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Vale SA Entices Bulls and Bears to Options Arena

Today’s tickers: VALE, TIVO, MS, CNQ, LVS, PBR & AMD

VALE – Vale SA – Two opposite-minded options strategists initiated directional plays on the Brazilian metals and mining firm in the July contract today. Shares of the world’s biggest iron ore producer are currently flat at $27.03 as of 3:30 pm (ET). One of the investors populating the July contract purchased a bearish put spread while the other trader enacted a bullish risk reversal. The pessimistic player picked up 6,000 puts at the July $26 strike for a premium of $0.81 apiece, spread against the sale of the same number of puts at the lower July $22 strike for a premium of $0.20 each. The net cost of the put spread amounts to $0.61 per contract. The put-spreader is positioned to profit should shares of the underlying stock decline 6.05% from the current price to breach the effective breakeven point to the downside at $25.39 by expiration. Maximum available profits of $3.39 per contract pad the investor’s wallet if Vale’s shares plummet 18.6% to $22.00 ahead of expiration day in July. In contrast to the bearish put spread, another options strategist initiated a bullish risk reversal, selling 4,000 puts at the July $25 strike for a premium of $0.57 each, in order to purchase the same number of calls at the higher July $30 strike for a premium of $0.46 apiece. The responsible party pockets a net credit of $0.11 per contract, and keeps the full amount as long as Vale’s shares exceed $25.00 through July expiration. Additional profits accumulate if shares of the underlying stock rally 11% to surpass the $30.00-level by expiration day next month. Options implied volatility on Vale SA is higher by 7.7% to 46.29% just before 3:40 pm (ET).

TIVO – TiVo, Inc. – Shares of the provider of technology and services for TiVo® subscription-based digital video recorders shot up as much as 8.25% today to touch an intraday high of $8.26 on speculation DirecTV is considering a buyout. The rally in the price of the underlying stock and takeover chatter inspired bullish options activity on TIVO during the session. One long-term optimist purchased a plain-vanilla debit call spread to position for sharply higher shares by expiration in January 2011. The investor picked up 1,000 calls at the January 2011 $11 strike for a premium of $1.16 each, and sold the same number of calls at the higher January 2011 $17.5 strike for a premium of $0.34 apiece. The net cost of the bullish play amounts to $0.82 per contract. Therefore, the investor responsible for the spread is prepared to profit should shares of the underlying stock surge 43% from the today’s high of $8.26 to surpass the effective breakeven point on the spread at $11.82 by January 2011 expiration. The call spreader stands ready to amass maximum potential profits of $5.68 per contract if TiVo’s shares jump 111.8% to trade above $17.50 by expiration day.

MS – Morgan Stanley – Bearish investors dominated options activity on global financial services firm, Morgan Stanley, today as shares of the underlying stock declined 1.85% to trade at $25.52 as of 3:05 pm (ET). MS shares are currently trading a scant $0.76 over the stock’s 52-week low of $24.76 attained back on May 25, 2010. One near-term pessimistic player purchased a ratio debit put spread to brace for continued bearish movement in Morgan Stanley’s shares through June expiration. The investor picked up 5,000 puts at the June $24 strike for a premium of $0.14 apiece, and sold 10,000 puts at the lower June $22.5 strike for a premium of $0.06 each. The net cost of the ratio spread amounts to $0.02 per contract. Thus, the put player makes money if shares of the underlying stock decline another 6.00% to breach the effective breakeven point on the spread at $23.98. Maximum available profits of $1.48 per contract amass if Morgan Stanley’s shares plunge 11.8% from the current price of $25.52 to settle at $22.50 by June expiration on Friday.

CNQ – Canadian Natural Resources, Ltd. – The Canada-based independent energy company received a long-term vote of confidence by one options investor positioning for a significant rally in the price of the underlying stock by December expiration. CNQ’s shares are trading 2.45% higher to stand at $37.02 as of 12:10 pm (ET) after previously rallying 3.00% to secure an intraday high of $37.22 in the first half of the session. It looks like the bullish options player sold nearer-term July contract put options in order to partially finance the purchase of a debit call spread in the December contract. The investor sold 2,000 puts at the July $34 strike to receive an average premium of $0.60 apiece. The trader keeps the full amount of premium on the put sale as long as CNQ’s share price exceeds $34.00 through July expiration. Next the options optimist purchased 2,000 calls at the December $42.5 strike for a premium of $1.95 apiece, and sold the same number of calls at the higher December $47.5 strike for $0.75 in premium per contract. The net cost of the spread, including the additional financing provided by the put sale in the July contract, amounts to $0.60 per contract. Therefore, the combo-trader makes money as long as shares of the underlying stock rally more than 16.4% to surpass the effective breakeven price of $43.10 by December expiration. Maximum available profits of $4.40 per contract pad the investor’s wallet if, by expiration, Canadian Natural Resources’ shares are trading 28.3% higher than the current price of $37.02 to exceed $47.50 by expiration day in December.

