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Apple Shares Reach New 52-Week High Ahead of iPad Release

Today’s tickers: AAPL, GDXJ, CEPH, LO, MHK, VRTX & MJN

AAPL – Apple, Inc. – Shares of the iPhone and iPod maker rallied to a new 52-week high of 233.87 in morning trading with just five days remaining before the firm’s newest product, the iPad, hits retail stores across the U.S. Bullish options trading patterns on the stock today indicate optimistic sentiment on Apple ahead of the iPad’s release on Saturday morning. One investor enacted a bullish put credit spread in the May contract in order to benefit from continued strength in the price of Apple’s shares through expiration. It looks like approximately 10,000 puts were shed at the May $210 strike for an average premium of $3.46 per contract, marked against the purchase of about the same number of puts at the lower May $200 strike for $1.95 each. The investor responsible for the spread pockets a net credit of $1.51 per contract, which he keeps in full as long as Apple’s shares trade above $210.00 through May expiration. Maximum potential losses faced by the trader amount to $8.49 per contract should shares of the underlying stock plummet 14.5% to $200.00 ahead of expiration day in May.

GDXJ – Market Vectors Junior Gold Miners ETF – The GDXJ, which is an exchange-traded fund that seeks to replicate the price and yield performance of the Market Vectors Junior Gold Miners Index, realized a 1.25% appreciation in the value of its underlying share price to $25.82 today. The Market Vectors Junior Gold Miners Index tracks the overall performance of foreign and domestic publicly traded companies of small/medium-capitalization that primarily engage in gold and/or silver mining. Despite the move higher in shares today, one options trader initiated a bearish debit put spread in the May contract. It appears the investor purchased 10,000 in-the-money puts at the May $26 strike for a premium of $1.65 apiece and sold the same number of puts at the lower May $23 strike for $0.52 each. The net cost of the put spread amounts to $1.13 per contract. If the investor responsible for the trade holds no underlying share position, maximum potential profits of $1.87 per contract are available if shares slip to $23.00 by expiration day in May. However, the trader may be buying the spread to protect the value of an existing underlying share position, in which case protection kicks in beneath the breakeven share price of $24.49 through expiration day.

CEPH – Cephalon, Inc. – Bullish investors picked up call options on the biopharmaceutical company this afternoon as shares of the underlying stock increased 2.70% to $72.49. Earlier in the trading day, Cephalon’s shares rallied more than 3.2% to attain a new 52-week high of $72.87. Options optimists positioned for continued bullish movement in the price of CEPH’s shares by picking up 1,100 call options at the April $80 strike for an average premium of $0.32 per contract. Shares must surge 10.2% from the current price before near-term call buyers amass profits above the effective breakeven point at $80.32. Additional bullish sentiment appeared at the May $80 strike where investor purchased 2,100 call options for an average premium of $0.63 per contract. May contract call buyers stand ready to profit if Cephalon’s shares trade above $80.63 ahead of expiration day.

LO – Lorillard Inc. – Cigarette manufacturer, Lorillard Inc., attracted near-term bullish options traders today despite a downgrade to ‘hold’ from ‘buy’ at Deutsche Bank. Shares of the underlying stock slipped 0.35% during the first half of the trading session to $75.74. One optimistic individual initiated a bullish risk reversal on Lorillard by selling approximately 12,500 put options at the April $72.5 strike for an average premium of $0.75 apiece, spread against the purchase of the same number of call options at the higher April $80 strike for $0.40 each. The investor responsible for the reversal play pockets a net credit of $0.35 per contract, which he keeps as long as Lorillard’s shares trade above $72.50 through April expiration day. Additional profits accumulate should shares of the underlying stock rally at least 5.6% over the current price to surpass $80.00 by expiration. The short sale of put options implies the trader is willing to have Lorillard-shares put to him at an effective price of $72.15 apiece should the puts land in-the-money ahead of expiration day. The spike in demand for options on the stock lifted the overall reading of options implied volatility 17.2% to 28.02% by midday.

MHK – Mohawk Industries, Inc. – The manufacturer of floor covering products for residential and commercial applications enticed bullish players after receiving a new rating of ‘buy’ with a 12-month target share price of $63.00 at Ticonderoga Securities this morning. Mohawk’s shares jumped 3.30% in the first half of the trading day to stand at $54.90. Optimistic options traders positioned for continued upward movement in the price of Mohawk’s shares by purchasing call options in the April contract. Investors picked up 1,400 calls at the April $55 strike for an average premium of $1.31 apiece. Shares must exceed the current 52-week high on the stock of $55.21 and surpass the effective breakeven point on the calls at $56.31 before call buyers accrue profits. Bullish traders also purchased 2,500 call options at the higher April $60 strike for an average premium of $0.32 per contract. Higher-strike call coveters stand ready to accrue profits should Mohawk’s shares rally 9.9% to breach the breakeven point at $60.32 ahead of expiration day in April.

VRTX – Vertex Pharmaceuticals, Inc. – Shares of biotechnology company, Vertex Pharmaceuticals, slipped slightly lower by 0.05% to $41.59 today. Perhaps anticipating continued downward momentum in the price of the underlying shares, one options investor enacted a bearish risk reversal in the October contract. The trader sold 2,500 calls at the October $50 strike for a premium of $2.20 apiece in order to offset the cost of buying the same number of puts at the lower October $30 strike for $1.60 each. The reversal player receives a net credit of $0.60 per contract on the transaction, which he keeps if Vertex’s shares trade below $50.00 through expiration day in October. Additional profits accumulate to the downside if shares of the underlying stock plummet 27.9% from the current price to breach the $30.00-level ahead of expiration. Shares last traded below $30.00 back on June 10, 2009.

MJN – Mead Johnson Nutrition Co. – The global provider of pediatric nutrition products received a long-term vote of confidence by one bullish options trader today amid a share 6.5% rally in shares to an intraday high of $52.17. Shares slipped slightly during the first half of the trading session, and are currently flat at $51.83. The optimistic options investor financed the purchase of a debit call spread in the January 2011 contract by selling short 4,000 put options at the January 2012 $40 strike for an average premium of $2.94 apiece. The trader purchased 4,000 in-the-money calls at the January 2011 $50 strike for $6.60 each, and sold 4,000 calls at the higher January 2011 $65 strike for $1.70 apiece. The net cost of the three-legged combination play amounts to $1.96 per contract. Thus, the investor is prepared to accrue maximum potential profits of $13.04 per contract should Mead Johnson’s share price surge more than 25% from the current price of $51.83 to surpass $65.00 by expiration day next January. The investor makes money on the trade as long as shares exceed the breakeven price of $51.96 by expiration.


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