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Massive Ratio Call Spread Established on Citigroup, Inc.

Today’s tickers: C, NOK, XLF, ETFC, TXT, GE, JPM, JCG, AMR, PRU & CAKE

C – Citigroup, Inc. – A large-volume ratio call spread enacted on Citigroup during the first half of the trading session suggests one big player is positioning for continued share price appreciation through July expiration. Citigroup’s shares gained as much as 6.6% earlier in the session to reach an intraday high of $4.03, but are currently up a more modest 2.65% on the day at $3.88 as of 3:55 pm (ET). The bullish investor paid a net premium of $0.19 per contract to purchase roughly 66,000 calls at the July $4.0 strike, and sell about 132,000 calls at the higher July $5.0 strike price. The spread positions the trader to make money above the breakeven price of $4.19 through July expiration. Maximum potential profits of $0.81 per contract pad the investor’s wallet if Citi’s shares jump 28.9% over the current price of $3.88 to settle at $5.00 at expiration.

NOK – Nokia Corp. – Options traders populating Nokia Corp. today sold in- and out-of-the-money calls on the world’s largest maker of mobile phones with shares of the underlying stock trading 2.35% lower to $9.99 with 40 minutes remaining ahead of the closing bell. Finland-based Nokia retained its ranking as one of the two greenest major electronics makers at Greenpeace International along with Sony Ericsson Mobile Communications AB. Call sellers roamed across several expiries on the mobile phone maker, spreading pessimistic sentiment along the way. Near-term bears doubting Nokia’s shares will rebound any time soon shed 6,700 calls at the June $10 strike to take in an average premium of $0.50 per contract. Approximately 8,300 calls were sold at the July $10 strike price for an average premium of $0.70 apiece. Investors selling the contracts keep the premium received as long as Nokia’s shares trade below $10.00 through expiration in June/July. Uber-pessimistic traders shed 3,700 in-the-money call options at the October $9.0 strike to take in an average premium of $1.67 per contract. Nokia’s shares must fall another 9.90% from the current price of $9.99 to breach the $9.00-level. In-the-money call sellers keep the premium if Nokia’s share price does not exceed $9.00 at expiration. Finally, bearish investors sold 5,600 calls at the October $10 strike for an average premium of $1.10 each, 4,800 calls at the October $11 strike for an average premium of $0.64 a-pop, and sold 2,700 calls at the higher October $12 strike price to pocket an average premium of $0.66 per contract.

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, are down 0.69% at $14.36 just before 3:40 pm (ET). Despite the decline in the price of the underlying fund, one optimistic options investor itching for a sharp rebound by July expiration purchased a plain-vanilla debit call spread. The trader picked up 15,000 calls at the July $16 strike for an average premium of $0.20 apiece, and sold the same number of calls at the higher July $17 strike for $0.04 each. The net cost of the spread amounts to $0.16 per contract. The parameters of the call spread dictate shares of the financials ETF must surge 12.5% over the current price to $16.16 before the trader breaks even on the transaction. The investor loses the full amount of premium paid for the trade if shares of the XLF fail to rally above $16.00 by expiration day. Maximum potential profits of $0.84 per contract accumulate for the call-spreader if the fund’s shares jump 18.4% to exceed $17.00 by expiration day in July.

ETFC – E*Trade Financial Corp. – A massive short strangle initiated on the provider of online brokerage and other financial services this afternoon suggests one big options player expects shares of the underlying stock to trade within a specified range through October expiration. E*Trade’s shares are currently up 5.63% at $1.50 as of 1:50 pm (ET). The enormous transaction with total volume of 250,000 option contracts represents a staggering 28.46% of total existing open interest on the stock of 878,206 contracts. If the investor maintains the position overnight, ETFC’s overall reading of open interest should exceed 1.128 million contracts tomorrow. An AMEX floor broker crossed the trade inspired by a large institutional trader who sold the strangle. The investor sold 125,000 calls at the October $2.0 strike for a premium of $0.09 each, and sold 125,000 puts at the lower October $1.5 strike for a premium of $0.25 apiece. Gross premium pocketed on the transaction amounts to $0.34 per contract for a total of $4.250 million. The responsible party keeps the full amount of profits as long as ETFC shares trade between $1.50 and $2.00 through October expiration. The parameters of the strangle dictate unlimited loss exposure to the upside should shares surge 56% to exceed the upper breakeven price of $2.34. Losses accrue to the downside if shares fall 22.66% to breach the lower breakeven point of $1.16.

TXT – Textron Inc. – Near-term call options on Textron are flying off the shelves today with shares of the underlying stock trading up nearly 7.85% at times to attain an intraday high of $21.05. Textron’s shares are currently up 7.05% to stand at $20.90 as of 12:20 pm (ET). Investors anticipating continued share price appreciation through expiration next month scooped up in- and out-of-the-money call options in the June contract. Bullish players purchased 1,200 in-the-money calls at the June $19 strike for an average premium of $1.86 apiece, and picked up another 1,000 in-the-money contracts at the higher June $20 strike for an average premium of $1.39 a-pop. Buying interest spread to the June $21 strike where 1,700 call options were coveted at an average premium of $0.82 each. Trading traffic in calls is heaviest at the June $22 strike where 3,300 calls out of total volume of 6,142 contracts were purchased at an average premium of $0.54 apiece. Investors long the June $22 strike calls make money if Textron’s shares rally another 7.85% over the current value of $20.90 to exceed the average breakeven price to the upside at $22.54. Finally, investors paid an average premium of $0.30 per contract to purchase 1,100 calls at the higher June $23 strike. The overall reading of options implied volatility on Textron is down 13.8% at 52.68% just ahead of 12:30 pm (ET).

