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Investors HOG-Wild for Harley-Davidson, Inc. Options

Today’s tickers: HOG, SKS, MDRX, DFS, NFLX, IGT & DOW

HOG – Harley-Davidson, Inc. – Motorcycle maker, Harley-Davidson, Inc., attracted hoards of options investors during the session with its shares rallying as much as 5.85% in morning trading to secure an intraday high of $27.71. Harley’s shares are currently up a more modest 1.80% to $26.65 just before 12:40 pm (ET). Bullish tactics dominated activity in the June contract, with optimistic traders picking up some 4,300 calls at the June $28 strike for an average premium of $0.52 apiece. Call buyers at this strike price make money only if Harley-Davidson’s shares exceed $28.52 ahead of June expiration. Optimism spread to the higher June $30 strike where 1,100 calls were purchased at an average premium of $0.15 each. The calls are not a profitable acquisition for traders unless Harley’s shares jump more than 13.1% over the current price of $26.65 to exceed the average breakeven price of $30.15 by June expiration day. Investor sentiment is mixed in the July contract. While bulls purchased call options at the July $30 strike for an average premium of $0.82 apiece, bearish traders employed different strategies. It looks like some pessimistic investors essentially opted to sell call options in order to finance the purchase of debit put spreads. These traders appear to have purchased roughly 4,000 puts at the July $25 strike for an average premium of $1.23 each, and sold about the same number of puts at the lower July $20 strike for $0.23 apiece. Additional financing for the bearish spread was provided by the sale of approximately 4,000 calls at the July $30 strike for an average premium of $0.82 each. Thus, the average net cost of the combination play amounts to $0.18 per contract. Investors employing this strategy are prepared to profit should HOG’s shares decline 6.9% to breach the effective breakeven price to the downside at $24.82 by July expiration. Maximum available profits of $4.82 per contract accumulate for bearish individuals if shares of the underlying stock plummet 24.95% from the current price of $26.65 to break through $20.00 by expiration day.

SKS – Saks, Inc. – Some investors made bullish moves on Saks, Inc. today with shares of the underlying stock up as much as 5.2% in the first half of the trading session to an intraday high of $8.50. The luxury retailer’s share price rose on optimism consumer spending continues to improve, although shares are up a lesser 3.10% to $8.33 as of 12:15 pm (ET). Options investors expecting shares to continue to improve purchased 3,000 calls at the July $10 strike for an average premium of $0.15 per contract. Call buyers at this strike price are prepared to make money as long as Saks’ shares surge 21.85% over the current price of $8.33 to surpass the average breakeven price of $10.15 by July expiration. The bullish bets in the July contract contrast with activity observed in the January 2011 contract where it looks like one investor expects the stock to cool and settle at $7.50 apiece by expiration. It appears the trade sold a straddle, shedding 3,600 calls at the January 2011 $7.5 strike for a premium of $1.95 each in combination with the sale of 3,600 puts at the same strike price for a premium of $1.05 apiece. Gross premium pocketed by the straddle seller amounts to $3.00 per contract. The investor keeps the full premium received only if shares of the underlying stock decline 10% to settle at $7.50 at expiration. The short position taken in both call and put options expose the responsible party to losses in the event that Saks’ shares rally above the upper breakeven price of $10.50, or if shares slip beneath the lower breakeven point at $4.50, ahead of January 2011 expiration day.

