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Investor Optimism Apparent in Yahoo! Options Action

Today’s tickers: YHOO, PG, MWW, PWER, IYR, HRB, ANF, CSC & EWH

YHOO – Yahoo!, Inc. – The online media company made an appearance on our ‘most active by options volume’ market scanner after one investor initiated a long-term bullish stance on the stock. Yahoo’s shares increased 1.10% to stand at $14.56 by 3:05 pm (ET). Optimism on the operator of one of the most heavily trafficked Internet destinations was perhaps inspired by words from the firm’s CFO, Tim Morse, who intends to end the company’s pattern of poor M&A decisions. Morse addressed Yahoo’s history of overpaying for acquisitions and later selling those assets at a disadvantageous price by announcing plans to improve the company’s return on invested capital to 18% to 24% in 2013 from approximately 5% in 2009. One optimistic options trader opted to purchase a plain-vanilla debit call spread on Yahoo! in order to position for share price appreciation through expiration in January 2011. The investor picked up 5,000 in-the-money calls at the January 2011 $14 strike for a premium of $1.92 apiece, and sold the same number of calls at the higher January 2011 $17.5 strike for a premium of $0.58 each. Net premium paid to establish the spread amounts to $1.34 per contract. Thus, the bullish trader makes money if Yahoo’s shares rally 5.35% to trade above the effective breakeven point on the spread at $15.34 by expiration day in January 2011. The investor exits with maximum potential profits of $2.16 per contract if the online media company’s shares surge 20.2% over the current price of $14.56 to trade above $17.50 by expiration.

PG – The Proctor & Gamble Co. – Investor demand for call options on the global provider of branded packaged consumer goods surged during afternoon trading with options participants exchanging more than 4.4 calls on the stock to each single put option in play thus far in the session. PG’s shares rallied 1.7% to $61.85 by 3:30 pm (ET). It looks like bullish players expecting Proctor & Gamble’s shares to trade at a new 52-week high by August expiration purchased at least 17,900 calls options at the August $65 strike for an average premium of $0.21 per contract. Call buyers are poised to profit should shares of the underlying stock jump 5.4%, surpass the stock’s current 52-week high of $64.10, and trade above the average breakeven price of $65.21 by August expiration. More than 22,600 calls changed hands at the August $65 strike price versus previously existing call open interest at that strike of just 2,722 contracts.

MWW – Monster Worldwide, Inc. – Bullish call buying dominated trading in Monster Worldwide options today with shares of the underlying stock increasing 2.45% to $11.82 by 3:35 pm (ET). Investors placed bullish trades on the global provider of online employment solutions right out of the gate this morning as MWW shares increased as much as 4.4% to touch an intraday high of $12.05 at the start of the trading session. With less than 30 minutes remaining before the closing bell, options traders have purchased approximately 5,700 calls at the July $12.5 strike for an average premium of $0.15 apiece. Investors long the calls make money if shares rally 7.00% from the current price of $11.82 to trade above the average breakeven price of $12.65 by expiration next Friday. Optimists also purchased another 2,500 calls at the August $12.5 strike for an average premium of $0.60 a-pop. Monster’s shares must surpass the average breakeven price of $13.10 in order for August $12.5 strike call buyers to accrue profits by August expiration day.

PWER – Power-One, Inc. – Shares of the designer and manufacturer of power conversion and power management products increased as much as 9.375% during the trading session to secure an intraday high of $8.75. Power-One’s shares are currently up 7.50% on the day to stand at $8.60 as of 1:45 pm (ET), which is a scant $0.38 below the stock’s 52-week high of $8.98 attained back on May 3, 2010. Bullish traders populating PWER options today appear to be expecting shares of the underlying stock to soar past the current 52-week high by expiration day in January 2011. Investors eyeing Power-One’s long-term upside potential purchased at least 1,800 calls at the January 2011 $10 strike for an average premium of $1.07 each. Call buyers at this strike make money if PWER’s shares jump 28.7% over the current price of $8.60 to trade above the average breakeven price to the upside at $11.07 by expiration day in January 2011.

IYR – iShares Dow Jones U.S. Real Estate Index ETF – The purchase of a plain-vanilla debit put spread on the IYR, an exchange-traded fund designed to provide investment results that correspond generally to the price and yield performance of the Dow Jones U.S. Real Estate Index, suggests one option strategist is bracing for potential share price erosion ahead of September expiration. Shares of the fund are currently up 0.25% at $47.61 as of 1:40 pm (ET). The investor appears to have purchased 5,000 puts at the September $47 strike for a premium of $2.58 each, and sold the same number of puts at the lower September $40 strike for $0.89 in premium apiece. The net cost of the transaction amounts to $1.69 per contract. Thus, the put spreader is poised to profit should shares of the ETF decline more than 4.8% to breach the effective breakeven point to the downside at $45.31 by expiration day in September. The trader pockets maximum potential profits of $5.31 per contract if shares of the fund plummet 16.00% from the current price of $47.61 to trade below $40.00 by expiration.

