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Hefty Bullish Plays Constructed on Transocean

Today’s tickers: RIG, AKAM, VPRT, FXI, GMCR, XLP & KR

RIG – Transocean Ltd. – Two massive bullish transactions utilizing nearly 110,000 call options on the provider of offshore contract drilling services for oil and gas wells indicates at least one big options player is taking a long-term optimistic stance on the stock. RIG’s shares inched up 0.50% this afternoon to trade at $47.00 as of 3:15 pm ET. The nearer-term of the two spreads looks to be a variation on the traditional call butterfly spread because volume at the lower strike price [wing 1] is the same as that used in the body of the butterfly. Typically, a butterfly spread is constructed using a 1X2X1 ratio. The longer-term spread employed in the February 2011 contract looks like a normal butterfly. In this transaction the investor enjoys maximum profits if RIG’s shares surge 38.3% to settle at $65.00 by February expiration day. The transaction involved the purchase of 15,000 calls at the February 2011 $50 strike [wing 1] for an average premium of $5.5250, the sale of 30,000 calls at the February 2011 $65 strike for an average premium of $1.475 [body], and the purchased of 15,000 calls at the higher February 2011 $80 strike for an average premium of $0.425 apiece. The net cost of this transaction amounts to $3.00 per contract. Transocean’s shares must rally 12.8% by February expiration in order for the investor to breakeven on the spread at a share price of $53.00. The investor may accumulate maximum available profits of $12.00 per contract if Transocean’s shares surge 38.3% to $65.00 by expiration day. The spread initiated in the November contract is similar in its bullishness, although differs with respect to the lopsided nature of the wings, time to expiration, and strike price selection. In this trade the investor the purchased 19,500 in-the-money calls at the November $45 strike for an average premium of $6.175, and sold the same number of calls at the higher November $55 strike for an average premium of $2.22 each. The third leg of the trade is half the size, that’s 9,750 calls purchased at the November $65 strike for an average premium of $0.725 apiece. The investor or investors responsible for these transactions are well positioned to benefit handsomely from bullish movement in the price of the underlying shares in the months to come.

AKAM – Akamai Technologies, Inc. – The provider of services for improving the delivery of content over the Internet suffered significant share price erosion during the session, with its shares down 13.00% to $38.30 minutes before the closing bell. One options investor purchased a plain-vanilla debit put spread in the November contract to prepare for additional bearish movement in the price of AKAM’s shares. The trader picked up roughly 4,300 puts at the November $38 strike for an average premium of $3.75, and sold the same number of puts at the lower November $32 strike for an average premium of $1.52 a-pop. The net cost of the spread amounts to $2.23 per contract. Thus, the strategist is poised to profit should Akamai’s shares decline another 6.60% to breach the effective breakeven price of $35.77 by expiration day in November. The trader stands prepared to accumulate maximum potential profits of $3.77 per contract should shares plunge16.45% to trade below $32.00 by expiration.

VPRT – VistaPrint, Ltd. – Shares of the provider of business cards, brochures and other products and services took a severe hammering during the trading session, falling as much as 38.3% to touch down at an intraday- and new 52-week low of $31.00, following a disappointing earnings announcement on Wednesday evening. VistaPrint’s fourth-quarter net income of $0.38 a share narrowly beat Street estimates, but the company’s forecast for first-quarter earnings and for fiscal 2011 came in well below that which analysts were expecting. VPRT estimates it will earn $2.09 to $2.24 per share in 2011 on revenue of $750 million to $780 million, while analysts were looking for an average of $2.36 per share in net income on revenue of $802.6 million. The significant decline in the price of the underlying shares and disappointing guidance from VPRT inspired bearish options activity on the stock as well as a plethora of downgrades by various analysts. Investors expecting VistaPrint’s shares to continue lower ahead of August expiration scooped up approximately 2,000 puts at the August $30 strike for an average premium of $0.87 per contract. Put buyers at this strike make money if, by expiration, shares fall another 6.00% from today’s low of $31.00 to breach the average breakeven point on the puts at $29.13. Options players also picked up 1,300 now in-the-money puts at the August $32.5 strike for an average premium of $1.83 a-pop. In-the-money put buyers are poised to profit should shares edge 1.05% lower to trade beneath the average breakeven price of $30.67 by expiration day. Finally, investors betting VistaPrint’s shares are not likely to rebound ahead of August expiration shed 1,200 calls at the August $35 strike to take in an average premium of $1.10 per contract. Call sellers keep the full premium received as long as VPRT shares trade below $35.00 through expiration day next month. In total, options traders exchanged more than 25,300 contracts on the stock by 2:10 pm ET, which is more than twice the number of contracts comprising previously existing open interest on VPRT of 10,554 lots. Options implied volatility is up 8.6% to 48.86% in afternoon trading.

