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Thursday, May 30, 2024

Frenzied Options Activity Observed on Transocean Ahead of Earnings

Today’s tickers: RIG, BKS, GPS, HIG, CX, GENZ, ENP & PG

RIG – Transocean, Ltd. – Shares of the provider of offshore contract drilling services are up 6.75% to stand at $53.79 with 20 minutes remaining before the closing bell. Transocean is scheduled to reveal its performance for the second quarter of 2010 after the market closes today. Impending earnings inspired a flurry of options activity on the stock in afternoon trading. Investors are making good use of RIG’s weekly options pre-earnings, placing both bullish and bearish bets by exchanging calls and puts. Optimists hoping to see Transocean shares extend gains through weekly-expiration on Friday purchased roughly 3,200 calls at the August $55 strike for an average premium of $0.74 each. Buying interest spread to the higher August $60 strike where approximately 1,000 calls were coveted at an average premium of $0.08 apiece. A strong earnings report and continued rally in RIG’s shares will benefit traders making bullish wagers today. On the flip side, some investors are hedging possible disappointing earnings and subsequent share price erosion. Put players picked up roughly 2,500 puts at the August $52.5 strike for an average premium of $0.96 each. These contracts, which expire on Friday, yield profits – or downside protection – to investors should Transocean’s shares decline 4.2% from the current price of $53.79 to breach the average breakeven point on the downside at $51.54 by expiration. Calls expiring on August 20 were also heavily traded ahead of earnings. Trading traffic is heaviest at the August $55 strike where more than 11,500 contracts changed hands by 3:50 pm ET. Overall, options players exchanged roughly 1.65 calls for each single put traded on the stock today.

BKS – Barnes & Noble, Inc. – The bookseller’s shares surged 24.9% at the start of the trading session to an intraday high of $16.04 on news the retailer willing to consider offers from others to buy the company and its 720 outlets. Shares cooled slightly by 3:20 pm ET, but are still up 18.85% on the day to arrive at $15.26 ahead of the final bell. The U.S. bookseller was upgraded two levels to ‘neutral’ from ‘sell’ at Goldman Sachs. Options traders hoping to see Barnes & Noble’s shares continue higher ahead of expiration next month purchased roughly 1,000 calls at the September $18 strike for an average premium of $0.47 apiece. Call buyers make money if the bookseller’s shares jump 21% over the current price of $15.26 to exceed the average breakeven point to the upside at $18.47 by September expiration. BKS reports first-quarter earnings before the opening bell on August 24, 2010.

GPS – The Gap, Inc. – Bullish options investors purchased calls and sold puts on the retailer of clothing, accessories and personal care products today with shares of the underlying stock edging up 2.60% to $18.15 by 3:30 pm ET. Traders focused their attention on near-term August contract options, initiating bullish stances on the stock ahead of the retailer’s second-quarter earnings report, scheduled for release after market closes on August 19. August contract options expire the day after GPS reveals its performance for the second quarter of 2010. Optimistic individuals hoping to see shares rally higher ahead of expiration purchased 2,300 now in-the-money calls at the August $18 strike for an average premium of $0.69 each. Call buyers make money if the price of the underlying stock increases 2.98% to trade above the average breakeven point at $18.69 by expiration day. Other options players sold August $18 strike puts 1,600 times to take in an average premium of $0.54 a-pop. Investors selling the puts outright keep the full premium received on the transaction as long as GPS shares exceed $18.00 through expiration in August. Put sellers appear ready and willing to have shares put to them at an effective price of $17.46 each in the event the puts land in-the-money at expiration.

HIG – Hartford Financial Services Group, Inc. – One investor appears to be taking a bullish stance on the Connecticut-based insurance company ahead of the release of its second-quarter earnings report after the final bell this afternoon. HIG’s shares inched up 0.50% to $23.56 just before 1:25 pm ET. The firm’s shares currently stand 11% higher than the intraday low of $21.21 attained back on July 20. The implementation of a bullish risk reversal on HIG today suggests one trader expects share price appreciation to continue post earnings and ahead of August expiration. It looks like the options strategist sold 6,500 puts at the August $22 strike for an average premium of $0.45 each in order to buy the same number of calls at the higher August $25 strike for an average premium of $0.37 apiece. The transaction yields a net credit of $0.08 per contract to the investor, which he keeps as long as HIG’s shares exceed $22.00 through expiration day. Additional profits are available to the trader should the insurer’s shares surge 6.1% over the current price of $23.56 to exceed $25.00 by August expiration. Shares last traded above $25.00 on June 22, 2010.

