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Tuesday, February 27, 2024

Bank of America Bears Buy Puts

Today’s tickers: BAC, PBR, F, FXI, NXY, KFT, DELL & HPQ

BAC – Bank of America Corp. – Bearish option traders purchased put options on Bank of America today with shares of the firm trading 3% lower to $14.52. The number of put options purchased at the March $14 strike price surpassed existing open interest at that strike, suggesting many investors are bracing for continued near-term share price erosion. Approximately 33,000 puts were purchased for an average premium of $0.59 apiece at the March $14 strike. Investors picking up the put options perhaps anticipate B of A’s share price could slip beneath the effective breakeven point on the trade at $13.41 ahead of March expiration. The 12% increase in the reading of options implied volatility on Bank of America to 43.74% today points to increased fluctuation in the price of the underlying shares going forward.

PBR – Petroleo Brasileiro SA ADR – The Brazilian oil company’s shares recovered slightly today, rising 0.65% to $39.03, amid higher commodity prices and a rebound in the price of crude oil. Option traders are still initiating bearish trades on the stock though, which suggests today’s modest rebound could be short-lived. One investor purchased a put spread in the January 2011 contract, establishing long-term downside protection. It appears the trader bought 5,000 in-the-money puts at the January 2011 $40 strike for a premium of $6.50 each, marked against the sale of 5,000 puts at the lower January 2011 $30 strike for an average premium of $2.13 apiece. The net cost of the transaction amounts to $4.37 per contract. The parameters of the trade indicate an effective breakeven share price of $35.63, which marks the price at which shares must trade at (or below) before downside protection kicks in for the put-spreader.

F – Ford Motor Co. – Shares of the American automaker, whose sales increased 24% year-over-year in the month of January, rallied 3.40% to $11.28 today. Notable options activity on the stock involved long-dated put options in the January 2012 contract. It looks like at least one investor purchased 20,000 puts at the January 2012 $5.0 strike for a premium of $0.58 per contract in combination with the purchase of an equivalent number of shares of the underlying stock. The ‘married-puts’ picked up by options players provide long-term downside protection should Ford’s shares collapse in the next two years. But, the trader(s) are most probably taking a long-term bullish stance on Ford by taking a long stock position and anticipating share price appreciation in the next couple of years to expiration.

FXI – iShares FTSE/Xinhua China 25 Index Fund – Shares of the FXI exchange-traded fund, which invests in twenty-five of the largest and most liquid Chinese companies, rebounded slightly today, rising 0.40% to $37.72. The value of the fund’s shares eroded significantly during the last trading week, but the modest rally today has perhaps inspired some investors to pursue bullish positions using options. Optimism appeared in the May contract where it looks like one trade sold 5,000 puts at the May $37 strike for a premium of $2.50 each in order to finance the purchase of 5,000 calls at the higher May $38 strike for $2.41 apiece. The investor pockets a net credit of $0.09 per contract on the trade, which he keeps as long as shares of the underlying stock trade above $37.00 through expiration day. Additional profits accumulate to the upside if the FXI’s share price breaks out above the $38.00-level ahead of expiration in approximately four months time.

NXY – Nexen Inc. – Shares in oil and gas exploration company, Nexen Inc. are higher by 27 cents or 1.3% at $22.30, while a large options play grabbed our attention. It looks as though a single investor sucked up 3,000 calls expiring in the March contract that would grant buying rights over 300,000 shares in the company at a fixe $25.00. If the share price doesn’t rise by at least 12.1% between now and then the investor will possibly have wasted the 39 cent premium spent today. Shares had been grinding lower last week and it appears that the fact the market isn’t following through after the price of oil reached $71.00 in an over supplied crude oil market, might have given this investor some reason to look to the near-term upside. Nexen’s share price hasn’t traded above $25.00 since November 23. Implied options volatility rose slightly to 44.5% today.

KFT – Kraft Foods, Inc. – Shares of the U.S. food producer are up 0.40% to $28.55 this morning, but early options movements on the stock perhaps point to limited near-term gains in the price of the underlying. It looks like one trader sold roughly 5,000 out-of-the-money call options at the March $30 strike for an average premium of $0.40 each. Open interest at the March $30 strike exceeds 31,000 contracts. Thus, the trader could be banking gains on a previously established long call position. Alternatively, it is possible the trader is long the stock and engaging in covered call selling. Investors exchanged more than 8,200 contracts on Kraft in the first forty-five minutes of the trading session.

DELL – Dell, Inc. – The personal computer manufacturer’s shares are trading more than 3.30% higher in early trading to stand at $13.67. Option traders exchanged more than 21,300 contacts on the stock in the first hour of the trading session. Investors are favoring call options on Dell at the start of the trading week, with more than 4 calls traded to each single put option in play today. The most heavily populated strike price thus far is the near-term February $13 strike where more than 7,400 in-the-money calls changed hands. Options implied volatility is slightly lower by about 3.30% to 38.59%.

HPQ – Hewlett-Packard Co. – It looks like the majority of the 5,200 calls exchanged at the now in-the-money February $47 strike were purchased by investors initiating bullish stances on the tech-giant. Hewlett-Packard’s shares are trading 1.25% higher in early trading to stand at $47.90. Options traders paid an average of $1.70 per contract for the calls, and thus stand ready to amass profits if shares of the underlying stock rally above the breakeven price at $48.70 ahead of expiration day.


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