-0.6 C
New York
Thursday, March 30, 2023


Gold Bull Buys Butterfly Spread

Today’s tickers: GLD, AA, KR, AMD, HAL, LOW, CTRP, STR & LPX

GLD – SPDR Gold Trust ETF – Gilded butterfly wings unfurled in the July contract on the GLD, an exchange-traded fund designed to mirror the performance of the price of gold bullion, in afternoon trading with shares of the underlying fund flying 1.30% higher at a new 52-week high of $122.24. Options investors exchanged more than 478,100 contracts on the gold fund as of 3:35 pm (ET). Overall, trading action on the GLD was dominated by bullish players tossing around more than 2 call options to each single put option in play today. One bullish individual expecting the price of gold bullion to continue to appreciate in the next few months purchased a call butterfly spread in the July contract. The investor picked up 6,500 calls at the July $123 strike for an average premium of $4.40 each [wing 1], in combination with the purchase of 6,500 calls at the higher July $143 strike for $0.63 apiece [wing 2]. The third leg of the trade centered at the July $133 strike where 13,000 calls were sold for a premium of $1.59 a-pop [body]. The net cost of the spread amounts to $1.85 per contract and represents maximum loss potential assumed by the investor responsible for the transaction. Shares of the GLD must rally at least 2.15% over the new 52-week high of $122.24 before the investor starts to make money above the effective breakeven price of $124.85. Maximum potential profits of $8.15 per contract are available to the trader should shares of the underlying fund surge 8.80% to settle at $133.00 by July expiration. The spread is a very efficient way for this individual to take a bullish stance because the potential rewards are 4.4 times greater than potential losses.

AA – Alcoa, Inc. – The sale of a large chunk of June contract call options may be the work of an optimistic investor initiating a covered call on the stock. The aluminum maker’s shares are currently up 2.80% to $12.47 with 10 minutes remaining the session. It looks like one investor sold 19,000 calls at the June $13 strike for a premium of $0.42 apiece at around 1:06:16 pm (ET) when shares of the underlying stock were trading at $12.45 each. If the calls were sold in combination with the purchase of 1.9 million shares of stock – a one-to-one ratio so to speak – the trader effective reduces the price paid to take ownership of said stock to $12.03 each. In this scenario, the trader stands ready to accrue maximum potential gains of 8% on the rally in the stock should the June $13 calls land in-the-money at expiration next month.

KR – The Kroger Company – Shares of the operator of a chain of grocery stores in the United States are up 1% to $22.29 just after 1:00 pm (ET). Despite the rally in the price of the underlying stock, investors initiated bearish reversals in the October contract. It looks like one or more individuals sold 11,787 calls at the October $24 strike for an average premium of $0.85 apiece in order to purchase the same number of puts at the lower October $20 strike for an average premium of $0.83 each. Average net credits received on the transaction amount to $0.02 per contract. Investors keep the full credit as long as Kroger’s shares trade below $24.00 through expiration. The long puts yield profits to the downside if shares of the grocer fall 10.25% from the current value to breach the $20.00-level by October expiration day. The short stance in call contracts is risky – assuming investors are not currently long the stock – because shares could potentially rally through the $24.02 upper breakeven point at which losses accrue in the next several months to expiration. Kroger’s shares have not exceeded $24.00 since November 10, 2009, when the stock reached a high of $24.12.

AMD – Advanced Micro Devices, Inc. – On Monday the chip manufacturer’s shares surged roughly 9% from an intraday low of $8.31 to a high of $9.03 after ratings agency, Moody’s Corp., raised AMD to Ba3 from B2. Shares of the semiconductor company are again in the midst of a rally, trading 3.85% higher on the day at $9.42 as of 12:20 pm (ET). AMD’s shares jumped on news 30% more Ultrathin Notebooks and 109 New Mainstream Notebooks based on AMD’s VISION Technology are to be available to consumers during the booming back-to-school buying period. Investors reacted to the news by initiating bullish positions on the stock. Approximately 6,500 calls were purchased at the June $10 strike for an average premium of $0.42 apiece. Investors long these contracts make money if shares of the underlying stock jump 10.6% over the current price to exceed the average breakeven point at $10.42 by June expiration. Buying interest spread to the higher June $11 strike where approximately 13,500 calls were purchased for an average premium of $0.155 per contract. Higher-strike call coveters stand prepared to profit as long as AMD’s share price surges 18.4% to exceed $11.155 by expiration day. Investors long call options at both strike prices anticipate the chip maker’s shares will break through the current 52-week high on the stock of $10.24, attained back on April 15, 2010.

