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Contrarian Options Player Sheds Put Options on Lloyd’s Banking Group PLC

Today’s tickers: LYG, XLV, MSFT, XLF, F, AZN, LYV, AZO, MW & XLNX

LYG – Lloyd’s Banking Group PLC – One optimistic options strategist initiated a short put stance on Lloyd’s Banking Group PLC today, suggesting perhaps that shares of the underlying stock are not likely to collapse much further ahead of October expiration. Lloyd’s Banking Group shares fell as much as 8.9% to an intraday low of $2.88 in morning trading, but recovered slightly during the session to stand 5.05% off yesterday’s close at $3.16 a share as of 2:45 pm (ET). Across the pond, Lloyd’s Banking Group shares declined the most in London trading, falling 8.9% to 50.52 pence, as concerns over the creditworthiness of European financial institutions continues to weigh heavily on U.K. banking stocks. But, back to U.S. equity options on LYG, the contrarian investor opted to sell short 4,000 puts at the October $2.5 strike in order to pocket premium of $0.30 per contract. The trader keeps the full amount of premium received on the sale as long as LYG’s share price exceeds $2.50 through expiration day in October. The short sale of put options in this case implies the investor is happy to have 400,000 shares of the underlying stock put to him at an effective price of $2.20 each should the put contracts land in-the-money at expiration.

XLV – Health Care Select Sector SPDR Fund – A large chunk of out-of-the-money put options were purchased on the Health Care Select Sector SPDR Fund today as part of a delta neutral trade enacted by one cautiously optimistic options player. Shares of the XLV, an exchange-traded fund designed to produce investment results that correspond to the price and yield performance of the Health Care Select Sector of the S&P 500 Index, declined 0.65% to stand at $28.54 as of 3:35 pm (ET). It looks like the investor purchased up to 22,500 put options with a .31 delta at the September $26 strike for a premium of $1.08 per contract. The trader picked up the puts in conjunction with the purchase of stock at $28.25 a-pop. The delta neutral transaction is meant to offset potential losses faced by the investor should shares of the XLV continue lower because of the larger proportion of put options held by the trader. The purchase of shares of the underlying stock in combination with the put options indicates the investor is taking an optimistic stance on the health care fund going forward.

MSFT – Microsoft Corp. – A bearish risk reversal enacted on Microsoft during afternoon trading indicates one options strategist is taking a long-term pessimistic stance on the stock. The software company’s shares edged 1.65% lower this afternoon to stand at $25.84 as of 2:55 pm (ET). It looks like the investor responsible for the trade sold 7,000 calls at the January 2011 $31 strike for a premium of $0.90 each in order to partially finance the purchase of the same number of puts at the lower January 2011 $20 strike for a premium of $1.19 apiece. The net cost of the spread amounts to $0.29 per contract. Perhaps the investor is long shares of the underlying stock. If this is the case, the trader may be securing downside protection by getting long the puts. Downside protection kicks in if shares of the underlying stock nose-dive and fall 23.7% to breach the average breakeven price of $19.71 ahead of expiration day.

XLF – Financial Select Sector SPDR – Shares of the XLF, an exchange-traded fund designed to provide investment results that correspond to the price and yield performance of the Financial Select Sector of the S&P 500 Index, slipped 1.60% lower during the trading session to arrive at $14.10 as of 12:22 pm (ET). One bearish player expecting the price per share of the underlying fund to continue to erode purchased a ratio put spread in the September contract. The investor picked up 10,000 puts at the September $14 strike for a premium of $1.40 each, and sold 20,000 puts at the lower September $11 strike to receive a premium of $0.56 apiece. Net premium paid to enact the bearish spread amounts to $0.28 per contract. The trader responsible for the transaction is prepared to make money should shares of the XLF trade below the effective breakeven price of $13.72 ahead of September expiration. Maximum potential profits of $2.72 per contract are available to the investor if shares of the ETF plummet 22% to settle at $11.00 at expiration day. Shares of the XLF have not traded below $11.00 since the fund touched down at a 52-week low of $10.83 on July 8, 2009.

F – Ford Motor Co. – Options investors wary of the potential for the auto maker’s shares to continue lower ahead of July expiration purchased out-of-the-money put options today with shares of the underlying stock off 2.00% to stand at $10.79 as of 12:35 pm (ET). Bearish options players picked up 5,000 puts at the July $9.0 strike for an average premium of $0.47 per contract. Put buyers profit if Ford’s share price declines another 20.95% to breach the average breakeven price of $8.53 by July expiration day. Pessimism spread to the lower July $8.0 strike where 1,900 puts were picked up at an average premium of $0.26 each. Investors long the lower strike put contracts make money if shares of the underlying stock plummet 28.25% from the current price to break through the average breakeven point to the downside at $7.74 by expiration in a couple of months.