GE – General Electric Co. – The 2.4% rebound in the price of GE’s shares to $16.33 today did not deter some wary options investors from building up bearish positions on the stock. Pessimistic players who are perhaps still smarting from the 22.5% pullback in General Electric’s share price from $19.69 on April 30, 2010, down to a low of $15.25 yesterday, purchased roughly 15,000 puts at the July $15 strike for an average premium of $0.54 per contract. The put options act as a safety net for investors long the underlying shares, or as a potential profit making strategy if investors hold no underlying position, should today’s rebound prove to be short-lived. Investors long the puts make money – or realize downside protection – if the diverse conglomerate’s shares fall 11.45% from the current price of $16.33 to breach the average breakeven point on the puts at $14.46 by July expiration.

JPM – JPMorgan Chase & Co. – The investment banking and financial services firm’s shares commenced the current session in the red but clawed their way back up to stand 0.25% higher at $39.04 as of 12:40 pm (ET). One bullish options investor ignored earlier declines in the price of the underlying shares and purchased roughly 10,000 calls at the July $43 strike for an average premium of $0.89 per contract. The trader is prepared to accrue potentially unlimited profits to the upside if JPMorgan’s shares increase 12.4% over the current price of $39.04 to exceed the breakeven point at $43.89 ahead of July expiration day. We note JPM’s shares last traded above $43.89 back on April 30, 2010, when the firm’s share price touched an intraday high of $44.06.

JCG – J. Crew Group, Inc. – Shares of the retailer of high quality apparel and accessories for men, women and children are down more than 4.10% to $42.85 after receiving a downgrade to ‘market perform’ from ‘outperform’ this morning at BMO Capital Markets. Despite the downgrade and the decline in the price of the underlying stock it looks like some contrarian options players are initiating put credit spreads to take advantage of richer put premium. Investors expecting J. Crew’s shares to trade above $40.00 through June expiration sold approximately 5,000 puts at the June $40 strike for an average premium of $1.42 each, and purchased about the same number of puts at the lower June $37.5 strike for an average premium of $0.95 apiece. Put players receive an average net credit of $0.47 per contract, and keep the full amount as long as shares exceed $40.00 at expiration. Traders employing the credit spread strategy run the risk of having shares of the underlying stock put to them at an average price of $39.53 each should the June $40 strike puts land in-the-money. Investors may suffer maximum potential losses of $2.03 per contract if JCG’s shares decline another 12.5% to breach the lower strike price of $37.50 by expiration day.

AMR – AMR Corp. – Call options on AMR Corp., the parent company of American Airlines, are in high demand with shares of the underlying stock trading up as much as 9.1% to an intraday high of $7.79. AMR’s shares are currently up 7.00% at $7.64 as of 11:10 am (ET). Near-term bullish options investors scooped up 3,900 calls at the June $8.0 strike for an average premium of $0.24 each. Call buyers at this strike price profit if AMR’s shares rally above the average breakeven price of $8.24 by expiration day next month. Optimism spread to the July $8.0 strike where it looks like some 4,000 calls were picked up at an average premium of $0.48 per contract. Investors long the calls make money if shares of the underlying stock rally 11% from the current value of $7.64 to exceed the average breakeven price of $8.48 by July expiration.

PRU – Prudential Financial, Inc. – Bullish options action on the insurance company this morning indicates one optimistic player is positioning for continued upward movement in the price of the underlying shares through June expiration. Prudential’s shares are up 1.95% at $56.77 as of 11:05 am (ET). The investor purchased a debit call spread, buying 5,000 calls at the June $60 strike for a premium of $1.15 each, and selling the same number of calls at the higher June $65 strike for an average premium of $0.21 apiece. Net premium paid for the spread amounts to $0.94 per contract. The options strategist stands prepared to amass maximum potential profits of $4.06 per contract should Prudential’s shares surge 14.5% over the current price to surpass $65.00 by expiration day. The investor starts to make money only if the price of the underlying stock exceeds the breakeven point at $60.94 by June expiration.

CAKE – The Cheesecake Factory, Inc. – Investors breakfasted on Cheesecake Factory put options this morning with shares of the operator of casual, full-service dining restaurants trading 1.30% higher at $25.73 just before 10:50 am (ET). At least 2,100 lots of current total put volume of 5,230 contracts at the October $20 strike were sold short for an average premium of $1.00 apiece. Put sellers keep the full premium received on the transaction as long as Cheesecake’s share price exceeds $20.00 through October expiration. The overall reading of options implied volatility on the stock is down 8.00% to 46.44% in morning trading.


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