HRB – H&R Block, Inc. – The biggest U.S. tax preparer’s shares plunged 13.2% in early trading to touch down at an intraday and new 52-week low of $13.44 after the firm’s president and CEO, Russ Smyth, quit. Shares are currently down a lesser 7.15% on the day to stand at $14.38 as of 11:25 am (ET). News of Smyth’s departure after nearly two years as HRB’s CEO inspired a jump in options activity on the stock and sent HRB’s overall reading of options implied volatility soaring 19.6% to 39.27% by 11:30 am (ET). Contrarian investors looking for shares of the underlying stock to rebound somewhat by January 2011 expiration dominated trading in HRB options in the first half of the session. Bullish players picked up 1,600 calls at the January 2011 $15 strike for an average premium of $1.14 apiece. Investors long the calls make money if, by expiration, H&R Block’s shares rally 12.2% over the current price of $14.38 to trade above the average breakeven point on the calls at $16.14. Optimists anticipating a more robust upward move in shares purchased 1,700 calls at the higher January 2011 $19 strike for an average premium of $0.29 each. Traders long these contracts profit if HRB shares surge 34.1% to trade above the average breakeven price of $19.29 by expiration day. Finally, bullish traders coveted at least 4,800 call options at the higher January 2011 $20 strike for an average premium of $0.22 per contract. Call buyers at this strike price start to accumulate profits if H&R Block’s shares jump 40.6% from the current price of $14.38 to surpass the average breakeven price of $20.22 ahead of January 2011 expiration.

ANF – Abercrombie & Fitch Co. – Bullish options traders flocked to the clothing retailer today with shares of the underlying stock rallying as much as 10.55% during morning trading to secure an intraday high of $36.37. Abercrombie’s shares are soaring after the firm said revenue in stores open for at least one year rose 9% in June, trumping average analyst estimates of a 2.9% rise in same-store sales in the previous month. ANF’s shares are currently up 8.00% on the day to arrive at $35.54 by 11:55 am (ET). Investors eyeing further upside potential bought at least 1,400 calls at the July $36 strike for an average premium of $0.89 apiece. Call buyers at this strike make money if the retailer’s shares rally above $36.89 ahead of expiration day next Friday. Optimistic players also sold 1,000 puts at the July $35 strike to pocket an average premium of $0.71 per contract. Put sellers keep the full premium received today as long as ANF shares exceed $35.00 through July expiration. Options volume picked up in the August contract where it appears a number of investors are enacting diverse strategies. It looks like some traders may be selling strangles on the stock while other investors are selling out-of-the-money calls to finance the purchase of put options. Strangle sellers appear to be shedding approximately 7,000 puts at the August $32 strike for an average premium of $1.20 each in conjunction with the same of about the same number of calls at the higher August $38 strike for an average premium of $1.34 apiece. Gross premium enjoyed on the sale amounts to $2.54 per contract and is safe in investors’ wallets as long as ANF’s shares trade within the boundaries of the strike prices described through expiration day next month. The short strangle in this case leaves traders vulnerable to losses should shares of the underlying stock rally above the upper breakeven price of $40.54, or if shares trade below the lower breakeven point at $29.46, by August expiration.

CSC – Computer Sciences Corp. – Shares of the information technology provider rallied as much as 1.60% to an intraday high of $45.97 this morning, adding to Wednesday’s more than 3.5% increase catalyzed by news the firm earned a contract worth up to $220 million with the U.S. Navy to provide support services. Bullish options investors expecting the price of the underlying stock to continue to appreciate scooped up July contract calls in the first half of the trading session. Traders purchased approximately 1,100 in-the-money call options at the July $45 strike for an average premium of $1.12 apiece. In-the-money call buyers make money if CSC’s shares trade above $46.12 ahead of July expiration. Optimism spread to the higher July $47.5 strike where bullish players picked up 1,900 calls for an average premium of $0.27 a-pop. Investors long the July $47.5 strike calls are prepared to profit should Computer Sciences’ shares rally 3.9% over today’s high of $45.97 to exceed the average breakeven point at $47.77 by expiration day.

EWH – iShares MSCI Hong Kong Index Fund – The EWH, 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 Hong Kong market, as measured by the MSCI Hong Kong Index, popped up on our ‘most active by options volume’ market scanner after one options strategist enacted a large-volume transaction in the August contract. Shares of the ETF fell 0.45% to $15.12 in the first half of the trading day. It looks like investor sold a straddle on the fund because he expects shares to settle at $15.00 at expiration. The trader shed 25,000 calls at the August $15 strike for a premium of $0.58 each and sold 25,000 puts at the same strike for a premium of $0.42 apiece. Gross premium pocketed by the straddle-seller amounts to $1.00 per contract. The investor keeps the full premium received on the transaction if shares are trading at $15.00 at expiration next month. Short positions in both call and put options at this strike expose the responsible party to potentially devastating losses should shares rally above the upper breakeven price of $16.00, or if shares slip beneath the lower breakeven point at $14.00, ahead of expiration day. It looks like shares of the fund have not traded below $14.00 since July 16, 2010. But, the price of the underlying shares exceeded $16.00 back on April 27, 2010.


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