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Goldman Sachs Bull Initiates Big Put Credit Spread

Today’s tickers: GS, NLC, TEX & MMR

GS – Goldman Sachs Group, Inc. – A large-volume credit put spread enacted on Goldman Sachs Group, Inc. in the first half of the trading session indicates one big options player expects the investment banking firm’s shares to rebound sharply ahead of May expiration. Goldman’s shares are up 3.25% to $149.92 as of 12:35 pm (ET). The investor responsible for the credit spread sold 18,250 deeply in-the-money puts at the May $170 strike for a premium of $21.95 apiece, and purchased the same number of puts at the May $120 strike for $0.63 each. The bullish options player keeps the hefty net credit of $21.32 per contract if shares of the underlying stock surge 13.33% from the current price to exceed $170.00 by expiration day. The short stance taken in May $170 strike put options implies the investor is willing to bear the risk that GS shares settle below $170.00 at expiration, and is therefore prepared to have shares of the underlying stock put to him at an effective price of $148.68 each in the event the put contracts land in-the-money at expiration. The overall reading of options implied volatility on the stock is down 13% to 44.45% as of 12:45 pm (ET).

NLC – Nalco Holding Co. – Shares of the global provider of integrated water treatment and process improvement services, chemicals and equipment programs jumped 18.27% earlier in the trading day to a new 52-week – and intraday – high of $29.25 on news the firm is ramping up production of a chemical to manage the spreading oil slick in the Gulf of Mexico. Bullish options investors rejoiced in Nalco’s share price rally by purchasing call options on the stock. Near-term optimists picked up 1,300 calls at the May $30 strike for an average premium of $1.00 apiece. Bullish sentiment spread to the June $30 strike where 1,400 call options were purchased for an average premium of $1.29 each. June contract call-buyers stand prepared to amass profits should shares of the underlying stock rally 14.75% over the current price ($27.27 as of 12:55 pm (ET)) to surpass the average breakeven point at $31.29 by June expiration day. The surge in investor demand for options on the stock combined with the massive rally in the price of the underlying shares lifted Nalco’s overall reading of options implied volatility 116.1% to 61.73% just ahead of 1:00 pm (ET).

TEX – Terex Corp. – The global equipment manufacturer’s shares are up 6.60% to $28.27 today, which is a scant 15.5 pennies beneath the stock’s current 52-week high of $28.71, attained back on April 26, 2010. Terex’s share price rally inspired bullish options investors to take action in the near-term May contract. Options players anticipating continued share price appreciation for Terex Corp. purchased approximately 2,000 calls at the May $30 strike for an average premium of $0.37 apiece. Investors holding the call contracts are positioned to amass profits to the upside if shares of the underlying stock rally another 7.45% over the current price of $28.27 to surpass the effective breakeven point on the calls at $30.37 by expiration day in May.

MMR – McMoRan Exploration Co. – The oil and natural gas exploration, development and production company engaged in on- and off-shore drilling in the Gulf of Mexico and the Gulf Coast region experienced a sharp 8.10% decline in the value of its shares to $10.97 today as grim news – and oil – continue to hemorrhage from the region. McMoRan Exploration’s shares are down roughly 27.6% since last Monday, April 26, 2010, when shares traded at an intraday high of $14.01. One long-term bullish options investor drastically lowered his expectations for McMoRan Exploration’s shares through August expiration. Activity in the August contract indicates the trader likely rolled a long call position at the August $15 strike down to the August $11 strike. Approximately 2,100 calls were shed at the August $15 strike for an average premium of $0.66 apiece, while the same number of call options were purchased at the lower August $11 strike for an average premium of $1.66 each. It is unclear how much the investor initially paid to purchase the August $15 strike calls, but today’s transaction – in isolation – cost the trader a net $1.00 per contract to implement. The August $11 strike calls, in this case, position the responsible party to profit should shares of the underlying stock rebound in the next four months to exceed the average breakeven price of $12.00 ahead of expiration. Options implied volatility on MMR is up 9.00% to 82.53% as of 1:15 pm (ET).


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