Sign up today for an exclusive discount along with our 30-day GUARANTEE — Love us or leave, with your money back! Click here to become a part of our growing community and learn how to stop gambling with your investments. We will teach you to BE THE HOUSE — Not the Gambler!

Click here to see some testimonials from our members!

Butterflies, Straddles and Spreads, Oh My!

Today’s tickers: HRS, EWZ, RSH, PNRA, IVN, LO & DOW

HRS – Harris Corp. – A three-legged bullish play on the international communications and information technology company that serves government and commercial markets around the world indicates one option strategist expects shares of the underlying stock to rally significantly by expiration day in February 2011. Harris Corp.’s shares are up 0.95% at $44.46 just before 2:30 pm (ET), but earlier in the session rallied as much as 1.8% to an intraday high of $44.84. HRS shares moved higher on news the firm recently won a number of large contracts. One such contract is a 30-month, $25-million contract under the Network-Centric Solutions contract vehicle, which requires Harris to upgrade network infrastructure at 15 National Guard sites. Harris Corp. popped up on our ‘hot by options volume’ market scanner in the first half of the trading day following the implementation of a three-legged bullish transaction. The investor responsible for the trade essentially sold puts to finance the purchase of a debit call spread. In doing so, the trader sold 1,500 puts at the February 2011 $35 strike for a premium of $1.75 per contract, purchased 1,500 calls at the February 2011 $45 strike for a premium of $4.65 each, and sold 1,500 calls at the higher February 2011 $55 strike for premium of $1.20 apiece. The net cost of the transaction amounts to $1.70 per contract. Thus, the options player is poised to profit as long as Harris Corp.’s shares rally 5.00% over the current price of $44.46 to surpass the effective breakeven point at $46.70 by expiration day. The investor walks away with maximum potential profits of $8.30 per contract if HRS shares surge 23.7% to trade above $55.00 by February 2011 expiration. The short put stance at the February 2011 $35 strike implies the investor is happy to have 150,000 shares of the underlying stock put to him at $35.00 each should the puts land in-the-money by expiration day.

EWZ – iShares MSCI Brazil Index Fund – An investor itching for a rally in shares of the Brazil ETF purchased a bullish call butterfly spread in the August contract this afternoon. Shares of the EWZ, an exchange-traded fund designed to 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, fell 1.05% to trade at $66.22 in the final hour of the session. The options strategist enacted the butterfly spread by purchasing 1,000 calls at the August $67 strike for a premium of $2.79 each [wing 1], selling 2,000 calls at the August $68 strike for a premium of $2.25 apiece [body], and by buying 1,000 calls at the higher August $69 strike for a premium of $1.82 a-pop [wing 2]. Net premium paid to purchase the call ‘fly amounts to just $0.11 per contract. The investor responsible for the trade is poised to profit should shares of the fund rally 1.34% to surpass the effective breakeven price of $67.11 by August expiration day. Maximum potential profits of $0.89 per contract are available to the Brazil-bull if shares of the EWZ rise 2.7% to settle at $68.00 at expiration. The butterfly spread is a very efficient way for the investor to take a bullish stance on the fund. The trader paid just $0.11 per contract to buy the spread but is positioned to make more than 8 times that amount – $0.89 per contract – if shares rally to $68.00 by expiration next month.

RSH – RadioShack Corp. – Shares of the retailer of consumer electronics goods and services fell 5.6% to $21.15 by 3:20 pm (ET), surrendering Tuesday’s rally, which was catalyzed by renewed speculation that RadioShack may be the target of a takeover bid. CNBC reported that a sale of the firm does not appear to be right around the corner, sending the price of the underlying stock down as much as 8.4% today to an intraday low of $20.52. Opposite-minded options tacticians populating the August contract initiated diverse strategies today. Some investors sold straddles, which suggests they expect RSH shares to stagnate rather than experience the significant rally one might expect to see if the electronics retailer were purchased ahead of August expiration. Straddlers sold approximately 5,000 calls at the August $21 strike for an average premium of $1.53 apiece, and sold roughly 5,000 puts at the same strike for an average premium of $1.27 each. Gross premium enjoyed on the transaction amounts to an average of $2.80 per contract. Investors short the straddle keep the full premium as long as RadioShack’s shares settle at $21.00 at expiration. Traders are exposed to potentially devastating losses should shares suddenly fly higher or fall off a cliff. Losses accumulate for straddle-sellers if shares rally above the upper breakeven price of $23.80, or if shares trade below the lower breakeven price of $18.20 by expiration day. Finally, an investor holding out hope for RadioShack’s shares to surge ahead of August expiration purchased a plain-vanilla debit call spread. This trader is not ready to throw in the towel on takeover chatter, and has thusly prepared to profit should RSH shares jump in the next month. The investor purchased 10,000 calls at the August $23 strike for a premium of $0.75 each, and sold the same number of calls at the higher August $24 strike for a premium of $0.45 apiece. The net cost of buying the spread amounts to $0.30 per contract. Profits start to amass for the investor if shares rally 10.15% over the current price of $21.15 to exceed the effective breakeven price of $23.30. The trader walks away with maximum potential profits of $0.70 per contract should RadioShack’s shares jump 13.5% to trade above $24.00 by August expiration.

