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Bulls Eye Caterpillar, Inc. Put and Call Options

Today’s tickers: CAT, BBY, NVTL, XLF, GME, ANF & GMCR

CAT – Caterpillar, Inc. – Bullish options traders stampeded machinery maker, Caterpillar, Inc., today with the firm’s shares rallying more than 2.75% to stand at $62.70 as of 12:55 pm (ET). CAT’s shares increase as much as 3.4% to touch an intraday high of $63.10 in the first half of the trading day. Near-term optimists sold at least 2,200 puts at the June $62.5 strike for an average premium of $1.06 apiece. Investors selling the puts could be ditching downside protection, or may be selling the contracts outright to pocket available put premium. CAT-bulls also purchased some 1,800 now in-the-money calls at the June $62.5 strike for an average premium of $0.88 apiece. Call buyers at this strike price are poised to profit should shares of the tractor manufacturer rally above the average breakeven price of $63.38 before the contracts expire on Friday. Caterpillar’s overall reading of options implied volatility is down 5.3% to 38.11% in afternoon trading.

BBY – Best Buy Co. – Contrarian options players are taking advantage of the more than 6.5% decline in Best Buy’s shares to $38.37 today by initiating near-term bullish transactions in the June contract. Shares of the world’s largest consumer-electronics retailer fell as much as 7.6% to touch down at an intraday low of $37.93 after the firm reported weaker-than-expected first-quarter profits of $0.36 a share, which underwhelmed analysts expecting average net income of $0.50 a share for the quarter. Best Buy bulls expecting the electronics retailer’s shares to rebound purchased 1,100 calls at the June $39 strike at an average premium of $0.54 apiece. Shares of the underlying stock must rally 3.05% from the current price of $38.37 before June $39 strike call buyers start to make money above the average breakeven point at $39.54. Buying interest spread to the higher June $40 strike where 2,300 calls were coveted for an average premium of $0.25 per contract. Investors long the calls profit if BBY’s shares surge 4.9% to trade above the average breakeven price of $40.25 by June expiration on Friday. Other optimistic investors engaged in put selling to take advantage of richer available premium. Bulls shed 3,600 puts at the June $38 strike to pocket an average premium of $0.53 per contract. Put sellers at this strike keep the full premium received on the transaction as long as BBY’s shares exceed $38.00 through expiration day. Put selling also took place at the lower June $37 strike where approximately 1,300 lots were sold at an average premium of $0.33 each. The overall reading of options implied volatility on Best Buy Co. plunged 19.2% to 36.75% following first-quarter earnings.

NVTL – Novatel Wireless, Inc. – The provider of wireless broadband access solutions to the worldwide mobile communications market popped up on our ‘hot by options volume’ market scanner in the first half of the trading session. Long-term bullish individuals opted to sell short put options in the January 2011 contract today with shares of the underlying stock rallying 2.25% to $5.94. Earlier in the session NVTL’s shares touched an intraday high of $5.98. Optimistic options traders sold at least 2,700 puts at the January 2011 $5.0 strike to pocket an average premium of $0.40 per contract. Investors short the puts keep the full premium received today as long as Novatel’s shares trade above $5.00 through January 2011 expiration. Put sellers are apparently happy to have shares of the underlying stock put to them at an effective price of $4.60 each in the event that the put options land in-the-money at expiration.

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, rallied 1.3% to $14.64 by 1:25 pm (ET). Early in the trading session one cautiously optimistic options player rolled a large-volume put position from the June contract to the July contract. The investor sold 50,000 in-the-money puts at the June $15 strike for a premium of $0.54 apiece in order to purchase the same number of in-the-money puts at the July $15 strike for a premium of $0.86 each. The net cost of the calendar roll amounts to $0.32 per contract. The individual responsible for the transaction is likely extending downside protection originally established to protect the value of a massive position in shares of the underlying fund. It is unclear how much the trader paid initially to purchase the June $15 strike puts. But, in isolation, the $0.32 net cost incurred today to roll the puts to the July contract creates an approximate breakeven price of $14.68 for the investor.

GME – Gamestop Corp. – Shares of the video game retailer plunged 9.5% to touch an intraday low of $19.80 this morning after the world’s largest consumer electronics retailer, Best Buy Co., said it plans to allow customers to trade in used video games in more than 1,000 U.S. stores. BBY’s announcement sent GME shares tumbling on sentiment the trade-ins policy will cut into Gamestop Corp.’s sales of video games and gaming devices. The news spurred bearish options traders to action. Investors anticipating continue bearish movement in GME’s share price purchased at least 1,800 puts at the June $20 strike for an average premium of $0.27 apiece. Put buyers at this strike price profit if Gamestop’s shares trade below the average breakeven price of $19.73 ahead of expiration day on Friday. Buying interest spread to the lower June $19 strike where 1,200 puts were picked up for an average premium of $0.15 each. GME’s shares must fall another 4.8% from today’s low of $19.80 in order for June $19 strike put buyers to make money beneath the average breakeven point of $18.85. The overall reading of options implied volatility on the video game retailer shot up 12.4% to 45.33% by 11:42 am (ET).

ANF – Abercrombie & Fitch Co. – The retailer of clothing and accessories popped onto our ‘most active by options volume’ market scanner in the first 40 minutes of the trading session due to long-term bullish activity in the January 2011 contract. Abercrombie’s shares are currently trading less than 0.05% lower this morning to stand at $36.33 just after 11:10 am (ET). It looks like one optimistic options player purchased a ratio debit call spread in order to position for significant appreciation in the price of the underlying stock by expiration in January. The investor appears to have purchased 3,500 calls at the January 2011 $55 strike for a premium of $0.65 apiece, and sold 7,000 calls at the higher January 2011 $65 strike for a premium of $0.20 each. The net cost of the spread amounts to $0.25 per contract. Thus, the ANF-bull is prepared to profit only if Abercrombie’s shares surge 52%, blow right past the current 52-week high of $51.12 attained back on April 21, 2010, to surpass the effective breakeven price of $55.25 by expiration day. The investor responsible for the trade banks maximum available profits of $9.75 per contract if shares of the clothing retailer rally 78.9% over the current price of $36.33 to trade at $65.00 at expiration.

GMCR – Green Mountain Coffee Roasters, Inc. – Shares of the specialty coffee and coffee maker company rallied more than 8.9% this morning to secure an intraday high of $27.34 perhaps on news imports of organic coffee into the U.S. and Canada exceeded 93 million pounds last year on rising demand. GMCR’s share price cooled slightly heading into mid-session with the stock currently up 6.37% to $26.70 as of 11:25 am (ET). Investors itching for continued bullish movement in the price of the underlying stock purchased at least 1,800 calls at the July $30 strike for an average premium of $0.36 apiece. Call buyers at this strike price stand prepared to profit should Green Mountain Coffee Roasters’ share price increase another 13.7% to surpass the average breakeven point at $30.36 by July expiration. The overall reading of options implied volatility on the coffee company is higher by 6.5% to 47.75% as of 11:30 am (ET).


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