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Options Trader Sends Bullish Signal by Enacting Ratio Call Spread on Salesforce.com

Today’s tickers: CRM, CPB, VALE, GDX, CNX, SLV, OSIP, BONT, UA & XRT

CRM – Salesforce.com, Inc. – A large-volume ratio call spread on the provider of customer relationship management services this afternoon implies one options investor expects CRM shares to rally significantly by August expiration. Salesforce.com’s shares increased as much as 1.83% today to reach a new 52-week high of $81.23 during the current session. According to a Reuters report this weekend, analysts at Deutsche Bank maintain their ‘buy’ rating on the stock and raised their share price target on CRM to $110 from $100. The optimistic options trader populating the stock this afternoon purchased 13,000 calls at the August $85 strike for a premium of $5.00 apiece, and sold 26,000 calls at the higher August $100 strike for $1.05 each. Net premium paid by the investor for the transaction amounts to $2.90 per contract. Maximum available profits of $12.10 per contract accumulate for the trader if shares of the underlying stock surge at least 23% from the new 52-week high of $81.23 to reach $100.00 by August expiration. The investor starts to make money as long as CRM’s shares trade above the effective breakeven point at $87.90 ahead of expiration day.

CPB – Campbell Soup Co. – Options traders anticipating a sharp increase in the price of Campbell Soup Co.’s shares by November expiration scooped up record numbers of call options on the global manufacturer and marketer of branded convenience food products today. CPB’s shares traded 0.25% higher in late afternoon trading to $35.45, which is just off their current 52-week high of $35.80 (attained back on December 2, 2009). Campbell-bulls purchased approximately 5,200 calls at the November $40 strike for an average premium of $0.55 per contract. Investors holding these contracts are prepared to profit should Campbell’s share price jump 14.4% from the current price to exceed the average breakeven point to the upside at $40.55. Investors exchanged roughly 5,925 option contracts on CPB during the trading session, which represents 56% of the total existing open interest on the stock of 10,567 lots.

VALE – Vale S.A. – Diverse bullish options strategies employed on Brazilian metals and mining company, Vale S.A., today indicates investors are expecting the price of the iron-ore maker’s shares to appreciate in the next few months. Vale’s shares rallied 1.20% at the start of the session to an intraday high – and new 52-week high – of $34.36, but are currently up just 0.25% to $34.04 as of 2:10 pm (ET). One optimistic investor initiated a three-legged bullish options combination play in the May contract by essentially selling put contracts to finance the purchase of a debit call spread. The trader shed 5,500 puts at the May $30 strike for an average premium of $0.41 apiece. On the call side, the investor purchased 5,500 now in-the-money calls at the May $34 strike for a premium of $1.47 each, spread against the sale of the same number of contracts at the higher May $38 strike for $0.28 a-pop. The net cost of the transaction amounts to $0.78 per contract and positions the investor to start making money above the effective breakeven share price of $34.78. Maximum available profits of $3.22 per contract accumulate for the trader if Vale’s shares surge 11.6% from the current price to surpass $38.00 by expiration day next month. Optimism on the iron-ore producer spread to the June contract where a different bullish trading strategy was utilized. Here, one investor enacted a ratio call spread by purchasing 2,000 call options at the June $35 strike for a premium of $1.52 apiece, and by selling 4,000 calls at the higher June $38 strike for $0.61 each. Net premium paid for the ratio spread amounts to just $0.30 per contract because of the greater proportion of sold call options. Thus, the investor stands ready to accrue maximum potential profits of $2.70 per contract should Vale’s share price rally through $38.00 by June expiration.

GDX – Market Vectors Gold Miners ETF – Shares of the Market Vectors Gold Miners ETF, an exchange-traded fund that attempts to replicate the price and yield performance of the NYSE Arca Gold Miners Index, rallied early in the session but slipped 0.70% to $48.35 with 90 minutes remaining in the trading session. A bullish three-legged options combination strategy involving 30,000 option contracts on the GDX indicates one options player is positioning for a rebound in the value of the underlying shares by May expiration. The trader sold 10,000 puts at the May $46 strike for an average premium of $1.12 apiece in order to partially offset the cost of purchasing a debit call spread. The investor purchased 10,000 calls at the May $50 strike for an average premium of $1.67 a-pop, and sold the same number of calls at the higher May $54 strike for $0.56 each. The investor pockets a net credit of 1 penny per contract on the transaction, which he keeps as long as shares of the GDX trade above $46.00 through expiration day. Maximum potential profits of $4.00 per contract are available to the options strategist if shares of the ETF surge 11.7% from the current price of $48.35 to surpass $54.00 ahead of expiration day next month.

