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Emerging Markets ETF Optimist Buys Ratio Call Spread

Today’s tickers: EEM, PFE, XLF, DELL, NWL, QCOR, SHOO, EWZ, SLB, DOW & TEX

EEM – iShares MSCI Emerging Markets Index ETF – Contrarian options activity on the EEM, an exchange-traded fund designed to produce investment results that correspond to the price and yield performance of the MSCI Emerging Markets Index, points to optimism the fund’s shares may rebound sharply by July expiration. Shares of the emerging markets ETF are down 1.10% to stand at $37.68 just before 3:30 pm (ET). One bullish strategist positioning for a rally in the next couple of months purchased a ratio call spread on the fund. The investor picked up 3,000 calls at the July $38 strike for an average premium of $2.05 each, and sold 6,000 calls at the higher July $41 strike for a premium of $0.73 apiece. The net cost of the transaction amounts to $0.59 per contract. The trader responsible for the ratio spread makes money as long as shares of the EEM rally 2.41% to surpass the effective breakeven price of $38.59. Maximum available profits of $2.41 per contract pad the investor’s wallet if, by expiration, shares of the emerging markets fund rally 8.80% to $41.00. Shares of the EEM last traded at $41.00 back on May 4, 2010.

PFE – Pfizer, Inc. – Shares of the research-based global pharmaceutical company earlier rallied slightly to an intraday high of $15.42, but slipped lower in afternoon trading to stand 0.40% lower on the day at $15.17 as of 2:45 pm (ET). Bullish options activity took place on the stock despite the slight share price erosion suggesting one investor expects Pfizer’s shares to rebound sharply by September expiration. The optimistic individual purchased a debit call spread, picking up roughly 4,000 calls at the September $17 strike for an average premium of $0.30 each, and selling about the same number of calls at the higher September $19 strike for an average premium of $0.06 apiece. The investor paid a net $0.24 per contract to establish the spread. Pfizer’s shares must rally 13.65% over the current price of $15.17 in order for the investor to break even on the transaction at $17.24. Shares must surge 25.25% to exceed $19.00 before the trader accrues maximum available profits of $1.76 per contract.

XLF – Financial Select Sector SPDR – A put spread on the XLF, an exchange-traded fund designed to yield investment results that correspond to the price and yield performance of the Financial Select Sector of the S&P 500 Index, indicates one options strategist is wary shares of the underlying fund could decline significantly ahead of July expiration. Shares of the financials ETF are currently down 0.25% to $14.64 just before 2:40 pm (ET). The pessimistic player enacted the spread by purchasing 10,000 puts at the July $14 strike for a premium of $0.56 apiece, and by selling the same number of puts at the lower July $12 strike for a premium of $0.18 each. Net premium paid for the transaction amounts to $0.38 per contract. The trade positions the investor to make money if shares of the XLF decline another 6.95% from the current price to breach the effective breakeven point on the spread at $13.62 through expiration. The investor walks away with maximum potential profits of $1.62 per contract if the fund’s shares plummet 18% to $12.00 or less ahead of expiration day next month.

DELL – Dell, Inc. – Optimistic options players are selling in- and out-of-the-money put options on the personal computer manufacturer today to position for continued bullish movement in the price of the underlying shares through July expiration. Dell’s shares gained 0.30% to stand at $13.37 as of 2:10 pm (ET), after earlier rallying 1.35% to an intraday high of $13.51. Bullish investors sold roughly 5,000 puts short at the July $13 strike to receive an average premium of $0.54 per contract. Selling spread to the July $14 strike where about 4,600 in-the-money put options were shed for an average premium of $1.03 each. Put sellers at both strike prices keep the premium received today as long as Dell’s share price exceeds $14.00 by July expiration. Investors short the puts at the July $13 strike are apparently happy to have shares of the underlying stock put to them at an effective price of $12.46 each, while investors short puts at the July $14 strike are willing to have shares put to them at $12.97 apiece, should the put contracts land in-the-money at expiration. Dell’s overall reading of options implied volatility is slightly up in afternoon trading by 4.1% to 39.69% as of 2:15 pm (ET).