AZN – AstraZeneca PLC – The manufacturer of prescription pharmaceutical products attracted one bullish options strategist today despite the 1.70% decline in the value of its shares to $40.70. The optimistic trader positioned for a rebound in the price of the underlying stock by purchasing a plain-vanilla debit call spread in the July contract. The investor picked up 7,400 in-the-money calls at the July $40 strike for a premium of $2.60 each, and sold the same number of calls at the higher July $45 strike for $0.60 apiece. Net premium paid for the transaction amounts to $2.00 per contract. The investor starts to make money as long as AstraZeneca’s shares rally 3.2% to surpass the effective breakeven price of $42.00. Maximum potential profits of $3.00 accumulate should shares surge 10.6% to exceed $45.00 ahead of expiration day in July.

LYV – Live Nation Entertainment Inc. – Shares of the producer of live music concerts are down 1.25% to $11.86 as of 12:15 pm (ET) after earlier slumping 8.15% to touch down at an intraday low of $11.03. One options investor populating Live Nation’s January 2011 contract appears optimistic that shares of the underlying stock are not likely to collapse ahead of expiration. The trader opted to sell short 4,000 puts at the January 2011 $7.5 strike for a premium of $0.50 apiece. Option premium received on the trade is safe in the investor’s wallet as long as LYV’s shares trade above $7.50 through expiration day next year.

AZO – AutoZone, Inc. – Shares of the retailer and distributor of auto parts and accessories are trading higher by more than 3.85% to stand at $191.38 as of 10:35 am (ET). Earlier in the trading session AutoZone’s shares surged 5.15% to touch an all time high of $193.74. The largest U.S. auto parts retail chain’s shares jumped to the highest price since the company’s 1991 initial public offering after the firm posted third-quarter earnings of $4.12 per share, beating average analyst forecasts of $3.59 a share. Bullish options investors wasted no time populating the June contract with optimistic positions following the positive earnings report. Traders sold roughly 2,000 puts at the June $180 strike to take in an average premium of $3.76 per contract. Put sellers keep the full premium pocketed on the trade as long as AutoZone’s shares trade above $180.00 through June expiration day. The short sale of put options implies investors are more than happy to have shares of the underlying stock put to them at an effective price of $176.24 each should the put contracts land in-the-money at expiration.

MW – Men’s Wearhouse Inc. – One early-bird bearish options investor lumbered across the July contract on the specialty retailer of men’s suits to purchase a plain vanilla debit put spread. The pessimistic play indicates the trader expects MW’s share price to continue lower ahead of expiration day. Men’s Wearhouse shares are trading 2.10% lower at $21.24 just ahead of 10:30 am (ET). The bearish trader purchased 1,000 puts at the July $20 strike for a premium of $1.77 apiece, and sold the same number of puts at the lower July $17.5 strike for $0.79 each. The net cost of the transaction amounts to $0.98 per contract. Thus, the investor is positioned to amass maximum potential profits of $1.52 per contract if shares of the underlying stock plummet 17.6% from the current price to $17.50 by expiration day in July. The put-spreader makes money as long as shares trade below the effective breakeven price of $19.02 by expiration. Options implied volatility on Men’s Wearhouse is up 4.6% at 73.79% as of 10:31 am (ET).

XLNX – Xilinx, Inc. – Shares of the semiconductor development company are down 3% in morning trading to stand at $22.97 as of 10:50 am (ET). Despite the decline in the price of the underlying stock, investors initiated bullish trading strategies in the June contract. It looks like traders shed some 3,335 put options at the June $22 strike to pocket an average premium of $0.65 per contract. Investors keep the full amount of premium received as long as XLNX shares exceed $22.00 through expiration day next month. The overwhelming majority of the 6,185 lots of put open interest at that strike also look to have been sold for roughly half the amount of premium as today’s put sales during Monday’s trading session. Perhaps put sellers do not expect Xilinx shares to slip beneath $22.00 by expiration, or maybe they are more than willing to have shares of the underlying stock put to them at expiration if the puts land in-the-money at that time. XLNX’s shares last dipped below $22.00 back on November 6, 2009, when the stock touched down at $21.81.


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