CNX – Consol Energy, Inc. – The multi-fuel energy producer and energy services provider received a vote of confidence by one options investor who sold put options to finance the purchase of a long bull call stance on the stock in the May contract. Consol Energy’s shares are trading 1.15% higher this afternoon to stand at $46.44. The optimistic options player targeted the May $46 strike price to sell 5,000 puts for an average premium of $2.60 apiece in order to partially offset the cost of buying the same number of now in-the-money calls for about $3.09 each. The net cost of the bullish risk reversal play amounts to $0.49 per contract, and prepares the investor to amass profits should Consol’s shares rally above the effective breakeven price of $46.49 ahead of expiration day in May.

SLV – iShares Silver Trust ETF – A chunk of married put options purchased on the iShares Silver Trust, an exchange-traded fund that reflects the price of silver owned by the Trust at any given time less the Trust’s expenses and liabilities, suggests one investor is taking a cautiously optimistic stance on the fund. Shares of the SLV dipped 0.95% lower to stand at $17.84 as of 2:25 pm (ET). It looks like one investor purchased approximately 17,000 puts at the July $17 strike for an average premium of $0.56 each in combination with the purchase of shares of the underlying fund for approximately $18.11 apiece. The effective price paid for the shares, when factoring in the added cost of the put contracts, amounts to about $18.67 per share. The nature of the transaction indicates the investor is hoping to see shares of the ETF appreciate going forward. However, the trader is also willing to shell out extra premium to insure the value of the underlying position with put options in case shares plummet ahead of expiration in July. Downside protection kicks in if shares of the underlying fund fall 7.85% from the current price of $17.84 to breach the breakeven point on the puts at $16.44 by July expiration day.

OSIP – OSI Pharmaceuticals Inc. – A put butterfly spread enacted on biotechnology firm, OSI Pharmaceuticals, today indicates one investor expects shares of the underlying stock to decline ahead of July expiration. OSIP’s shares are trading 0.05% higher on the day to $60.10 as of 11:50 am (ET). The bearish options strategy involved the purchase of 2,000 puts at the July $60 strike for an average premium of $2.88 each [wing 1] and the purchase of 2,000 puts at the lower July $50 strike for a premium of $1.30 apiece [wing 2]. The investor established the body of the butterfly spread by selling 4,000 put options at the central July $55 strike for a premium of $1.65 each. The net cost of the pessimistic play amounts to $0.88 per contract. Therefore, the trader responsible for the transaction is prepared to accrue maximum potential profits of $4.12 per contract should OSIP shares fall approximately 8.5% from the current price to $55.00 ahead of July expiration day. The investor only ever risks losing the $0.88 per contract paid for the trade, but stands ready to amass more than 4.6 times that amount should shares of the underlying stock slump to $55.00 at expiration.

BONT – Bon-Ton Stores, Inc. – Shares of the regional department store operator slipped 0.40% to $15.55 during the first half of the trading session, but did not deter one investor from banking gains on a previously established long call position. It looks like the trader originally purchased approximately 9,300 calls at the July $15 strike for an average premium of $0.95 apiece back on March 25, 2010, when Bon-Ton’s shares traded up to an intraday high of $12.62. In the past few weeks since the trader purchased the call options, Bon-Ton Stores’ shares rallied approximately 24.8% up to Friday’s new 52-week high on the stock at $15.75. Thus, the investor was able to sell the now in-the-money call options today for an average premium of $2.20 apiece to pocket net profits of $1.25 per contract. Finally, the options player extended bullish sentiment on the department store operator by purchasing a fresh batch of 8,500 calls at the higher July $17.5 strike for a premium of $1.25 per contract. Profits accumulate on the new position if Bon-Ton’s shares rally another 20% from the current price of $15.55 to surpass the effective breakeven point at $18.75 by expiration day in July.

UA – Under Armour, Inc. – The maker of technologically advanced athletic and sports apparel and accessories enticed bullish investors to the options field today as its share price increased more than 3.25% to secure a new 52-week high of $33.34. Options players expecting the price of the underlying shares to continue to appreciate ahead of May expiration purchased more than 1,800 calls at the May $35 strike for an average premium of $1.45 per contract. Call-buyers profit if Under Armour’s shares rally 9.3% over the new 52-week high of $33.34 to exceed the effective breakeven price on the calls at $36.45 by expiration day next month. The increase in investor demand for call options on the stock lifted UA’s overall reading of options implied volatility 15.6% to 47.98% as of 12:15 pm (ET).

XRT – SPDR S&P Retail ETF – Shares of the XRT, an exchange-traded fund that attempts to replicate the performance of the S&P Retail Select Industry Index, slipped slightly lower by 0.15% to $42.73 during the first half of the trading day. One bearish investor’s put activity on the XRT today indicates shares of the underlying fund could decline significantly by September expiration. The trader purchased a debit put spread by picking up 10,000 puts at the September $37 strike for a premium of $1.03 each, marked against the sale of 10,000 puts at the lower September $31 strike for $0.27 apiece. The net cost of the spread amounts to $0.76 per contract, thus positioning the investor to amass maximum potential profits of $5.24 per contract if the XRT’s share price plummets 27.45% from the current price to $31.00 by September expiration day.


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