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Options Tacticians Target Pfizer, Inc.

Today’s tickers: PFE, EWZ, BAC, JNPR, RHB, GENZ, MRVL & SKX

PFE – Pfizer, Inc. – Options strategists initiated diverse transactions on the global pharmaceutical company today with shares of the underlying stock slipping 0.75% lower to arrive at $14.12 in afternoon trading. One investor expecting Pfizer’s shares to remain range-bound through August expiration sold a straddle, while a pessimistic trader enacted a ratio put spread in the January 2011 contract. The short straddle took place at the August $15 strike where approximately 10,000 calls were sold for an average premium of $0.27 apiece, in conjunction with the sale of about 10,000 in-the-money puts for an average premium of $1.28 each. The straddle-seller pockets a gross premium of $1.55 per contract on the transaction, keeping the full amount of premium received if Pfizer’s shares settle at $15.00 at expiration. Shares must rally 6.2% in the next couple of months to reach $15.00 by expiration day in August. The short stance taken in both call and put options expose the responsible party to potentially devastating losses in the event that shares swing dramatically in either direction away from the $15.00 strike price. Losses accumulate for the straddler if PFE’s shares rally above the upper breakeven price of $16.55, or should shares slip beneath the lower breakeven point at $13.45 ahead of expiration. In longer-dated January 2010 options, a bearish trader wary of continued erosion in the price of Pfizer’s shares established a ratio put spread. The investor purchased 10,000 puts at the August $14 strike for a premium of $1.47 each, and sold 20,000 puts at the lower August $11 strike for a premium of $0.49 a-pop. Net premium paid for the transaction amounts to $0.49 per contract. The trader is poised to profit if shares of the pharmaceutical company decline 4.3% from the current price of $14.12 to breach the effective breakeven point on the spread at $13.51 by January 2011 expiration day. Maximum available profits of $2.51 per contract pad the investor’s wallet if Pfizer’s shares plummet 22.00% to settle at $11.00 at expiration.

EWZ – iShares MSCI Brazil Index ETF – Shares of 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, rallied 0.70% to $63.40 by 2:30 pm (ET). Despite the slight uptick in the price of the underlying fund, one options trader opted to purchase a plain-vanilla debit put spread in the August contract. Perhaps fearing shares could reverse course by expiration next month, the trader picked up 10,000 puts at the August $61 strike for a premium of $2.92 each, and sold the same number of puts at the lower August $55 strike for a premium of $1.32 apiece. The net cost of the bearish play amounts to $1.60 per contract. Thus, the put-spreader is positioned to make money if shares of the fund decline 6.30% from the current price of $63.40 to breach the effective breakeven price on the spread at $59.40 by August expiration day. Maximum available profits of $4.40 per contract accumulate for the trader should shares of the ETF plunge 13.25% lower to trade below $55.00 by expiration. The investor may have initiated the spread to protect the value of a position in the underlying shares. If this is the case, downside protection kicks in if shares fall below $59.40, and maxes out if the EWZ trades below $55.00 ahead of expiration day in August.

BAC – Bank of America Corp. – Straddle-strategists targeted weekly options expiring July 9 on Bank of America today with shares of the underlying stock currently trading lower by 1.70% to arrive at $13.78 as of 2:40 pm (ET). It looks like some investors expecting Bank of America’s shares to rebound slightly to settle at $14.00 by expiration next Friday sold straddles on the financial services firm. Options traders shed approximately 2,000 calls at the July 09 ’10 strike for an average premium of $0.30 each, and sold about 2,000 now in-the-money puts at the same strike for approximately $0.34 in premium apiece. Straddlers pocket gross premium of $0.64 per contract on the transaction and keep the full amount if BAC shares rally 1.6% to settle at $14.00 by expiration next Friday.

JNPR – Juniper Networks, Inc. – Options investors populating the provider of telecommunications equipment and services are establishing both bullish and bearish strategies on the stock, although the price of the underlying stock is up 3.8% this afternoon to stand at $23.88 as of 12:50 pm (ET). Optimistic individuals placed near-term bullish bets on Juniper, purchasing 1,700 calls at the July $25 strike for an average premium of $0.37 per contract. Call buyers are poised to profit should Juniper Networks’ shares rally more than 6.2% over the current price of $23.88 to trade above the average breakeven point to the upside at $25.37 by July expiration day. Other traders, nervous the stock could head south by expiration day in August, picked up approximately 5,400 in-the-money puts at the August $24 strike for an average premium of $1.57 apiece. These put contracts yield profits to investors if JNPR’s shares decline 6.00% to breach the average breakeven price to the downside at $22.43 by August expiration. Juniper Networks reports second-quarter earnings on July 20, which is four days after July contract options expire. Thus, the put buying interest in the August contract could be the work of investors getting long protective puts in case Juniper’s results are disappointing. Demand for put options on the stock today could also have been inspired by traders still smarting from the 8.8% decline in JNPR shares from this week’s high of $24.40 on Monday to Thursday’s intraday low of $22.25. Options traders exchanged more than 16,160 contracts on Juniper Networks, Inc. by 1:05 pm (ET).

