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Goldman Sachs Put Provokes Interest

Today’s tickers: GS, ACAS, EWZ, EEM, & ALL

GS – Goldman Sachs – Proving that option trading constantly offers opportunities for investors, today’s trade on actively traded investment banker, Goldman Sachs falls under the “did-you-know?” category. Of course we all know about the SEC’s recent clampdown on the banker and the embarrassing revelations about what Fabulous Fab’s emails to his girlfriend said, yet the share price remains buoyant at $142.54 and has rallied 4.7% in today’s activity. So the outlier trade involving a 2,000 lot spread in the January 2011 contract drew our attention. On the bold face of things the spread appears to be a bearish play just like any other put spread, but the investor plumped for the $50 and $25 strikes to play Goldman’s fortunes. But upon a review of time and sales data it appears that this investor wrote the spread by selling 2,000 puts at the $50 strike for $1.40 in exchange for 2,000 puts priced at $1.00 at the $25 strike. Assuming that Goldman’s shares don’t face a wipeout to the tune of 65% between now and expiration in seven months, this investor gets to keep $1.00 per contract for a total premium of $200,000. We didn’t know that. The elevated reading of options implied volatility – near 83% in the case of the $50 strike put – has clearly set this investor’s mind racing.

ACAS – American Capital Ltd. – Growing fears over a double-dip recession and what impact the strains to liquidity around the world’s credit markets have taken a hefty toll on American Capital. The company puts together employee and management buyouts using debt and equity financing. Arguably the company might suffer more than others if equity prices remain in the doldrums on account of a debt crisis in Europe. The recent recovery in its share price to $6.65 went up in smoke this week with shares slumping on Thursday to $4.37. One investor appears to have taken advantage the drop to place a bullish call spread using 7,500 call options in the November contract. The purchase of intrinsically valued $4.00 strike calls is matched against the sale of an equal amount of $5.00 calls. Resumption to normal business conditions would presumably see shares recover through this leaving the investor with a 55 cents per contract gain having spent a net 45 cents today to place this trade. Option implied volatility dropped a little this morning hinting that selling pressure on the underlying might be abating, yet this is evident in an 8% rally on Friday.

EWZ – iShares MSCI Brazil – One option trader also appears braced for more action in the emerging markets. The shares have rebounded by 2.7% to $37.15 on Friday while it appears an option investor may have bought the $37/$40 strangle. Such a position would require stocks to either slump or rebound sharply away from the pair of strike prices by more than the combined $3.42 premium. In this case the investor hopes for a recovery above the April highs or well beneath today’s weakness at $35.67. Technically the ETF is so far displaying “outside day” characteristics and a close above Thursday’s high being pretty bullish.

EEM – iShares MSCI Emerging Markets – One option trader also appears braced for more action in the emerging markets. The shares have rebounded by 2.7% to $37.15 on Friday while it appears an option investor may have bought the $37/$40 strangle. Such a position would require stocks to either slump or rebound sharply away from the pair of strike prices by more than the combined $3.42 premium. In this case the investor hopes for a recovery above the April highs or well beneath today’s weakness at $35.67. Technically the ETF is so far displaying “outside day” characteristics and a close above Thursday’s high being pretty bullish.

ALL – Allstate Corp. – We initially thought that it was perhaps a three-month low in the fortunes of multi-line insurer, Allstate Corporation that may have swollen option investors’ appetite for call options. The July $33 strike calls turned hyperactive around lunchtime with some 26,000 calls being snapped up for around 72 cents apiece. The prevailing reading of open interest stacks up to almost 30,000 lots. But as we look over our shoulders, our commentary on March 9th shows that we evidenced one investor writing the same amount of call options that day for a premium of $1.05. Despite the fact that the premium subsequently rose to above $3.00 this investor today closes the case on his bearish endeavors and banks a gain of $858,000. We imagine, however, that somewhere along the line, this investor holds an offsetting position in the stock.


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  1. Could you elaorate on the GS trade above? How is the $1 kept?
    Thx