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Cisco Call Options Fly off the Shelves

Today’s tickers: CSCO, DRYS, CIGX, AES, V, MCD, BIIB, SNE, GME & VALE

CSCO – Cisco Systems, Inc. – Bullish call-buying dominated options trading patterns on Cisco today on news the firm is slated to “make a significant announcement that will forever change the internet and its impact on consumers, businesses and governments.” Cisco’s shares jumped 4.15% to a new 52-week high of $26.25 during the session on a target share price upgrade to $28.00 from $26.00 at JPMorgan Chase & Co. Bullish traders purchased approximately 15,800 in-the-money calls at the March $26 strike for a premium of $0.33 apiece and coveted 9,300 calls at the higher March $27 strike for an average premium of $0.10 each. Uber-bullish individuals bought 4,000 calls at the March $28 strike for just two pennies premium per contract. Investors long the closest-to-the-money March $26 strike calls are positioned to accrue profits if Cisco’s shares trade above $26.33 ahead of expiration day. The surge in demand for options on the stock as well as uncertainty surrounding tomorrow’s announcement lifted the reading of overall options implied volatility on Cisco by 17.5% to 22.85% in afternoon trading.

DRYS – DryShips, Inc. – Dry-bulk shipping company, DryShips, Inc., experienced a short-lived dip in the price of its shares in morning trading, but regained its footing this afternoon, rallying 7.77% to $6.10 with about forty minutes remaining in the session. Call-buying action flooded DRYS today with approximately 22,300 now in-the-money calls picked up at the near-term March $6 strike for an average premium of $0.22 apiece. Nearly 12,000 calls were coveted at the higher March $7 strike for $0.05 premium per contract. Optimism spread to the same strike prices in the April contract, as well. Investors secured roughly 11,600 long in-the-money calls at the April $6 strike for an average premium of $0.39 each. Traders bought another 4,000 call options at the higher April $7 strike for $0.16 per contract. Options traders exchanged more than 130,000 contracts on DryShips during the session, which represents about 27% of total existing open interest on the stock of 480,443 contracts. Options implied volatility jumped approximately 34.8% this afternoon to 60.26%.

CIGX – Star Scientific, Inc. – Shares of the maker of dissolvable smokeless tobacco products surged 6.70% to $1.12 today, inspiring one investor to establish a bullish risk reversal on the stock in the August contract. The trader appears to have sold roughly 7,200 puts at the August $1.0 strike for a premium of $0.23 apiece in order to partially offset the cost of purchasing 7,200 in-the-money calls at the same strike for $0.35 each. The average net cost of the bullish spread amounts to $0.12 per contract. Thus, the investor is prepared to profit if Star Scientific’s shares trade above the effective breakeven point to the upside at $1.12 by expiration day in August. The day’s total trading volume of 17,588 contracts on CIGX today trumps total existing open interest on the stock of 10,733 lots.

AES – AES Corp. – Electric generator utility, AES attracted an unusually large amount of call activity on Monday as one investor appeared to take advantage of a near 1% decline in its share price to $11.46. Shares in the Arlington, VA-based company had been gyrating around $12.00 apiece before the recent Chilean earthquake, which knocked some of its power generating capabilities offline. The company recently reported that its local operation in which it has a 71% stake, AES Gener is managing to fulfill 100% of its power generation obligations to the nation after having lost at least a quarter of its output in the immediate aftermath of the disaster. Option trading today appears to show a conviction that the company’s stock will also resume normal operations before January 2011. One trader appears to have bought at least 17,500 call options at that expiration at the $12.5 strike for a premium of $1.30 per contract. In order to reach that strike shares would have to rally by 8.7% from today’s price. The trade today represents an equivalent of around one-in-five of overall options open interest.

