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Fortune Brands’ Shares Trade at New 52-Week High, Bullish Players Covet Call Options

Today’s tickers: FO, STJ, XLB, BSX, BIDU, VRSN & MNKD

FO – Fortune Brands, Inc. – Shares of the holding company with subsidiaries such as Beam Global Spirits & Wine, Inc., which manufactures Jim Beam whiskey and Maker’s Mark, and Acushnet Company, the producer of Titleist golf products, rallied 2.35% during the session to reach a new 52-week high of $48.45. The increase in Fortune’s share price inspired bullish options trading on the stock today. Approximately 1,000 calls were picked up at the April $50 strike for an average premium of $0.66 apiece. But, the real action took place at the June $50 strike where nearly 15,500 calls were purchased for an average premium of $1.68 per contract. Investors holding the June $50 strike call options stand ready to amass profits only if Fortune Brands’ shares rally another 6.65% from the current day’s price to breach the breakeven point on the calls at $51.68 by expiration day in June.

STJ – St. Jude Medical, Inc. – The manufacturer of cardiovascular medical devices experienced a sharp 8.45% rally in its share price today to $40.67 on news its rival, Boston Scientific Corp., suspended sales of its implantable heart defibrillator this morning. Options players initiated bullish transactions on the stock by selling 2,100 puts at the March $40 strike for an average premium of $0.60 apiece. Put-sellers keep the $0.60 premium per contract as long as St. Jude’s shares trade above $40.00 through expiration on Friday. However, put-players are obliged to have shares of the underlying stock put to them at an effective price of $39.40 each should the put options land in-the-money at expiration. Optimistic investors scooped up 3,100 call options at the July $45 strike by paying an average premium of $0.77 per contract. Call-coveters are positioned to profit only if shares rally another 12.5% from the current price to breach the breakeven share price at $45.77 by expiration day in July.

XLB – Materials Select Sector SPDR – Shares of the XLB, an exchange-traded fund that tracks the performance of the materials economic sector of the S&P Composite Stock Index, declined 0.30% today to $33.19. Trading in long-dated options on the fund, however, suggests one individual is bullish on the sector through expiration in January 2011. It appears the investor sold 10,000 put options outright at the January 2011 $27 strike for a premium of $1.32 per contract. The trader keeps the full premium pocketed today as long as shares of the underlying stock trade above $27.00 through expiration day. The short-sale of the put options indicates the investor is happy to have shares of the underlying fund put to him at an effective price of $25.68 apiece should the puts land in-the-money at expiration.

BSX – Boston Scientific Corp. – Shares of the manufacturer of medical devices suffered an 18.50% decline in value today to arrive at a new 52-week low of $6.34 after the firm halted sales of its implantable heart defibrillator. Boston Scientific’s failure to alert the United States Food & Drug Administration to changes in the way it makes the device resulted in the current suspension of defibrillator sales. Options traders, however, initiated optimistic transactions on the stock, implying they anticipate a rebound in BSX shares going forward. Investors purchased 5,100 call options at the April $7.0 strike for an average premium of $0.37 apiece. Call-buyers are prepared to amass profits should the company’s shares trade above $7.37 by April expiration day. Additional bullish trading occurred at the January 2011 $7.5 strike where 27,900 calls were picked up for an average premium of $0.83 apiece. Finally, volatility sellers targeted the May contract where one investor established a short strangle. The trader appears to have sold 10,000 puts at the May $6.0 strike for a premium of $0.20 apiece, in combination with the sale of 10,000 calls at the higher May $7.0 strike for $0.45 each. The investor collects a gross premium of $0.65 per contract, which he keeps if shares of the underlying stock trade within the range of $6.00 to $7.00 apiece through expiration day in May. Options implied volatility on BSX is soaring 55.1% higher on the day at 59.59% following the defibrillator fiasco. Perhaps the strangle-seller is expecting options implied volatility to plummet ahead of expiration, which would drag down premium on both call and put options. Cheaper premium will allow the trader to buy back the short strangle for less than the premium received on today’s sale, and thus generate a profit. However, the short options transaction exposes the investor to losses in the event that shares swing outside of the upper breakeven price of $7.65, or if shares slip beneath the lower breakeven point at $5.35, ahead of expiration day.

BIDU – Baidu, Inc. – The Chinese language internet search provider’s shares surged 6.25% to a new 52-week high of $584.97 today as Google’s exit from the Chinese market appears 99.9% certain. Baidu also received an upgrade to ‘buy’ from ‘hold’ with a 12-month target share price of $645.00 at Mirae Asset Securities. Baidu-bulls celebrated Google’s seemingly imminent exit from China by engaging March contract option contracts. Optimistic options players purchased at least 1,000 now in-the-money calls at the March $580 strike for an average premium of $11.84 per contract. Uber-bullish individuals picked up approximately 1,000 calls at the higher March $600 strike for an average premium of $7.00 each. Traders long the March $600 strike calls profit if shares rally another 2.55% from the current price of $584.57 to surpass the effective breakeven point at $607.00 by expiration day on Friday. Optimistic traders also shed put options on Baidu today. It looks like 1,000 puts were sold at the March $560 strike for an average premium of $4.62 apiece. Put-sellers keep the full $4.62 premium if Baidu’s shares trade above $560.00 through expiration on Friday. Options implied volatility on Baidu is up 24.3% to 42.79% as of 12:30 pm (ET).

VRSN – VeriSign, Inc. – A short strangle enacted on the provider of internet infrastructure services today indicates one investor expects VeriSign’s shares to remain range-bound through expiration in June. Shares of the underlying stock are trading up 0.40% to $26.74 as of 12:30 pm (ET). The strangle-player sold 6,300 calls at the June $27 strike for a premium of $1.45 apiece, and shed 6,300 puts at the lower June $25 strike for $0.70 each. The investor pockets a gross premium of $2.15 per contract on the trade, which he keeps if VeriSign’s shares trade within the confines of the strike prices described through expiration day. As with all short strangles, the trader is vulnerable to losses in the event that shares trade outside of either breakeven point ahead of expiration. Losses amass should shares trade above the upper breakeven price of $29.15, or should shares decline below the lower breakeven point at $22.85, by June expiration.

MNKD – MannKind Corp. – Shares of the biopharmaceutical company plummeted 13.45% during the current session to $9.07 following news the Food & Drug Administration requires additional information and updated safety data on the firm’s inhaled insulin device, Afrezza. Bearish reactions by investors littered the options field on MannKind today. Near-term pessimism appeared at the March $9.0 strike where traders picked up approximately 2,000 puts for an average premium of $0.39 apiece. Put-buyers profit if MannKind’s shares slip beneath the effective breakeven point on the puts at $8.61 by expiration on Friday. Bearish sentiment spread to the August contract where investors shed call options. Traders sold 4,800 calls at the August $14 strike to take in an average premium of $0.88 apiece, while 5,300 calls sold at the lower August $12.5 strike for a premium of $1.10 each. Call-sellers keep the premium received today as long as shares of the underlying stock fail to rebound above the strike prices described through August expiration.


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