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Ford Rally Fuels Bullish Options Activity

Today’s tickers: F, EEM, DELL, UPS, IYR, JACK, WFC, CLX, SKX & LNC

F – Ford Motor Co. – The automobile manufacturer’s shares are once again trading at a new 52-week high after rallying 4.00% today to $14.02. Upward movement in the price of the underlying stock inspired bullish options trading activity. One investor initiated a plain-vanilla debit call spread to position for continued share price appreciation through expiration in September. The trader bought 5,000 calls at the September $15 strike for a premium of $1.03 per contract, and sold the same number of calls at the higher September $17.5 strike for $0.40 each. The investor paid a net $0.63 per contract for the spread, but could gain as much as $1.87 per contract if Ford’s shares surge 25% over the current price to $17.50 by expiration day. Nearer-term put activity clashes with the bullish move described in the September contract. It looks like investors purchased at least 18,600 put options at the April $13 strike for an average premium of $0.27 apiece. Perhaps put buyers are long shares of the underlying stock and are merely picking up cheap downside protection. But, it could also be the case that traders are buying the puts outright because they expect Ford’s shares to decline ahead of next month’s expiration day. If the latter is true, put-buyers amass profits if shares trade beneath the effective breakeven point on the puts at $12.73 by expiration.

EEM – iShares MSCI Emerging Markets Index ETF – Shares of the EEM, an exchange-traded fund that mirrors the price and yield performance of the MSCI Emerging Markets index, rose 1.55% during the session to $42.24. Despite the move up in share price, one investor employed a total of 60,000 option contracts on the fund to establish a bearish risk reversal in the January 2011 contract. It appears the options player shed 30,000 calls at the January 2011 $48 strike for a premium of $1.60 apiece in order to partially finance the purchase of 30,000 puts at the January 2011 $38 strike for $2.88 each. The net cost of the reversal amounts to $1.28 per contract. The massive size of the position may mean the trader is currently long an equivalent number of underlying shares of the fund. If this is the case, the transaction provides downside protection on that position should the EEM’s share price erode ahead of January expiration. Additionally, the sale of the call options not only reduced the cost of downside protection, but also provides the investor with an effective exit strategy should shares rally through $48.00 within the next ten months to expiration.

DELL – Dell, Inc. – The just-in-time maker of personal computers enticed bullish options players this afternoon as its shares rallied 3% to $14.75. Traders expecting the good times to continue through to April expiration readied themselves by purchasing call options. Investors picked up nearly 5,000 calls at the April $16 strike for an average premium of $0.10 per contract. Call-buyers are prepared to profit should Dell’s share price jump 9.15% from the current value of the stock to surpass the breakeven point at $16.10 by April expiration. The computer manufacturer’s shares last traded at $16.10 on November 18, 2009, and touched a 52-week high of $17.26 back on August 28, 2009.

UPS – United Parcel Service, Inc. – The package and freight delivery services firm attracted bullish options players today amid a 0.75% increase in its share price to $62.95. One investor sought longer-dated option contracts and established a bullish stance in the October contract. It looks like the trader purchased 3,500 call options at the October $67.5 strike for an average premium of $1.39 per contract. The optimistic investor profits if shares of the underlying stock rally at least 9.40% over the current price to breach the breakeven point on the calls at $68.89 by expiration day in October. Shares are knocking on the door of a 52-week high of $62.95 having earlier burst through to an intraday peak at $63.21.

IYR – iShares Dow Jones U.S. Real Estate Index ETF – Shares of the IYR, an exchange-traded fund that tracks the price and yield performance of the Dow Jones U.S. Real Estate Index, are trading 0.80% higher today to attain a new 52-week high of $50.58. The increase in the value of the underlying shares allowed one options player to take profits on a previously established bullish position. The investor appears to have originally purchased 5,000 calls at the April $52 strike for an average premium of $0.15 apiece back on March 20, 2010, when shares were trading at $48.45. The subsequent 4.40% increase in the fund’s shares boosted option premium on the calls. Thus, the trader sold the 5,000 contracts for a premium of $0.43 apiece today, banking net profits of $0.28 each. Finally, the IYR-optimist extended bullish sentiment on the fund by establishing a fresh long-call position at the June $54 strike where he picked up 5,000 calls for an average premium of $0.79 per contract.