V – Visa, Inc. – Near-term bullish trading on credit card company, Visa, Inc., indicates investors anticipate continued upward momentum in the price of the underlying stock through expiration day. Visa’s shares rallied 2.20% during the session to attain a new 52-week high of $90.48. Options investors purchased 2,200 now in-the-money calls at the March $90 strike for an average premium of $1.39 apiece. Call-buyers at this strike profit if Visa’s shares trade above the breakeven price of $91.39 by expiration day. More optimistic individuals picked up 1,500 calls at the higher March $95 strike for $0.16 each. Visa’s share price would need to surge at least 5% from the current value to $95.16 in order for the higher-strike call-coveters to breakeven by expiration this month. Options implied volatility on the stock is up roughly 7.8% to 23.05% on the day./p>

MCD – McDonald’s Corp. – Shares of the world’s largest restaurant chain are up 2.75% to a new 52-week high of $65.42 today after global sales increased 4.8% in the month of February. Same-store sales at restaurants based in Asia, the Middle East and Africa, aided by the Chinese New Year, rose 10.50% last month. Bullish investors sold 5,200 puts at the June $62.5 strike for a premium of $1.48 per contract. Put-sellers retain the $1.48 premium as long as McDonald’s shares trade above $62.50 through expiration day in June. Traders expecting continued bullish movement in the price of the underlying stock purchased 5,000 calls at the $70 strike expiring in January 2011 for $1.84 apiece. Investors long the calls are positioned to profit above a breakeven price of $71.84 by expiration day in January.

BIIB – Biogen IDEC, Inc. – Biotechnology company, Biogen IDEC, Inc., enticed bullish options players to the field today as shares surged more than 1.50% to a new 52-week high of $58.48. Investor demand for call options on the stock lifted options implied volatility on BIIB 36.60% to 34.94%. Traders exchanged more than 22 call options for each single put option in play thus far in the trading session. Bullish individuals purchased more than 4,700 calls at the March $60 strike for an average premium of $0.51 apiece. Traders long the calls stand ready to accrue profits if Biogen’s shares rally another 3.50% from today’s high of $58.48 to surpass the effective breakeven point on the calls at $60.51 by expiration. Optimistic trading spread to the higher April $65 strike where investors picked up 3,100 calls for an average premium of $0.83 each. Biogen’s shares must increase 12.60% by April expiration in order for these call-buyers to accrue profits above the breakeven price of $65.83.

SNE – Sony Corp. – Shares of the designer and manufacturer of electronic equipment are up 1.10% to a new 52-week high of $36.74. The rally in the price of the underlying stock inspired one options investor to purchase married put options this morning. It looks like the trader picked up 4,000 puts at the July $35 strike for a premium of $1.95 apiece in combination with the purchase of an equivalent number of shares for $36.68 each. The puts serve as downside protection in case Sony’s share price should erode in the next several months to expiration. Downside protection kicks in if shares decline 10% from the current price to breach the breakeven point on the puts at $33.05 ahead of expiration day in July. However, the trader is taking a bullish stance on Sony and hoping to see shares of the underlying stock appreciate.

GME – GameStop Corp. – Video game retail chain, GameStop Corp., attracted bullish options traders in the early hours of the session amid a 2.50% rally in the price of its shares to $18.55. Additionally, GameStop was resumed as a ‘buy’ at Broadpoint AmTech, Inc. this morning. Optimistic individuals purchased 2,000 calls at the April $22 strike for a premium of $0.15 per contract. Call-buyers stand ready to accrue profits on the position if GME’s shares surge 19.40% to surpass the effective breakeven point at $22.15 by April expiration day. Other bullish investors shed 3,500 puts at the March $18 strike for an average premium of $0.50 each. Open interest at that strike of 4,111 contracts suggests traders could be closing out long put positions. However, the put selling may also be the work of investors shedding the contracts to take in option premium. In this scenario traders keep the full $0.50 premium on the put sale if GameStop’s shares trade above $18.00 through expiration day in March.

VALE – Vale S.A. – The Brazilian metals and mining company enticed bullish players to the March contract in early trading despite the 0.75% decline in the price of the underlying shares to $30.45. One optimistic investor shed 16,000 puts at the March $30 strike to take in premium of $0.45 per contract. The trader keeps the full premium received today as long as Vale’s shares trade above $30.00 through expiration day. The investor stands ready to have shares of the underlying stock put to him at $29.55 apiece should the put options land in-the-money at expiration.


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