement in AMLN shares, which is likely to occur if the Food & Drug Administration approves the once-weekly version of Byetta, known as Byetta LAR. One investor established a bullish risk reversal by selling 10,000 puts at the February $17.5 strike for a premium of $0.50 each, spread against the purchase of 10,000 calls at the higher February $20 strike for $0.80 apiece. The net cost of the reversal amounts to $0.30 per contract and positions the trader to accumulate profits above the breakeven point at $20.30. Option traders exchanged more than 51,100 contracts on Amylin during the trading day, which comprise roughly 35% of the total existing open interest on the stock of 146,335 lots.

LYV – Live Nation, Inc. – The live music concert producer’s shares surged nearly 16% to $12.17 this afternoon on news Liberty Media Corp. aims to acquire up to 35% of Live Nation Entertainment, Inc., which is a concert and ticketing firm created yesterday in a merger with Ticketmaster Entertainment, Inc. According to a Bloomberg report today, Liberty Media Corp. is planning “a tender offer for as many as 34.5 million Live Nation shares” at a price of $12.00 apiece. The rise in Live Nation’s shares prompted some bullish options activity on the stock. Investors put on bullish risk reversal in the March contract to position for continued upward movement in the price of the underlying through expiration. It appears some 2,500 puts were sold for an average premium of $3.10 apiece at the March $15 strike, and spread against the purchase of 2,500 calls at the same strike for about $0.13 each. Risk-reversal players pocket an average net credit of $2.97 per contract on the transaction, which they keep in full if LYV’s shares rally up to $15.00 by expiration. Additional profits accrue in the event that Live Nation’s shares rally another 23.25% and surpass $15.00 in the next couple of months. Option volume on the stock today of 6,851 lots is 296.5% greater than total existing open interest of 2,310 contracts.

KFT – Kraft Foods Inc. – The U.S. food products manufacturer received a near-term vote of confidence by one option trader who initiated a buy-write strategy on call options in the March contract today. Kraft’s shares are trading 1% lower to $27.40 as of noon-time on the east coast. It looks like the covered call strategy involved the sale of 10,000 call options at the March $29 strike for a premium of $0.39 per contract, marked against the purchase of an equivalent number of underlying shares for $27.31 each. The sale of the call options effectively reduces the price paid per Kraft-share to $26.92 apiece, and provides to investor with an exit strategy should the calls land in-the-money by expiration in March. If Kraft’s shares rally above $29.00 in the next couple of months, the investor will likely have the underlying stock position called from him at that strike price. The trader may then walk away from the table having gained 7.72% on the rally in the price of the underlying. Other bullish investors expect the value of Kraft’s shares to exceed $29.00, and thus purchased roughly 2,400 calls at the March $29 strike for an average premium of $0.40 per contract.

PM – Phillip Morris International, Inc. – Shares of the U.S. cigarette manufacturer are up slightly by less than 0.25% to $47.15 today, but options activity on the stock suggests some investors are positioning for sharp declines by February’s expiration day. Plain-vanilla put purchasers targeted the February $44 strike where nearly 9,000 contracts were purchased for an average premium of $0.30 apiece. Traders long the puts are perhaps anticipating a pullback in the price of the underlying to the breakeven point on the puts at $43.70 by expiration. Phillip Morris’s shares must drop 7.30% from the current price in order for put buyers to begin to amass profits to the downside. Shares last traded beneath $44.00 on July 16, 2009 when the stock was at $43.30 per share.

IYR – iShares Dow Jones U.S. Real Estate Index ETF – A short strangle play on the exchange-traded fund, which generally mirrors the performance of the Dow Jones U.S. Real Estate Index, indicates one investor expects shares of the IYR to remain range-bound through expiration in March. Shares of the fund are trading 0.5% high to $44.35 as of 12:10 pm (EDT). The sold strangle involved the sale of roughly 3,000 puts at the March $42 strike for a premium of $1.27 apiece, and the sale of 3,000 calls at the higher March $45 strike for an average premium of $1.33 each. The gross premium pocketed by the strangle-player amounts to $2.60 per contract. The investor retains the full premium received on the transaction as long as shares of the ETF trade within the confines of the strike prices described through expiration. Short strangles typically imply the view that volatility in the price of the underlying will subside going forward. However, if shares fluctuate significantly in the next couple of months, the trader experiences potentially devastating losses if the stock moves above of the upper breakeven price of $47.60, or if shares fall below the lower breakeven point at $39.40.

MAS – Masco Corp. – The North American manufacturer of home improvement and building products jumped onto our ‘hot by options volume’ market scanner after one optimistic trader established a bullish risk reversal in the January 2011 contract. Masco’s shares are trading 0.50% higher on the day to stand at $13.85. The trader sold 10,000 puts at the January 2011 $15 strike for a premium of $2.90 apiece in order to purchase 10,000 calls at the same strike for an average premium of $1.67 each. The reversal player pockets a net credit of $1.23 per contract on the trade, which he keeps as long as shares trade at or above $15.00 by expiration next year. Additional profits accumulate to the upside if the value of the underlying shares increases 8.30% over the current price to surpass the $15.00-level by January expiration. Masco’s option implied volatility has eased somewhat this morning to 45% after a string of daily losses for its share price, which was trading as high as $15.75 just two weeks ago. Looks like this trader is calling a bottom for the move.

VMW – VMware, Inc. – Shares of software company, VMware, are trading just off the current 52-week high of $47.60 today following yesterday’s fourth-quarter earnings report wherein the firm posted profits of $0.31 per share, which exceeded average analyst estimates by five pennies a share. VMW’s shares opened the session at a new 52-week high of $48.82, but are trading 12% higher on the day to $47.02 as of 10:18 am (EDT). Option traders purchased a large portion of some 2,200 call options exchanged at the February $50 strike price. Investors buying up the calls are positioned to accrue profits if shares continue to rally sharply ahead of expiration next month. Option implied volatility on the stock contracted 20.94% to 39.92% thus far in the trading day.

BKS – Barnes & Noble, Inc. – Option traders looking to take a bullish stance on book retailer, Barnes & Noble, purchased call options in the February contract this morning. BKS’s shares are soaring nearly 13% higher in the first hour of the session to stand at $19.61. Approximately 1,680 calls changed hands at the February $20 strike for an average premium of $0.95 per contract. Investors buying the calls are perhaps expecting shares to rally another 6.85% over the current price to surpass the average breakeven point at $20.95 by expiration day. Option implied volatility is up sharply by 32.76% to 54.35%.

CAL – Continental Airlines, Inc. – Massive bearish positioning on Continental Airlines this morning suggests investors are bracing for a turbulent ride through expiration in February. The airline’s shares are down 1.10% to $19.75 as of 10:35 am (EDT). It looks like the majority of some 20,000 put options traded at the now in-the-money February $20 strike were purchased by pessimistic individuals for an average premium of $1.25 per contract. Investors driving the put activity may be seeking downside protection on long positions in the underlying stock, or alternatively, may be initiating outright bearish bets on CAL to garner profits to the downside should shares continue lower in the next month. Option implied volatility is up 10.34% over yesterday’s closing reading of 53.25% to an intraday high of 58.76%.

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