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Bull Buys Debit Call Spread on Bank of New York Melon Corp.

Today’s tickers: BK, CHRS, YHOO, WFC, RF, NTAP & BPOP

BK – Bank of New York Mellon Corp. – Global financial services company, Bank of New York Mellon, received a vote of confidence by one options investor who appears to be positioning for a significant increase in the firm’s share price by July expiration. BK’s shares are currently trading 1.75% higher on the day to stand at $27.82 as of 12:20 pm (ET). It looks like the bullish trader purchased a debit call spread, buying roughly 12,500 calls at the July $29 strike for a premium of $0.94 apiece, and selling about the same number of calls at the higher July $32 strike for a premium of $0.14 each. Net premium paid for the spread amounts to $0.80 per contract. The call spreader makes money if shares of the underlying stock rally at least 7.1% to surpass the effective breakeven price of $29.80 by expiration day in a couple of months. Shares must surge 15% over the current value of the stock and exceed $32.00 each in order for the investor to pocket maximum potential profits of $2.20 per contract by July expiration. BK’s shares last traded above $32.00 on April 29, 2010, when the stock touched an intraday high of $32.17. The current 52-week high for shares of Bank of New York Mellon Corp. is $32.65, attained on April 13, 2010.

CHRS – Charming Shoppes, Inc. – Optimistic options traders are selling short put options on Charming Shoppes just one week before the firm is scheduled to report first-quarter earnings before the opening bell on Thursday June 3, 2010. Charming Shoppes, Inc. is a multi-brand apparel retailer with market share in women’s plus-size specialty apparel. Investors exchanged 6,981 contracts on the stock by 12:30 pm (ET), which is more than 6.3 times greater than previously existing overall open interest of 1,106 contracts. Bullish trading patterns initiated on CHRS were perhaps inspired by the 4.6% jump in the price of the underlying stock to $4.79. Investors sold approximately 5,600 in-the-money puts at the October $5.0 strike to pocket an average premium of $0.77 per contract. Put sellers keep the full premium received on the sale if shares of the underlying stock rally above $5.00 by expiration. Charming Shoppes’ shares traded above $5.00 as recently as May 20, 2010, when the stock touched an intraday high of $5.08. Investors short the put contracts are apparently happy to have shares of the underlying stock put to them at an effective price of $4.23 each if the puts land in-the-money at expiration.

YHOO – Yahoo!, Inc. – The implementation of a short strangle on Yahoo!, Inc. today indicates one options strategist expects the firm’s shares to trade within a specified range through January 2011 expiration. Shares of the owner of the second-most popular U.S. Internet search engine earlier rallied roughly 1.1% to $15.62, but slipped in afternoon trading to remain flat at $15.45 as of 12:40 pm (ET). Yahoo’s shares increased at the start of the session on news the firm forecast annual average revenue growth of 7% to 10% from 2011 to 2013. The strangle player initiated the trade by selling 5,000 puts at the January 2011 $14 strike for a premium of $1.32 each, and by selling 5,000 calls at the higher January 2011 $17.5 strike for an average premium of $1.16 apiece. Gross premium pocketed on the trade amounts to $2.48 per contract. The options trader keeps the full premium received today as long as shares trade within the boundaries of the strike prices described through expiration day. However, the short stance taken in both call and put options expose the investor to losses should shares rally above the upper breakeven price of $19.98, or if shares slip beneath the lower breakeven point at $11.52, ahead of January 2011 expiration.

WFC – Wells Fargo & Co. – One bullish options investor established a large-volume, plain-vanilla debit call spread on Wells Fargo in the first half of the trading day with shares of the underlying stock rebounding 3.75% to $29.09 as of 12:00 pm (ET). The parameters of the spread suggest the trader is positioning for a continued recovery in WFC shares through July expiration. The investor purchased 11,000 calls at the July $30 strike for a premium of $1.23 apiece, and sold the same number of calls at the higher July $33 strike for a premium of $0.30 each. The net cost of the transaction amounts to $0.93 per contract, thus preparing the trader to make money above the effective breakeven price of $30.93 through expiration. Maximum potential profits of $2.07 per contract accumulate for the bullish player if Wells Fargo shares surge 13.45% over the current value of $29.09 to exceed $33.00 by expiration day in July. Shares of the financial services firm last traded above $33.00 back on May 13, 2010, when the stock traded at an intraday high of $33.83.

RF – Regions Financial Corp. – Investors initiated bullish trading tactics on Regions Financial this morning with shares of the banking and financial services firm higher by 4.60% to $7.74 as of 10:35 am (ET). Options players anticipating continued appreciation in the price of the underlying stock through June expiration purchased plain vanilla debit call spreads. Investors picked up roughly 6,000 calls at the June $8.0 strike for an average premium of $0.23 apiece, and sold about the same number of calls at the higher June $9.0 strike for an average premium of $0.03 each. The average net cost of the transaction amounts to $0.20 per contract. Call-spreaders make money if Regions’ shares rally another 5.95% over the current price of the stock to surpass the average breakeven point at $8.20. Maximum potential profits of $0.80 per contract are available to RF-bulls if shares of the banking-related services company jump 16.3% to exceed $9.00 by expiration day next month. Regions’ shares last traded over $9.00 back on April 26, 2010, when the stock touched an intraday high of $9.05.

NTAP – NetApp, Inc. – Shares of the supplier of enterprise storage and data management software, as well as hardware products and services, are soaring 17.55% higher this morning at a new 52-week high of $38.12 as of 11:00 am (ET). NetApp’s shares jumped after the firm posted fourth-quarter adjusted earnings of $0.50 a share, which blew right past average analyst forecasts of $0.43 a share. Investors looking to lock in the sharp rally in the price of the underlying shares purchased approximately 3,800 July $37 strike puts at an average premium of $2.13 per contract. The put options provide downside protection in case shares reverse direction ahead of July expiration. Downside protection in this case kicks in if NetApp’s shares fall 8.525% from the current price of $38.12 to breach the average breakeven point on the puts at $34.87 by expiration day.

BPOP – Popular, Inc. – The Puerto Rico-based banking services company’s shares commenced the trading session in the red, but quickly rebounded up 1.40% to stand at $2.94 as of 10:45 am (ET). Perhaps the initial decline in the price of the underlying shares inspired the bearish options activity observed in the October contract. It looks like one pessimistic trader sold 5,000 calls outright at the October $3.0 strike to take in a premium of $0.45 per contract. The investor keeps the premium pocketed on the transaction as long as Popular’s shares do not exceed $3.00 by expiration day. If the responsible party is not currently holding a large underlying share position then the short stance in calls is a risky proposition should BPOP’s shares rally ahead of expiration. The investor faces potentially unlimited losses to the upside if Popular’s shares increase 17.35% over the current price to exceed the breakeven point at $3.45. Alternatively, the trader may be selling covered calls. In this case, the investor is apparently happy to have 500,000 shares of the underlying stock called from him at $3.00 if the contracts land in-the-money at expiration.


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