MDRX – Allscripts-Misys Healthcare Solutions, Inc. – The provider of clinical software, services, information and connectivity solutions to physicians and other health care providers received conflicting ratings by opposite-minded analysts today. MDRX was raised to ‘outperform’ from ‘market perform’ with a 12-month target share price of $22.00 at Raymond James, but was downgraded to ‘equal-weight’ from ‘overweight’ at First Analysis. Shares of the underlying stock are currently up 3.19% to $17.17 as of 1:15 pm (ET). Traders populating MDRX options today cast pessimism on the stock by selling nearly 2,000 calls at the July $17.5 strike for an average premium of $0.68 per contract. Investors short the calls keep the full $0.68 per contract received on the transaction as long as MDRX’s shares trade below $17.50 through July expiration. Potentially devastating losses accumulate for call sellers if they do not currently hold an equivalent number of shares of the underlying stock and MDRX shares rally above the upper breakeven price of $18.18 by expiration day next month. Options implied volatility on the stock is down 9.2% to 40.81% in early-afternoon trading.

DFS – Discover Financial Services – Bulls bombarded Discover Financial Services’ options today with shares of the credit card issuer and electronic payments services firm up 6.75% to $13.42 just before 12:30 pm (ET). Call buyers on the scene picked up 1,400 now in-the-money contracts at the June $13 strike for an average premium of $0.46 apiece. Investors long the calls are positioned to profit should shares of the underlying stock exceed the average breakeven point to the upside at $13.46 by expiration day. Traders acting early enough to secure the $0.46 asking price on the June $13 strike calls should be pleased given the subsequent jump in premium on the same options this afternoon, which now tote an asking price of $0.80 each. Other bullish traders picked up 1,000 calls at the higher July $15 strike for an average premium of $0.20 per contract. Investors holding the July $15 strike call options make money only if Discover Financial Services’ share price jumps 13.25% to surpass the effective breakeven price of $15.20 ahead of July expiration.

NFLX – Netflix, Inc. – Shares of the provider of DVD-rental-by-mail service as well as unlimited access to online streaming content to its subscribers rallied 3.85% to briefly touch a new 52-week high of $119.88 this morning. The rally in the price of the underlying stock tapered off slightly by 10:50 am (ET), although Netflix shares are still up more than 1.80% on the day at $117.53. Bullish options trading activity observed on Wednesday continued today, with investors selling put options and buying calls in the June contract. Investors expecting NFLX’s shares to trade above $115.00 through June expiration sold roughly 4,000 puts at the June $115 strike to pocket an average premium of $3.26 per contract. Traders anticipating continued appreciation in the price of the stock purchased at least 1,200 calls at the June $130 strike for an average premium of $0.90 each. Shares must surge 9.2% over the new 52-week high of $119.88 before call-buyers at the June $130 strike start to make money above the average breakeven price of $130.90. The overall reading of options implied volatility on NFLX is lower by 4.00% to 62.39% as of 10:55 am (ET).

IGT – International Game Technology, Inc. – Shares of the maker of major slot games and casino network systems are higher by 3.15% to $18.90 in morning trading perhaps on news the firm signed a multi-product and systems agreement to provide its integrated games and systems solution at The Cosmopolitan, a new resort in Las Vegas, which is set to open in December 2010. Earlier this week we observed one investor enact a long-term three legged bullish options combination strategy, but today investors are employing nearer-term optimistic tactics. Bullish traders sold short at least 3,700 puts at the July $15 strike to pocket an average premium of $0.10 per contract. Investors short the puts keep the full premium received on the transaction as long as IGT’s shares exceed $15.00 by July expiration. Put sellers are apparently happy to have shares of the underlying stock put to them at an effective price of $14.90 should the put options land in-the-money at expiration. Options implied volatility is down 6.6% to 43.03% as of 11:07 am (ET).

DOW – Dow Chemical Co. – Bullish options investors were quick to initiate optimistic transactions on Dow Chemical this morning with shares of the manufacturer of chemicals, plastic materials and agricultural products trading higher by 2.90% to stand at $26.18 by 10:40 am (ET). Early-bird investors sold short nearly 6,500 puts at the July $20 strike to take in an average premium of $0.195 per contract. Put sellers keep the full premium received on the sale as long as DOW’s share price exceeds $20.00 through expiration day next month. Dow Chemical’s shares have not traded near $20.00 since September 4, 2009.


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