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Visa-Bulls Covet Call Options

Today’s tickers: V, RDC, VALE, EEM, STX, XRT, FXI, VZ, IPI & MMM

V – Visa, Inc. – Call options on credit card company, Visa, Inc., are in high demand today by investors who appear to be expecting a sharp rally in the price of the underlying stock by April expiration. Visa’s share price increased 0.85% to $91.00 in afternoon trading. Bullish options players purchased about 4,000 calls at the April $95 strike for an average premium of $0.60 apiece. Call-buyers at the April $95 strike stand ready to accrue profits if Visa’s shares rise 5% to surpass the effective breakeven price of $95.60 by expiration day in April. Other optimistic options traders picked up approximately 5,000 calls at the higher April $100 strike for an average premium of $0.15 each. These investors make money if shares of the underlying stock surge 10% to exceed the breakeven price of $100.15 by expiration.

RDC – Rowan Companies, Inc. – Shares of the onshore and offshore contract drilling company leapt up 6.4% to briefly touch a new 52-week high of $29.40 in afternoon trading perhaps on news Rowan has “made no change in plans to shed its onshore oil and gas drilling business and LeTourneau Technologies Inc. manufacturing unit to focus on offshore projects.” Rowan’s shares are still net up for the session by 1.95% to $28.17 as of 2:50 pm (ET). Bullish options traders scooped up nearly 8,000 call options at the April $30 strike for an average premium of $0.45 per contract. Call-buyers are positioned to make money if Rowan’s shares jump 8% from the current value of $28.17 to breach the breakeven point at $30.45 ahead of April expiration day. Investors exchanged more than 25,500 contracts on the stock throughout the session, which represents 46.75% of total open interest on RDC of 54,546 lots.

VALE – Vale S.A. – Covered-call selling on Brazilian iron ore producer, Vale S.A., indicates one investor is expecting shares of the underlying stock to continue to rally to new highs for the year through May expiration. Vale’s shares gained 2% earlier in the current session to attain a new 52-week high of $32.66, exceeding yesterday’s new high of $32.00. The so-called buy-write strategy observed today took place at the May $33 strike where one optimistic individual shed 10,000 calls for a premium of $1.33 apiece. At the same time, the investor purchased an equivalent number of shares of the underlying stock when Vale was trading at $32.42. The premium received on the sale of the call options reduces the price paid for the shares to just $31.09 apiece and provides an effective exit strategy on the long stock position should the call land in-the-money at expiration. Thus, the covered-call seller is prepared to gain about 6.15% on the long stock position if shares rally through $33.00 by May expiration.

EEM – iShares MSCI Emerging Markets Index ETF – Shares of the emerging markets exchange-traded fund, which tracks the price and yield performance of the MSCI Emerging Markets Index, increased 0.35% to $42.00 as of 12:35 pm (ET). A variety of bullish options trading strategies were employed on the fund today by investors expecting to see continued share price appreciation. Nearer-term optimism took the form of a debit call spread in the May contract. It looks like some 16,000 in-the-money call options were purchased for an average premium of $2.85 apiece at the May $40 strike, and spread against the sale of roughly 16,000 calls at the higher May $42 strike for $1.52 each. Net premium paid for the spread amounts to $1.33 per contract, thus yielding maximum potential profits of $0.67 per contract if shares of the underlying fund rally through $42.00 ahead of May expiration day. Long-term optimistic traders betting on continued recovery in the global economy employed bullish risk reversals in the January 2012 contract. Approximately 9,000 puts were sold short at the January 2012 $30 strike for an average premium of $2.05 apiece, and spread against the purchase of 9,000 call options at the higher January 2012 $50 strike for about $2.70 each. The sale of the put options reduces the premium paid for the calls to a net $0.65 in premium per contract. Therefore, bullish investors are prepared to accrue profits if shares of the emerging markets fund surge 20.6% over the current price to surpass the breakeven point at $50.65 by expiration day in January 2012.

STX – Seagate Technology – Contrarian options investors employed bullish trading tactics on the manufacturer of rigid disc drives today despite the 3% decline in the price of the underlying shares to $18.34. Traders anticipating a sharp rebound in Seagate’s share price by May expiration coveted call options in the first half of the trading session. It looks like some 9,700 calls were purchased at the May $22 strike for an average premium of $0.26 per contract. Call-buyers make money only if STX shares increase more than 21.3% from the current price to exceed the effective breakeven point at $22.26 ahead of expiration day in May. Investors scooping up the call contracts indicate Seagate’s shares may surpass the current 52-week high on the stock of $21.58 – attained back on March 2, 2010 – in the next couple of months to expiration.