JACK – Jack in the Box, Inc. – Bullish investors gobbled up Jack in the Box call options today with shares of the underlying stock trading up 5.10% to $24.30. Options traders picked up 2,700 calls at the April $25 strike for an average premium of $0.55 per contract. Call-buyers in the restaurant owner are positioned to amass profits should JACK’s share price surpass the effective breakeven price at $25.55 by expiration day next month. Approximately 5,135 contracts changed hands on the stock thus far in the session, which is roughly 18.3% of total existing open interest on JACK of 28,008 lots. The surge in demand for options on Jack in the Box drove up the stock’s overall reading of options implied volatility 6.6% to 28.46% today.

WFC – Wells Fargo & Co. – Massive bearish put positioning in the April contract contrasts with the 0.65% rally in the financial holding company’s shares today to $30.47. It looks like one investor purchased 28,000 put options at the deeply out-of-the-money April $23 strike for a premium of $0.08 per contract. Other traders drove the total number of purchased puts at that strike up to 32,200 contracts picked up for an average volume-weighted premium of $0.07 apiece. Investors could be long shares of the underlying stock and merely scooping up cheap downside protection. However, the put action could also be the work of extremely bearish players looking to amass profits should Wells Fargo’s shares decline substantially ahead of April expiration.

CLX – The Clorox Company – Shares of household products manufacturer, Clorox Co., rallied to a new 52-week high of $64.00 yesterday after receiving an upgrade to ‘overweight’ from ‘equalweight’ with a target share price of $71.00 at Barclays Capital. Clorox’s share price is up 0.35% to attain yet another new 52-week high of $64.16 in the current session. Options traders concentrated almost exclusively on Clorox calls, trading the contracts at a rate of more than 35 calls for each single put option in play. Investors purchased 3,100 March $65 calls for an average premium of $0.31 per contract. Near-term optimistic individuals holding these contracts profit if CLX shares trade above the breakeven price of $65.31 ahead of Friday’s expiration. Optimism spread to the April contract where traders purchased 4,100 calls at the April $70 strike for $0.21 apiece, while another 1,000 calls were coveted at the higher April $75 strike for $0.12 each. Medium-term bulls bought 1,000 calls at the July $70 strike for $0.68 per contract, and another 1,000 lots at the higher July $75 strike price for an average premium of $0.24 each. The surge in demand for option contracts on Clorox lifted its overall reading of options implied volatility 23% this morning to 18.39%.

SKX – Sketchers USA, Inc. – The athletic and fashion footwear designer’s shares traded up to a new 52-week high of $34.25 in early trading, exceeding yesterday’s new 52-week high of $34.20. As the morning hours of the session slipped away, Sketchers’ shares tapered off to stand just 0.05% higher on the day at $33.83. It looks like one bullish options player is extending optimistic sentiment on the stock by rolling a long call position up to a higher strike price in the April contract. The investor sold approximately 6,200 deep in-the-money call options at the April $30 strike for an average premium of $4.43 apiece in order to purchase about the same number of calls at the higher April $35 strike for $1.23 each. Existing open interest of 6,832 contracts at the April $30 strike suggests this trader is probably banking profits by selling the in-the-money calls, and maintaining a bullish stance on the stock by rolling the position up to the next strike. In isolation, the new long call position at the April $35 strike yields profits to the investor if Sketchers’ shares rally at least 7% from the current value of the stock to surpass the breakeven price of $36.23 by expiration day next month.

LNC – Lincoln National Corp. – Shares of the U.S. insurance firm surged 4.35% this morning to a new 52-week high of $29.71 on an upgrade to ‘buy’ from ‘neutral’ at Bank of America Merrill Lynch. Bullish players eagerly picked up call options to position for continued upward movement in the price of Lincoln’s shares. Near-term optimists purchased 2,500 calls at the March $30 strike for an average premium of $0.20 apiece. Buying interest spread to the higher April $31 strike where approximately 7,000 calls were coveted for an average premium of $0.56 each. Investors long these contracts profit if Lincoln National’s shares rally another 6.25% from the current price to exceed the effective breakeven point on the calls at $31.56 ahead of April expiration day.


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