LVS – Las Vegas Sands Corp. – Shares of the casino resort operator rallied as much as 4.75% today to secure an intraday- and new 52-week high of $26.94. We reported flurries of bullish options trading on the stock in the previous week, and today’s activity is similarly dominated by optimistic players. Investors populating the June contract are selling puts and buying calls to position for continued appreciation in the price of the underlying stock. LVS-bulls shed 2,100 puts at the June $24 strike to take in an average premium of $0.11 per contract. Meanwhile, investors sold 1,600 puts at the higher June $25 strike to receive an average premium of $0.21 apiece. Put sellers targeting these strike prices keep the full premium pocketed on the transactions as long as Las Vegas Sands’ share price exceeds the value of the strike prices described through expiration on Friday. Investors with an eye on share price upside potential picked up 4,800 calls at the June $27 strike for an average premium of $0.46 each. Call buyers at this strike price are positioned to make money should shares of the casino resort operator surpass $27.46 ahead of expiration. Buying interest spread to the higher June $28 strike where 5,300 calls were purchased at an average premium of $0.19 per contract. Las Vegas Sands’ shares must rally another 4.6% over today’s high of $26.94 in order for June $28 strike call buyers to start to amass profits above the average breakeven price of $28.19. Finally, uber-optimists picked up 2,500 calls at the June $29 strike for an average premium of $0.10 a-pop. These traders make money only if shares of the underlying stock surge 8.00% to trade above $29.10 by June expiration.

PBR – Petroleo Brasileiro SA – Options investors populating the Brazilian supplier of crude oil and oil products initiated a mixture of bullish and bearish strategies on the stock today with PBR shares lower by 1.50% to $37.74 as of 12:45 pm (ET). One pessimistic trader purchased a plain-vanilla debit put spread in the June contract. The investor picked up approximately 2,250 puts at the June $37 strike for an average premium of $0.32 apiece, and sold roughly the same number of puts at the lower June $35 strike for an average premium of $0.06 each. Net premium paid for the bearish spread amounts to $0.26 per contract, thus positioning the responsible party to make money should shares of the underlying stock decline 2.65% from the current price of $37.74 to breach the average breakeven price of $36.74 by expiration on Friday. Maximum potential profits of $1.74 per contract are available to the put-spreader if PBR’s shares fall 7.26% to trade beneath $35.00. Options action in the July contract, however, paints a rosier picture for Petroleo Brasileiro SA’s share price. It looks like one or more bullish investors sold a total of 10,000 puts at the July $35 strike to pocket premium of $0.95 per contract. Put sellers keep the full premium received on the transaction as long as PBR’s shares trade above $35.00 through expiration day in July. Investors short the puts are apparently willing to have shares of the underlying stock put to them at an effective price of $34.05 in the event the put options land in-the-money at expiration. The overall reading of options implied volatility on the stock is up 5.7% to 44.26% as of 12:56 pm (ET).

AMD – Advanced Micro Devices, Inc. – The purchase of a debit put spread on semiconductor manufacturer, Advanced Micro Devices, Inc., today is perhaps the work of an investor bracing for limited erosion in the price of the underlying shares through July expiration. AMD’s shares are up 3.7% to $8.42 as of 12:25 pm (ET). It looks like the options trader purchased 6,000 in-the-money puts at the July $9.0 strike for an average premium of $0.99 apiece, and sold the same number of puts at the lower July $8.0 strike for an average premium of $0.41 each. The net cost of the spread amounts to $0.58 per contract. The transaction was perhaps initiated by an investor who is currently long the stock and seeking downside protection should AMD’s shares decline ahead of expiration next month. If this is the case, downside protection kicks in if shares of the underlying stock trade below the effective breakeven price of $8.42 by July expiration. Alternatively, the trader responsible for the spread may hold no underlying position, and is rather enacting an outright bearish bet on the stock. In this scenario, the investor stands prepared to amass maximum potential profits of $0.42 per contract should AMD’s shares fall 11.28% from the current price to trade below $8.00 by July expiration day.


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