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Monday, May 20, 2024

Investor Removes Comcast Strangle to Bank Profits

Today’s tickers: CMCSA, HSY, GLD, ORCL, XRT, ERTS, FXI, PFE, SII & JCP

CMCSA – Comcast Corp. – A large-volume short strangle established at the beginning of the month on the entertainment and communications services firm was unraveled today, yielding one investor a nice chunk of change heading into the weekend. Comcast’s shares are up 1% to $15.89 in afternoon trading. It appears the trader originally sold roughly 35,000 calls at the July $17 strike for a volume-weighted average premium of $0.74 apiece in combination with the sale of 35,000 puts at the July $14 strike for a premium of $0.74 each. The original transaction likely occurred on February 4, 2010, and yielded a gross premium of $1.48 per contract to the trader. Today the investor purchased-to-close the short strangle, buying back the calls at a reduced premium of $0.60 each, and buying the put options for $0.56 apiece. The trader paid a gross premium of $1.16 to close out the short stance. Therefore, the investor walks away with net profits of $0.32 per contract for a grand total of $1.120 million. It is important to note, however, that the trader left a great deal of money sitting on the table. Comcast’s shares are still trading within the boundaries of the $14/$17 strike prices required for maximum profit potential. The investor would have accumulated profits of $1.48 per contract – a total of $5.180 million – if CMCSA shares remained range-bound and if the trader held the position through expiration. Perhaps this individual unraveled the strangle in anticipation of greater volatility in the price of the underlying stock going forward.

HSY – The Hershey Company – Bullish investors satisfied sugar cravings this afternoon by devouring Hershey call options. Shares of the chocolatier rallied 2.70% to $39.88 today. Option traders picked up 1,600 calls at the March $41 strike for a premium of $0.47 apiece. The higher March $42.5 strike attracted greater volume with more than 5,300 calls purchased for a premium of $0.23 per contract. Higher-strike call buyers are positioned to accumulate profits if Hershey’s share price exceeds its current 52-week high of $42.25, attained back on July 23, 2009, by expiration next month. These optimistic individuals profit if shares increase 7.15% from the current price to surpass the effective breakeven point on the calls at $42.73.

GLD – SPDR Gold Trust ETF – Shares of the gold exchange-traded fund, which mirrors the price of gold bullion, dipped slightly lower this afternoon by 0.20% to stand at $109.75. Two opposing options strategies caught our attention. One trader initiated a medium-term bearish risk reversal, while another investor established a long-term bullish stance on gold by purchasing a call spread. The reversal player sold 2,500 call options at the April $114 strike for a premium of $2.29 apiece in order to offset the cost of purchasing 2,500 puts at the lower April $108 strike for $2.84 each. The net cost of the bearish transaction amounts to $0.55 per contract. It appears the investor responsible for the reversal expects shares of the GLD to fall ahead of April expiration. Profits are available to the downside if shares of the underlying fund slip beneath the breakeven point at $107.45 by expiration day. December contract activity implies shares of the gold fund may rally significantly by the end of 2010. Bullish sentiment took the form of a plain-vanilla call spread enacted through the purchase of 2,500 calls at the December $115 strike for a premium of $8.75 each and spread against the sale of 2,500 calls at the sky-high December $155 strike for $2.25 apiece. The investor paid a net premium of $6.50 per contract for the spread, but is positioned to accrue maximum potential profits of $33.50 per contract if shares rally up to $155.00 by December expiration. The trader breaks even on the spread if shares of the GLD rise 10.70% from the current day’s price to $121.50. Maximum profits accumulate only if the share price appreciates 41.25% from $109.75 to the upper strike price of $155.00 ahead of expiration day.

ORCL – Oracle Corp. – A short straddle transaction initiated in the January 2011 contract on Oracle Corp. today indicates one investor expects shares of the underlying stock to remain range-bound through expiration next year. The software developer’s shares slipped 0.40% to $24.43 as of 12:20 pm (EDT). The straddle was enacted through the sale of 10,000 in-the-money puts at the January 2011 $25 strike for a premium of $3.00 apiece in combination with the sale of 10,000 calls at the same strike for a premium of $2.12 each. The gross premium pocketed by the ‘straddler’ amounts to $5.12 per contract. The investor keeps the full premium received on the trade if shares settle at $25.00 at expiration day. The short position in both calls and puts exposes the investor to potentially devastating losses should Oracle’s shares fluctuate significantly in the next ten months. Losses amass if shares surge 23.30% above the current price and surpass the upper breakeven point at $30.12, or if the stock falls roughly 18.60% to breach the lower breakeven price of $19.88, by expiration in January.