RHB – RehabCare Group, Inc. – The implementation of a three-legged bullish options combination strategy on the provider of program management services for inpatient rehabilitation and skilled nursing units, outpatient therapy programs and other long-term care facilities in the U.S. indicates one investor is positioning for a rebound in the price of RehabCare’s shares by December expiration. RHB’s shares took a severe beating recently after The Centers for Medicare & Medicaid Services issued proposed rules late on Friday June 25 that would reduce rehab therapy rates by 12%. RehabCare’s shares plunged 22.8% from Monday’s high of $26.75 to yesterday’s low of $20.65 on news the proposed rules could result in a $17 to $18 million annual impact on operating earnings in RHB’s Skilled Nursing Rehabilitation Services division. However, shares of the underlying stock rebounded slightly in the first half of the current session, rising 0.90% to $20.88 by 11:30 am (ET), after earlier rallying 2.5% to briefly touch an intraday high of $21.21. One investor expecting the firm’s shares to continue to strengthen over the next six months essentially sold short put options in order to offset the cost of buying a debit call spread in the December contract. The bullish player purchased 2,500 calls at the December $22.5 strike for a premium of $2.40 each, sold 2,500 calls at the higher December $25 strike for a premium of $1.40 apiece, and sold 2,500 puts at the December $17.5 strike for a premium of $1.50 a-pop. The three-legged spread yields a net credit of $0.50 per contract, which the investor keeps in full if RHB’s shares exceed $17.50 through December expiration day. Additional profits are attainable should the price of the underlying stock rally 7.75% over the current price of $20.88 to surpass the effective breakeven point on the call spread at $22.50 by expiration. The investor walks away with maximum potential profits – including the credit received today – of $3.00 per contract if RehabCare’s shares jump 19.7% to trade above $25.00 ahead of expiration day in December. The short stance taken in December $17.5 strike puts implies the options player is willing to have shares of the underlying stock put to him at an effective price of $17.00 apiece should the puts land in-the-money at expiration.

GENZ – Genzyme Corp. – Shares of the global biotechnology company rallied as much as 9.3% this morning to an intraday high of $54.49 on reports Sanofi-Aventis SA, France’s largest drugmaker, is getting ready to initiate a major $20 billion acquisition in the United States. Genzyme’s shares tapered off slightly by midday and currently stand 5.2% higher on the day at $52.41 as of 11:40 am (ET). Other biotech and pharmaceutical companies, such as Allergan Inc. and Biogen Idec Inc., experienced sharp upward shifts in share price as well as in options implied volatility following the news. Investors hoping Genzyme, the largest maker of drugs for rare genetic diseases, is the acquisition target purchased out-of-the-money call options on the stock. Call buyers are betting Genzyme’s shares will shoot higher if the firm turns out to be the apple of the French drugmaker’s eye. Traders picked up approximately 1,400 calls at the August $55 strike for an average premium of $1.59 apiece. Investors long the August $55 strike calls make money if Genzyme’s shares rally 8.00% over the current price of $52.41 to trade above the average breakeven price of $56.59 by August expiration day. Bulls also purchased 1,100 calls at the August $60 strike for an average premium of $0.63 per contract. Profits are available to August $60 strike call coveters if the biotechnology firm’s shares jump 15.7% to exceed $60.63 by expiration. Finally, options investors paid an average of $0.44 per contract to take hold of 1,200 calls at the higher August $62.5 strike. Individuals long the higher-strike calls profit if GENZ share price surges 20% over the current price of $52.41 to trade above the average breakeven point at $62.94 ahead of expiration day in August. The surge in demand for Genzyme’s call options coupled with uncertainty regarding which company will be acquired sent the overall reading of options implied volatility on the stock up 27.1% to 41.16% as of 11:55 am (ET).

MRVL – Marvell Technology Group Ltd. – Options traders are augmenting bearish stances on the provider of semiconductors today with shares of the underlying stock down 2.50% to $15.89 just before 12:00 pm (ET). Selling in- and out-of-the-money call options on Marvell Technology Group has been a popular pastime for some pessimistic players recently and today is no exception. Investors sold at least 2,700 calls at the August $17 strike for a premium of $0.66 apiece, and shed 2,100 calls at the lower August $16 strike for an average premium of $1.13 each. Call sellers at these strikes keep the premium received on the transaction as long as shares fail to rebound above the strike prices described through August expiration. Options traders expecting Marvell’s shares to continue to decline sold at least 3,300 in-the-money calls at the August $15 strike to pocket an average premium of $1.74 each. In-the-money call sellers walk away with the full premium received if shares of the semiconductor company decline another 5.6% to trade beneath $15.00 through expiration day in August.

SKX – Skechers USA, Inc. – Bullish options investors are engaging in plain-vanilla call buying on the maker of contemporary footwear this morning with shares of the underlying stock up 1.2% to $37.08 as of 11:10 am (ET). Earlier in the session Skechers’ shares rallied 3.25% to secure an intraday high of $37.83. Traders anticipating continued appreciation in the price of the shoe maker’s shares picked up approximately 1,900 calls at the August $40 strike for an average premium of $2.20 apiece. Call buyers make money if Skechers’ shares surge 13.8% over the current price of $37.08 to surpass the average breakeven price of $42.20 by expiration day in August. SKX shares traded above the effective breakeven price of $42.20 as recently as June 22, 2010.


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