PNRA – Panera Bread Co., Inc. – Options investors are establishing bullish stances on the owner and franchiser of bakery-cafes today ahead of the firm’s second-quarter earnings report scheduled for release after the closing bell on July 27, 2010. Panera’s shares edged slightly lower in the first half of the session, dipping 0.15% to stand at $77.58 as of 11:45 am (ET). Optimistic individuals opted to enact credit put spreads in the August contract. Traders sold approximately 2,500 puts at the August $75 strike for an average premium of $2.13 apiece, and purchased the same number of puts at the lower August $70 strike for an average premium of $1.02 a-pop. Credit-spreaders pocket an average net credit of $1.11 per contract, and keep the full amount as long as PNRA shares exceed $75.00 through expiration day. Investors are vulnerable to losses should the price of the underlying stock fall 4.75% from the current price to breach the average breakeven point to the downside at $73.89. Maximum potential losses of $3.89 per contract accumulate for these investors should Panera’s shares plunge 9.8% to trade below $70.00 by August expiration.

IVN – Ivanhoe Mines, Ltd. – Shares of the international mineral exploration and development company are currently up 4.00% to arrive at $17.11 as of 11:15 am (ET). Ivanhoe’s share price increased as much as 22.15% so far this week, having rallied up from Monday’s intraday low of $14.22, to today’s intraday high of $17.37. Shares surged on Tuesday after the company said it plans to abandon an accord that restricts its ability to bring new investors into its $4.6 billion mining project in Mongolia. Bullish options investors positioning for continued appreciation in the price of the underlying stock dominated trading activity on Ivanhoe this morning. Traders purchased at least 5,200 now in-the-money calls at the July $17 strike for an average premium of $0.31 per contract. Call buyers make money if Ivanhoe Mines’ shares trade above the average breakeven price of $17.31 ahead of expiration in two days.

LO – Lorillard Inc. – The largest U.S. manufacturer of menthol cigarettes popped up on our ‘hot by options volume’ market scanner in the first half of the trading day after investors initiated near-term bearish strategies on the stock. Lorillard’s shares are currently down 0.35% at $74.38 as of 11:40 am (ET). Options players expecting further bearish movement in the price of LO’s shares picked up approximately 3,500 puts at the July $72.5 strike for an average premium of $0.23 per contract. Investors long the puts make money if shares fall another 2.8% to breach the average breakeven price at $72.27 by expiration on Friday.

DOW – The Dow Chemical Co. – Shares of the manufacturer of chemicals and plastic materials rallied 1.3% this morning to $27.06 despite reports that Goldman Sachs cut the U.S. chemicals sector to ‘neutral’ from ‘attractive’, and slashed their share price target on DOW to $35.00 from $40.00. Goldman still has a ‘conviction buy’ rating on Dow Chemical Co. One options investor wary of potential near-term erosion in the price of the underlying shares appears to have purchased a put spread in the August contract. The trader purchased roughly 3,000 puts at the August $26 strike for a premium of $1.22 apiece, and sold about the same number of puts at the lower August $24 strike for an average premium of $0.60 each. Net premium paid to establish the bearish spread amounts to $0.62 per contract. The investor starts to make money if the chemical maker’s shares slip beneath the effective breakeven price of $25.38 ahead of expiration. The put player is prepared to accrue maximum potential profits of $1.38 per contract should DOW’s shares decline 11.30% from the current price of $27.06 to trade below $24.00 by expiration day next month.


Tags: , , , , , ,

Do you know someone who would benefit from this information? We can send your friend a strictly confidential, one-time email telling them about this information. Your privacy and your friend's privacy is your business... no spam! Click here and tell a friend!





You must be logged in to make a comment.
You can sign up for a membership or log in

Sign up today for an exclusive discount along with our 30-day GUARANTEE — Love us or leave, with your money back! Click here to become a part of our growing community and learn how to stop gambling with your investments. We will teach you to BE THE HOUSE — Not the Gambler!

Click here to see some testimonials from our members!