XRT – SPDR S&P Retail ETF – Shares of the retail exchange-traded fund, which mirrors the performance of the S&P Retail Select Industry index, edged 0.65% higher to $36.91 during the trading session. Options activity on the fund, however, paints a bearish picture of the sector going forward. One pessimistic individual purchased a debit put spread in the June contract. The investor picked up 9,000 puts at the June $35 strike for a premium of $1.49 apiece and sold 9,000 puts at the lower June $32 strike for an average premium of $0.70 each. The net cost of the spread amounts to $0.79 per contract. Perhaps the trader responsible for the transaction anticipates XRT share price erosion in the next four months to expiration. Maximum potential profits of $2.21 per contract are available to the investor should shares of the fund fall 13.30% from the current price to $32.00 ahead of expiration. Options implied volatility on the XRT is down 12.87% to 21.59%.

ERTS – Electronic Arts, Inc. – Shares of video game developer, Electronic Arts, are up 0.85% to $16.73 today prompting bullish options activity on the stock. It appears 30,000 put options were sold outright at the January 2011 $15 strike for a premium of $1.48 apiece. The put-seller keeps the full $1.48 premium per contract as long as ERTS shares trade above $15.00 through expiration next January. The investor is vulnerable to losses only if the video game software creator’s shares nose-dive 19.15% beneath the current price and breach the breakeven point at $13.52 ahead of expiration day.

FXI – iShares FTSE/Xinhua China 25 Index Fund – Shares of the China-exchange traded fund, which invests in twenty-five of the largest and most-liquid Chinese companies, declined 1.20% to stand at $39.23 today. Despite the modest share price erosion, one options trader established a three-legged bullish combination strategy in the August contract. It looks like the investor sold put options in order to partially finance the purchase of a debit call spread. The call spread involved the purchase of 2,400 calls at the August $40 strike for a premium of $2.78 apiece, marked against the sale of the same number of calls at the higher August $47 strike for a premium of $0.71 each. Added financing was provided by the outright sale of 2,400 put options at the August $32 strike for a premium of $1.35 apiece. The net cost of the bullish combo amounts to $0.72 per contract. Maximum available profits of $6.29 per contract accrue for the options strategist if FXI’s share price rallies 19.80% from the current day’s value to $47.00 ahead of August expiration.

PFE – Pfizer, Inc. – One large bullish options player was ready and waiting to burst right out of the gate this morning to populate pharmaceutical firm, Pfizer, Inc., with a sizeable ratio call spread. The investor honed in on the March contract to position for further upward movement in the price of the underlying stock by expiration next month. Pfizer’s shares are currently trading 1.25% higher to $17.95 as of 10:30 am (EDT). The early-bird bull bought 30,000 calls at the March $18 strike for an average premium of $0.41 apiece and sold 60,000 calls at the higher March $19 strike for $0.11 each. The net cost of the ratio spread amounts to $0.19 per contract. Maximum potential profits of $0.81 per contract accumulate for the investor if PFE’s shares rally up to $19.00 by expiration day. The 90,000 contracts involved in the bullish trade comprise nearly all of the current day’s trading volume on the stock of 101,802 lots.

SII – Smith International, Inc. – Shares of the global provider of products and services used in the production of natural gas opened the session 14% higher to $37.99 on news the firm is in “advanced talks” to be purchased by the world’s biggest oilfield-services firm, Schlumberger Ltd. Options players initiated two-way trading traffic in both calls and puts. Bullish individuals purchased 1,000 calls at the March $38 strike for an average premium of $0.84 per contract. Investors long the calls are hoping shares rally above the effective breakeven price of $38.84 by expiration next month. Protective positioning in put options is also apparent as approximately 1,600 contracts were picked up for $1.14 each at the March $36 strike price. These puts provide downside profits beneath a share price of $34.86 should the takeover plans fall through in the next few weeks to expiration. Options implied volatility jumped 16.07% to 42.67% in morning trading.

JCP – J.C. Penney Co., Inc. – The third-largest department store chain in the U.S. revealed fourth-quarter profits declined less than analysts expected. Shares reacted positively, rising 6.65% to $27.69 in the first hour of the trading session. JCP posted earnings of $0.84 per share, which bested average analyst predictions of $0.82 per share. Some option traders were prepared for the earnings surprise and exhibited profit taking behavior by selling call options in the March contract. Fresh bullish activity appeared at the March $30 strike where it looks like 2,500 calls were picked up for an average premium of $0.28 apiece. Call-buyers stand ready to accrue profits if JCP’s share price increases 9.35% over the current day’s value to surpass the breakeven point at $30.28 by March expiration day.

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