HAL – Halliburton Co. – Bearish options activity on Halliburton suggests one pessimistic player anticipates another pullback in the oil company’s shares by July expiration. Currently, shares of the oil equipment and services provider are up 1.75% to $28.84 as of 12:35 pm (ET), but earlier shares added 4% to secure an intraday high of $29.50. Halliburton’s Chief Executive Officer, David Lesar, is slated to testify before a House Energy and Commerce subcommittee today regarding the Gulf of Mexico oil spill. The bearish trader mentioned above initiated a ratio put spread by picking up 2,000 lots at the July $28 strike for a premium of $1.80 each, and selling 4,000 puts at the lower July $25 strike for $0.96 apiece. The investor pockets a net credit of $0.12 per contract on the trade. Additional profits accrue if Halliburton’s shares decline through the $28.00-level by expiration. Maximum potential profits (including the credit received) of $3.12 per contract accumulate for the trader if HAL’s shares plummet 13.3% to settle at $25.00 at expiration. The greater proportion of short contracts at the lower strike implies the trader could have up to 200,000 shares of the underlying stock put to him if the July $25 strike put options land in-the-money at expiration day in July. Shares of the oil company, in this scenario, would need to collapse 24.1% lower ahead of expiration for the ratio put-spreader to incur losses beneath a price of $21.88.

LOW – Lowe’s Companies, Inc. – Home improvement retailer, Lowe’s Cos., popped onto our ‘most active by options volume’ market scanner this afternoon after one investor booked profits on a previously established long call position. Shares of the underlying stock are currently down 0.90% at $26.87 as of 12:53 pm (ET). It looks like the trader originally purchased at least 7,000 calls at the May $25 strike for an average premium of $0.69 apiece out of the 15,000 lots purchased at the same average premium of $0.69 each back on April 5, 2010, when shares were trading at a volume-weighted average price of $24.77. By April 26, 2010, Lowe’s shares surged 15.2% to an intraday- and 52-week high of $28.54. In hindsight, the investor should have taken profits off the table at that point because within the next 10 days, shares of the underlying stock fell 15.4% to $24.14 on May 6, 2010. Perhaps confident shares would rebound by May expiration, the call buyer held onto the position, waiting for more favorable circumstances. Such circumstances were apparently ripe today, as the investor sold roughly 7,000 in-the-money contracts at the May $25 strike for an average premium of $2.18 per contract to take in average net profits of $1.49 apiece. Activity in the June contract, which is likely the work of the same investor given time of execution, appears to involve the sale of 15,000 calls at the June $28 strike for an average premium of $0.71 per contract. The trader keeps the $0.71 premium received on the sale as long as LOW’s shares trade below $28.00 through expiration day in June.

CTRP – CTrip.com International, Ltd. – Shares of the online Chinese travel company are up more than6.15% to $38.80 this morning following better-than-expected first-quarter results from the firm. After the closing bell on Tuesday CTrip.com posted first-quarter profits of $0.19 per share on revenue of $86 million, which beat average earnings estimates of $0.18 a share on revenue of $80.6 million. Options investors displayed bullish sentiment on the stock by selling short put options in the June contract. Approximately 2,800 puts were shed at the June $36 strike for an average premium of $1.78 apiece. Put sellers retain the full $1.78 premium pocketed today as long as shares of the underlying stock exceed $36.00 through June expiration. Investors short the put options are apparently happy to have CTRP shares put to them at an effective price of $34.22 each should the puts land in-the-money at expiration. Options implied volatility is down 13.5% to 52.99% following the first-quarter earnings report.

STR – Questar Corp. – Near-term call options on natural gas distributor, Questar Corp., are flying off the shelves in early trading with shares of the underlying stock rallying 3.90% to an intraday high of $48.38. Options traders exchanged more than 11,000 calls at the May $50 strike – which touts paltry existing open interest of 593 contracts – by 11:00 am (ET). It looks like the majority of the call activity at that strike is the work of bullish traders positioning for continued share price appreciation ahead of expiration day in May. Call-buyers paid an average premium of $0.30 per contract to take ownership of the contracts. Investors make money if Questar’s shares rally about 4% over the current intraday high of $48.38 to surpass the average breakeven price of $50.30 by expiration. The surge in investor demand for calls on the stock lifted Questar’s overall reading of options implied volatility 10.5% to 34.88% as of 11:00 am (ET).

LPX – Louisiana-Pacific Corp. – The manufacturer of building products attracted bullish options players to the arena this morning with the price of its shares up 7.00% to $10.09. One bullish investor appears to have purchased 10,000 now in-the-money calls at the June $10 strike for an average premium of $0.85 apiece. Other traders hopped on the bandwagon, driving total call volume at that strike to 13,926 lots, which is more than 10 times greater than existing open interest of 1,321 calls. Call buyers paying an average premium of $0.85 per contract stand ready to accrue profits if LPX’s shares increase another 7.5% to surpass the breakeven price of $10.85 by June expiration day.

Notify of
Inline Feedbacks
View all comments

Stay Connected


Latest Articles

Would love your thoughts, please comment.x