NWL – Newell Rubbermaid, Inc. – Shares of the global marketer of consumer and commercial products are up 1.98% to $16.99 as of 12:15 pm (ET), and earlier rallied as much as 5.00% to touch an intraday high of $17.50. Newell Rubbermaid’s shares jumped on news the company will utilize Avon Products Inc.’s 1.2 million door-to-door salespeople to sell its food-storage goods in Brazil. The door-to-door approach to expanding NWL’s market presence is a relatively cheap approach to injecting its Rubbermaid brand name into developing markets. Newell Rubbermaid also revealed plans to sell its food-storage goods in retail stores in Brazil. Bullish options investors were eager to act on the Avon-Rubbermaid news and purchased call options in the June and July contracts. Investors picked up roughly 4,200 calls at the June $17.5 strike for an average premium of $0.51 apiece, thus positioning for shares to exceed $18.01 ahead of expiration day this month. Optimism spread to the higher June $20 strike where traders purchased 1,700 calls at an average premium of $0.17 each. Investors long the June $20 strike calls make money if shares of the underlying stock surge 18.7% to surpass the average breakeven price of $20.17 by expiration. Buying interest continued at the July $20 strike as bullish players scooped up 1,600 calls for an average premium of $0.26 per contract. July contract call coveters profit only if Rubbermaid’s shares jump 19.25% over the current price of $16.99 to exceed the average breakeven point on the calls at $20.26 by July expiration. The surge in investor demand for call options on NWL lifted the stock’s overall reading of options implied volatility by 10.9% to 43.88% as of 12:27 pm (ET).

QCOR – Questcor Pharmaceuticals, Inc. – Call options on the specialty pharmaceutical company engaged in providing prescription drugs for central nervous system disorders are active this afternoon with shares of the underlying stock trading 6.12% higher on the day at a new 52-week high of $10.05. Investors trafficking Questcor options honed in on the June $12.5 strike, exchanging more than 7,670 calls there by 12:50 pm (ET), versus previously existing open interest of just 746 contracts at that strike. It looks like the majority of the calls were purchased at an average premium of $0.21 per contract. Call buyers are prepared to make money should Questcor’s shares jump 26.45% in the next several weeks to surpass the average breakeven price of $21.71 by expiration.

SHOO – Steven Madden, Ltd. – Fashion footwear and apparel maker, Steven Madden, Ltd., popped onto our ‘hot by options volume’ market scanner after one options investor initiated a short straddle in the June contract. SHOO’s shares are currently down 1.00% to $33.40 as of 12:30 pm (ET). The short straddle suggests the trader expects shares of the underlying stock to stagnate through June expiration. The investor sold 1,900 puts at the June $33.33 strike for a premium of $1.25 apiece, and sold 1,900 calls at the same strike for a premium of $1.40 each. Gross premium pocketed on the transaction amounts to $2.65 per contract. The straddle-player keeps the full amount of premium received today as long as shares settle at $33.33 at expiration. The premium enjoyed on the transaction protects the investor from losses should shares fail to center at $33.33. However, the straddle-seller will incur losses if shares of the underlying stock rally above the upper breakeven price of $35.98, or if shares fall beneath the lower breakeven point at $30.68, ahead of expiration day.

EWZ – iShares MSCI Brazil Index ETF – A long strangle enacted on the EWZ, an exchange-traded fund designed to provide investment results that correspond to the price and yield performance of publicly traded securities in the aggregate in the Brazilian market as measured by the MSCI Brazil Index, indicates one options investor is expecting greater volatility in the price of the underlying fund through December expiration. Shares of the EWZ are up 1.00% to $64.17 just before 12:40 pm (ET). The strangle-player appears to be positioning for a dramatic move in the price of the fund’s shares in the next seven months. The investor purchased 5,000 puts at the December $60 strike for a premium of $5.92 apiece, and picked up 5,000 calls at the higher December $72 strike for a premium of $3.73 each. Gross premium paid for the strangle amounts to $9.65 per contract. If shares of the EWZ trade within the range of the strike prices described through expiration, the investor will lose the full amount of premium paid for the trade. However, if shares of the fund shift significantly the investor may walk away with substantial gains. Shares of the underlying stock must surge 27.25% for the trader to start to accrue profits above the upper breakeven price of $81.65, or the price of the fund must plummet 21.53% from the current value in order for the investor to make money beneath the lower breakeven price of $50.35, before December expiration.