FXI – iShares FTSE/Xinhua China 25 Index Fund – The implementation of a large-volume iron condor on the FXI, an exchange-traded fund that corresponds to the performance of the FTSE/Xinhua China 25 Index – an index created to represent the performance of 25 of the largest and most liquid companies in the Chinese equity market, suggests one options strategist expects the price of the underlying fund to stagnate through August expiration. Shares of the FXI are currently down 0.90% on the day to stand at $40.80 just before 11:35 am ET. The investor essentially enacted a pair of credit spreads in order to reel in available premium, which he keeps in full if shares trade above $40.00 and below $43.00 through expiration day next month. To establish the iron condor the investor sold 15,600 calls at the August $43 strike for a premium of $0.30 each, and purchased the same number of calls at the higher August $45 strike for a premium of $0.06 apiece. On the put side, the trader shed 15,600 contracts at the August $40 strike for a premium of $0.57 each, and bought the same number of August $38 strike puts at a premium of $0.22 a-pop. The investor receives a net credit of $0.59 per contract on the transaction, which he keeps as long as shares remain range-bound between the $40.00 to $43.00 strike prices through August expiration day. The trader responsible for the iron condor faces substantial risk of loss should the price of the underlying fund move significantly in the next several weeks. Losses start to accumulate for the investor should shares rally above the upper breakeven price of $43.59, or if shares slip beneath the lower breakeven point at $39.41 by expiration. Maximum potential losses the investor could incur amount to $1.41 per contract should shares rally sharply to surpass $45.00, or if shares nosedive to trade below $38.00 by expiration in August.

GMCR – Green Mountain Coffee Roasters, Inc. – Shares of the specialty coffee company rallied as much as 10.2% today to reach an intraday high of $31.60 after reporting better-than-expected third-quarter results on Wednesday. GMCR’s shares are currently up 8.20% to $31.02 as of 11:55 am ET. The firm posted third-quarter net income, excluding items, of $0.19 a share, which beat average analyst estimates of $0.18 a share. One options trader was well positioned for the current surge in the price of the underlying shares. It looks like this individual booked profits by selling a previously established long call position in the August contract, and subsequently initiated longer-term bullish stance on the stock by purchasing a fresh chunk of calls in the December contract. The investor appears to have originally purchased roughly 7,690 calls at the August $29 strike for an average premium of $1.90 each back on July 22. Today, with the August $29 calls currently in-the-money, the trader sold 7,690 lots at a premium of $2.40 per contract. Net profits on the sale amount to $0.50 per contract. Next, the options player looked to the December $30 strike to purchase 7,690 in-the-money calls for premium of $3.83 a-pop. Profits on the new position start to amass should Green Mountain Coffee’s shares rally another 9.05% over the current price of $31.02, exceed the current 52-week high of $33.20, to surpass the effective breakeven price of $33.83 by expiration day in December. As of 12:05 pm ET, the overall reading of options implied volatility on the stock is down 27.6% to 38.10% post-earnings.

XLP – Consumer Staples Select Sector SPDR – In the first 5 minutes of the trading session one investor enacted a three-legged bearish options combination play on the XLP, an exchange-traded fund designed to provide investment results that correspond to the price and yield performance of the Consumer Staples Select Sector of the S&P 500 Index, to prepare for continued erosion in the price of the underlying shares through September expiration. Shares of the XLP slipped 1.60% lower to trade at $26.80 by 12:10 pm ET. It looks like the options strategist sold call options in order to partially finance a ratio put spread. To establish the pessimistic play, the investor sold 8,900 calls at the September $28 strike at a premium of $0.19 each, purchased 8,900 now in-the-money puts at the September $27 strike for premium of $0.59 apiece, and sold 17,800 puts at the lower September $25 strike for a premium of $0.16 a-pop. The net cost of the transaction is reduced to just $0.08 per contract. The makeup of this trade positions the responsible party to profit should the XLP’s shares trade below the effective breakeven point on the spread at $26.92 through September expiration. Maximum available profits of $1.92 per contract pad the investor’s wallet if shares of the underlying fund decline another 6.7% from the current price to settle at $25.00 at expiration. The sharp increase in demand for XLP option contracts lifted the overall reading of options implied volatility on the fund 10.7% to 15.55% as of 12:20 pm ET.

KR – Kroger Co. – Optimistic options players appear to be building up short interest in September contract put options on the supermarket operator today with shares of the underlying stock increasing as much as 1.2% to an intraday high of $21.28. Investors looked to the September $20 strike to sell approximately 9,500 puts for an average premium of $0.30 apiece. Put sellers keep the full premium received on the transaction as long as Kroger’s shares exceed $20.00 through expiration day in September. Investors short the puts are apparently willing to have shares of the underlying stock put to them at an effective price of $19.70 each should the puts land in-the-money at expiration. Similar put selling behavior was observed back on July 22 when traders sold some 5,400 puts at the same strike price for an average premium of $0.70 per contract.


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