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Barrage of Bearish Plays Befall Airgas, Inc.

Today’s tickers: ARG, QSFT, VTR, MET, SPWRA, USO, JPM, BMY, ADI & EXPE

ARG – Airgas, Inc. – Options investors initiated diverse bearish strategies on the distributor of industrial, medical and specialty gases this afternoon with shares of the underlying stock lower by 1.75% to $61.73 as of 3:15 pm (ET). Pessimistic players are likely wary of potential sharp share price erosion should Air Products & Chemicals Inc., the industrial gases maker forging a hostile takeover of Airgas in a proposed $5.1 billion bid for the company, fail to ultimately close the deal. Maybe bearish options investors are taking a cue from Paul Huck, CFO at Air Products & Chemicals, who yesterday stated, “there is a large drop in the stock price awaiting this, should Air Products go away” because “If we go away, who else is going to show up and pay this?” Airgas’s share price, which is up roughly 39% since Air Products’ offer went public ahead of February 5, 2010, would likely come crashing down if for some reason Air Products walks away given the lack of other serious competing offers for ARG at this time. Bearish traders bracing for potential share price hemorrhaging purchased a debit put spread and sold calls in the July contract and enacted a ratio bearish risk reversal in the October contract. One investor purchased 2,925 puts at the July $55 strike for a premium of $1.50 each, and sold the same number of puts at the lower July $50 strike for $0.65 apiece. Net premium paid for the spread amounts to $0.85 per contract, thus yielding maximum potential profits of $4.15 each if Airgas shares decline 19% to breach the $50.00 level by expiration day. The sale of 5,000 calls at the July $65 strike for an average premium of $1.05 each may or may not be the work of the same investor. Open interest of 19,000+ calls at the July $65 strike implies the call seller could be closing out a previously established long stance on the stock. Otherwise, the responsible party expects to keep the $1.05 premium per contract received on the sale as long as shares of the underlying stock do not exceed $65.00 ahead of July expiration. Finally, one pessimistic individual populating the October contract sold 5,000 calls at the October $70 strike for a premium of $1.28 each in order to buy twice as many puts – that’s 10,000 lots – at the lower October $50 strike for an average premium of $2.55 apiece. The long put stance cost the investor an average of $3.82 per contract, and prepares him to profit should ARG’s shares plummet 25.2% to breach the average breakeven point to the downside at $46.18 by October expiration.

QSFT – Quest Software, Inc. – Shares of the software development company surged 11% during the trading session to attain a new 52-week high of $19.65. Bullish options investors anticipating continued share price appreciation through expiration next month purchased roughly 2,600 calls at the June $20 strike for an average premium of $0.39 apiece. In the first hour of the trading session, optimistic investors picked up less than 1,000 calls for just $0.15 per contract. Fast forward to 3:50 pm (ET) – with 10 minutes remaining in the trading day, call buyers must now shell out 5 times that amount given the asking price of $0.75 per contract. Investors long the calls are positioned to make money if Quest Software’s share price exceeds the average breakeven price of $20.39 by expiration in June. The surge in demand for options on QSFT boosted the overall reading of options implied volatility on the stock 47.6% to 45.14% just before the closing bell.

VTR – Ventas, Inc. – Options activity on the real estate investment trust with a portfolio of seniors housing and healthcare properties in the U.S. and Canada indicates some investors expect shares of the underlying stock to trade within a specified range through June expiration. Ventas’ shares are trading 0.40% higher on the day at $46.60 as of 1:25 pm (ET). Investors anticipating limited fluctuation in the Ventas’ share price sold strangles. Approximately 6,000 calls were shed at the June $50 strike for a premium of $0.40 each in combination with the sale of 6,000 puts at the lower June $40 strike for a premium of $0.55 apiece. Gross premium pocketed by strangle-sellers amounts to $0.95 per contract. Investors keep the full amount of premium received on the transaction as long as shares of the underlying stock trade within the boundaries of the strike prices described through expiration day. The short stance taken in both call and put options expose volatility players to potentially devastating losses should Ventas’ shares shift dramatically in either direction ahead of expiration. Investors incur losses should shares rally above the upper breakeven price of $50.95, or if shares slip beneath the lower breakeven point at $39.05, by expiration day next month.

MET – MetLife, Inc. – Options activity on the provider of insurance and other financial services indicates investor optimism that shares of the underlying stock are set to rebound. MetLife’s shares are currently lower by 2.10% to stand at $40.05 as of 12:40 pm (ET). One options investor booked profits today by selling-to-close a previously established bearish put stance in the June contract. It looks like the trader originally purchased 12,500 puts at the June $41 strike for an average premium of $0.92 apiece back on April 6, 2010, when shares of the underlying stock were trading at a volume-weighted average price of $44.89. The significant decline in MetLife’s shares since the initial put purchase boosted premium on the now in-the-money contracts. Thus, the investor sold all 12,500 put options today for a premium of $2.50 each. Net profits enjoyed on the closing sale amount to $1.58 per contract. Perhaps the trader banked gains today because he does not expect MetLife’s shares to fall much lower ahead of June expiration. Outright bullish sentiment on the stock appeared in the September contract where one trader purchased a ratio call spread. The investor picked up 2,000 calls at the September $43 strike for an average premium of $3.25 each, and sold 4,000 calls at the higher September $48 strike for a premium of $1.40 apiece. The net cost of the transaction amounts to $0.45 per contract. Therefore, the bullish player stands ready to accrue maximum potential profits of $4.55 per contract should shares of the underlying stock surge 19.85% over the current value of $40.05 to settle at $48.00 at expiration. The trader starts to make money as long as shares of the insurer exceed the effective breakeven price of $43.45 ahead of expiration day in September.