SLB – Schlumberger Ltd. – Shares of the oil services company are down 6.15% to $52.70 in the first half of the trading day perhaps following news, Ed Towns, the House Oversight and Government Reform Chairman, said he will expand his investigation into the Deepwater Horizon rig explosion. According to one news report, Towns requested documents from Schlumberger at the end of last week and expects to receive a report detailing the firm’s “involvement at the well, documentation of inspections, communication with the Minerals Management Agency and any proposal to shut down the well.” This news is weighing heavily on the stock along with Thursday’s announcement by President Obama there is to be a 6 month moratorium on new offshore drilling permits. Bearish options players flooded the July contract with pessimism, selling call options and buying puts. Traders expecting shares of the underlying stock to head lower in the next couple of months purchased roughly 2,000 puts at the July $50 strike for an average premium of $2.44 apiece. Put buyers are prepared to make money should Schlumberger’s shares decline another 9.75% to breach the average breakeven price to the downside at $47.56 by July expiration. The breakeven price on the puts is a scant $0.27 greater than the current 52-week low on SLB of $47.29. Other bearish traders sold 2,700 calls at the July $57.5 strike to receive an average premium of $2.33 per contract. Call sellers keep the full premium pocketed on the transaction as long as Schlumberger’s shares do not exceed $57.50 ahead of expiration day. Options implied volatility on the stock is up 19.8% to 56.38% as of 11:22 am (ET).

DOW – Dow Chemical Co. – September contract put activity on the global producer of commodity chemicals this morning appears to be the work of a bearish options player increasing the size of a plain-vanilla debit put spread. Dow Chemical’s shares slipped 0.90% down to $26.67 as of 10:55 am (ET). It looks like the investor originally paid a net $1.75 per contract to get long the 1,320-lot September $27/$22 strike put spread back on May 27, 2010, when shares of the underlying stock were trading at a volume-weighted average price of $27.63. Today, it seems the pessimist is doubling the size of the trade, buying 1,320 puts at the September $27 strike for a premium of $3.19 each, and selling the same number of puts at the lower September $22 strike for a premium of $1.26 apiece. The net cost of today’s transaction amounts to $1.93 per contract. The original transaction yields a breakeven share price of $25.25 and maximum potential profits of $3.25 per contract, while the new trade touts a breakeven price of 25.07 and maximum potential profits of $3.07 per contract. In both cases, shares must plummet 17.5% from the current price of $26.67 in order for the put-spreader to garner maximum profits.

TEX – Terex Corp. – Bullish options investors are buying near-term call options on the global equipment manufacturer this morning with shares of the underlying stock trading higher by 2.25% to stand at $22.25 as of 10:42 am (ET). Traders picked up 1,000 in-the-money call options at the June $20 strike for an average premium of $2.21 apiece. Investors long the in-the-money contracts are prepared to accrue profits as long as Terex shares exceed the average breakeven price of $22.21 through June expiration day. Optimism spread to the higher June $23 strike where 1,300 calls were purchased at an average premium of $0.77 per contract. Call-buyers at this strike price make money if the machinery maker’s shares rally another 6.8% to surpass the average breakeven point at $23.77 by expiration day. Finally, options players expecting shares of the underlying stock to trade below $24.00 through expiration sold 1,000 calls outright at the June $24 strike to take in an average premium of $0.48 each. Investors keep the full premium received per contract as long as TEX shares do not rally above $24.00 ahead of June expiration.


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  1. Phil, re EEM 6000 calls bot at 2.05 and sld higher calls at .73 with a net cost of .59???  typo?
    Phil