XRT – SPDR S&P Retail ETF – Shares of the retail exchange-traded fund, which tracks the performance of the S&P Retail Select Industry Index, are trading flat as of 12:05 pm (ET) at $41.59. Near-term bearish sentiment dominated options trading on the fund in the first half of the session as investors enacted put butterfly spreads in the April contract. Options players purchased 4,500 puts at the April $40 strike for an average premium of $0.27 apiece [wing 1] in combination with the purchase of 4,500 puts at the lower April $36 strike for about four pennies apiece [wing 2]. The body of the butterfly was established through the sale of 9,000 put options at the central April $38 strike for an average premium of $0.08 each. Net premium paid for the butterfly combination amounts to $0.15 per contract. Thus, bearish investors putting on the pessimistic play stand ready to accrue maximum potential profits of $1.85 per contract should shares of the underlying fund decline 8.65% from the current price to settle at $38.00 ahead of expiration day in April. Butterfly-spreaders start to make money as long as shares of the XRT slip beneath the upper breakeven point at $39.85. Investors may only ever lose a maximum of $0.15 per contract, but stand to accumulate more than 12 times that amount if shares of the retail SPDR trade at $38.00 at expiration.

FXI – iShares FTSE/Xinhua China 25 Index Fund – Shares of the FXI, which is an exchange-traded fund that mirrors the price and yield performance of the FTSE/Xinhua China 25 Index (an index of 25 of the largest and most liquid Chinese companies), rallied 1.40% during the trading session to $42.20. A short strangle transaction enacted in the August contract indicates one investor expects shares of the FXI to trade within a specified range through expiration in five months time. The trader sold 10,000 puts at the August $35 strike for a premium of $0.86 apiece in combination with the sale of 10,000 call options at the higher August $48 strike for $0.59 each. Gross premium pocketed by the strangle-seller amounts to $1.45 per contract. The investor keeps the full amount of premium as long as shares of the underlying fund trade within the range of $35.00 to $48.00 through expiration day in August. The trader is exposed to potentially devastating losses, however, if shares rally above the upper breakeven point at $49.45, or if shares slip beneath the lower breakeven price of $33.55, ahead of expiration.

VZ – Verizon Communications, Inc. – Shares of the self-titled ‘Big Red’ wireless communications services provider spiked in early trading on news Apple is devising an iPhone that will work with Verizon’s network. The largest U.S. wireless carrier’s shares increased 2.95% to $31.34 as of 10:30 am (ET). Bullish options traders gobbled up calls in the near-term April and May contracts to position for continued upward movement in the price of the underlying shares. Investors picked up 1,500 calls at the April $32 strike for an average premium of $0.09 apiece, and purchased 2,500 calls at the higher April $33 strike for approximately four pennies per contract. Trading traffic in call options was heaviest at the May $32 strike where 6,000 contracts were coveted for an average premium of $0.34 apiece. Investors long the May $32 strike call options stand ready to accrue profits if Verizon’s shares rally above the effective breakeven point at $32.34 ahead of May expiration. Finally, the May $33 strike enticed bullish players to purchase 1,600 calls for about $0.14 per contract.

IPI – Intrepid Potash, Inc. – Bullish investors flocked to Intrepid Potash in morning trading to purchase call options with shares of the underlying stock rallying more than 4.30% to $30.20 in the first hour of the session. Optimistic individuals purchased approximately 3,000 calls at the April $31 strike for an average premium of $0.70 per contract in order to position for continued appreciation in Intrepid’s share price. Call-buyers at this strike price stand ready to amass profits if shares of the potash producer increase another 5% from the current price to exceed the breakeven point on the calls at $31.70 by April expiration day. Bullish sentiment spread to the higher May $32 strike where traders purchased 1,100 call options for an average premium of $1.23 per contract. Higher-strike call coveters make money if Intrepid Potash shares surge 10% to surpass the breakeven price of $33.23 ahead of expiration day in May. The sudden onslaught in demand for options on IPI boosted the overall reading of options implied volatility on the stock 9.8% to 45.98%.

MMM – 3M Company – Diverse technology innovation firm, 3M Company, attracted bullish options players in the wee-hours of the trading session with shares of the underlying stock up 3.25% to $84.00. Options traders are taking near-term optimistic stances on 3M by purchasing April contract call options. Investors picked up approximately 4,000 calls at the April $85 strike for an average premium of $0.60 per contract. Call-buyers are positioned to make money if shares surpass the current 52-week high of $85.17 – attained back on January 19, 2010 – and continue to rally above the breakeven point on the call options at $85.60 ahead of April expiration.


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