SPWRA – SunPower Corp. – The maker of solar electric power products popped up on our ‘most active by options volume’ market scanner today after one options investor bulked up on bearish put options in the January 2012 contract. SunPower’s shares are down sharply by 5.60% to stand at $10.95 as of 12:55 pm (ET). The pessimistic player properly prepared for the current decline in the price of the underlying stock by purchasing 7,500 puts at the January 2012 $10 strike for an average premium of $1.85 each back on May 4, 2010, when shares were trading at a volume-weighted average price of $16.10. The incredible 32% decline in SunPower’s shares since the initial put purchase pumped up premium at the January 2012 $10 strike price, thus allowing the trader to sell all 7,500 contracts today for $3.05 apiece. Net profits enjoyed on the transaction amount to $1.20 per contract. Next, the bearish investor bulked up on long-term puts by purchasing roughly 15,000 lots at the lower January 2012 $5.0 strike for a premium of $0.90 each. The purchase of twice as many bearish put options suggests this trader anticipates continued share price hemorrhaging for SunPower going forward.

USO – United States Oil Fund LP – Contrarian options investors expecting shares of the U.S. Oil Fund to rebound purchased debit call spreads in the June contract today despite the 1.4% decline in the price of the underlying stock to $33.01. Bullish traders picked up roughly 4,000 in-the-money calls at the June $33 strike for an average premium of $1.76 apiece, and sold about the same number of calls at the higher June $36 strike for an average premium of $0.59 each. The average net cost of the spread amounts to $1.17 per contract. Investors accrue maximum available profits of $1.83 per contract if shares of the fund surge 9.05% over the current price to surpass $36.00 by June expiration. Call-spreaders make money as long as shares rally above the average breakeven price of $34.17 ahead of expiration day next month.

JPM – JPMorgan Chase & Co. – Shares of the investment banking and financial services firm are up 0.75% to $39.30 as of 12:30 pm (ET), rebounding off an intraday low of $38.52 attained earlier in the session. The 1.3% decline in share price this morning inspired voracious appetite for put options in the May contract. Approximately 21,400 puts were purchased at the May $38 strike for an average premium of $0.39 apiece. Investors long the puts are perhaps expecting shares of the underlying stock to continue lower ahead of expiration on Friday. Put buyers make money if JPMorgan’s shares trade below the average breakeven price of $37.61 by May expiration. While the overwhelming majority of the 32,000 total put options exchanged at the May $38 strike were purchased, there were some optimistic players selling puts at the same strike price to position for a rebound in share price. Roughly 8,300 puts were sold short at the May $38 strike for an average premium of $0.39 apiece. Put sellers retain the full premium pocketed on the transaction as long as shares of the underlying stock exceed $38.00 through expiration day.

BMY – Bristol-Myers Squibb Co. – A ratio call spread initiated on the pharmaceutical giant in the early morning hours of the trading session suggest one options player expects shares of the underlying stock to rally significantly ahead of June expiration. Bristol-Myers’ shares are currently trading lower by 0.55% to $23.42 as of 11:23 am (ET). The optimistic investor purchased approximately 6,640 calls at the June $25 strike for an average premium of $0.27 each, and sold 13,280 calls at the higher June $26 strike for a premium of $0.11 apiece. The net cost of the bullish spread amounts to just $0.05 per contract. Thus, the individual responsible for the transaction stands ready to amass maximum potential profits of $0.95 per contract should BMY shares surge 11% to settle at $26.00 at expiration day. The trader starts to make money as long as the pharmaceutical company’s shares rally above the breakeven point on the spread at $25.05 ahead of June expiration.

ADI – Analog Devices, Inc. – Shares of the manufacturer of semiconductor devices are up 2.85% at $28.39 as of 11:00 am (ET), but earlier in the session ADI’s share price surged 5.7% to touch an intraday high of $29.18 after the firm posted second-quarter profits of $0.55 a share after the closing bell on Tuesday, which exceeded average analyst estimates of $0.50 a share. The chip maker’s board of directors also announced a 10% increase in its quarterly dividend to $0.22 per share on Tuesday. Options investors honed in on in-the-money put options in the May and June contracts despite the positive earnings report. Traders purchased roughly 1,000 puts at the May $30 strike for an average premium of $1.33 each. Near-term put buyers make money – or realize downside protection on a long underlying stock position – if Analog Devices’ shares trade below the average breakeven price of $28.67 ahead of May expiration. Investors with an appetite for put options also looked to the June $30 strike where 3,100 contracts were purchased at an average premium of $2.10 apiece. Shares of the underlying stock must fall 1.725% from the current price of $28.39 ahead of expiration day in order for June contract put buyers to start to make money beneath the effective breakeven point at $27.90. Options implied volatility is down 7.2% to 40.86% following earnings.

EXPE – Expedia, Inc. – Options investors targeting July contract call options on the online travel company today are engaging both bullish and bearish stances on the stock, although shares are down 1.90% to $22.27 just before 11:30 am (ET). Optimistic traders expecting Expedia’s shares to rebound by July expiration purchased roughly 2,400 calls at the July $22.5 strike for an average premium of $1.63 apiece. Call buyers make money if shares of the underlying stock rally 8.35% to surpass the average breakeven point at $24.13 by expiration day. Meanwhile, a greater number of calls at the same strike price – approximately 5,480 contracts – were sold for an average premium of $1.63 each. Call sellers keep the full premium received on the sale as long as shares trade below $22.50 through July expiration.


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