CX – Cemex SAB de CV – A large short strangle enacted on the cement maker today indicates one options player expects the price of the underlying stock to trade within a narrow range through expiration in January 2011. Cemex’s shares are currently up 0.10% to stand at $9.53 as of 12:20 pm ET. The firm already reported second-quarter earnings, which ended up being its third straight quarterly loss, back on July 27. It looks like the strangle-strategist sold 6,200 calls at the January 2011 $10 strike at a premium of $0.90 apiece in combination with the sale of 6,200 puts at the lower January 2011 $9.0 strike for a premium of $0.90 each. Strangles typically indicate the expectation of subsiding volatility in the price of shares as well as the belief the share price will trade within the range of the strike prices selected through expiration. In this transaction, the investor receives a gross premium of $1.80 per contract, or $1.116 million, and keeps the full amount if shares trade within $9.00 to $10.00 through expiration day in January 2011. The short stance assumed in both call and put options dictates breakeven prices – points at which losses start to accumulate – of $11.80 to the upside, and $7.20 to the downside. This particular strangle, which has a net delta of .13, was evidently tied to the purchase of 80,600 shares of the underlying at $9.50 a-pop.

GENZ – Genzyme Corp. – One options investor is ready to make money should negotiations regarding a merger between Genzyme and Sanofi-Aventis collapse by October expiration. Genzyme’s shares slipped 1.35% lower this afternoon to stand at $69.25 just before 12:45 pm ET. The trader enacted a bearish debit put spread, buying 5,000 puts at the October $65 strike for an average premium of $2.32 each, and selling the same number of puts at the lower October $50 strike for an average premium of $0.22 apiece. Net premium paid to purchase the spread amounts to $2.10 per contract. Thus, the investor is prepared to make money should Genzyme’s shares fall 9.15% to breach the effective breakeven price of $62.90 by expiration. The trader stands ready to walk away with hefty profits of $12.90 per contract if the price of the underlying stock plunges 27.8% to trade below $50.00 by expiration day in October. The overall reading of options implied volatility on the drug maker is higher by 7.8% to 32.68% in afternoon trading.

ENP – Encore Energy Partners, LP – Shares of the owner of oil and natural gas properties rallied as much as 2.65% this morning to an intraday- and new 52-week high of $21.33. Encore Energy Partners’ shares are up ahead of its second-quarter earnings report, scheduled for release ahead of the opening bell on Thursday. One options player was well positioned to benefit from bullish movement in the price of Encore’s shares. It looks like the investor booked profits today by selling a previously purchased chunk of call options, and extended bullish sentiment on the stock ahead of earnings. The trader appears to have picked up 1,000 calls at the August $20 strike for an average premium of $0.25 each back on July 29 when ENP’s shares closed at $19.64. The subsequent rally in the price of the underlying shares lifted premium on the now in-the-money calls, and allowed the investor to sell all 1,000 lots of August $20 strike calls today at the advantageous price of $1.14 apiece. Net profits on the transaction amount to an average of $0.89 per contract. Next, the bullish player prepared for ENP’s shares to continue to appreciate ahead of August expiration by scooping up 2,000 calls at the higher August $22.5 strike for an average premium of $0.20 a-pop. The call buyer makes money on the new bullish stance as long as Encore Energy Partners’ shares rally 6.4% over today’s high of $21.33 to surpass the average breakeven price of $22.70 by expiration day. Options implied volatility on ENP is up 7.2% to 31.41% ahead of earnings.

PG – Procter & Gamble Co. – Investors are selling near-term call and put options on the maker of branded consumer products today, suggesting perhaps that they expect lower volatility in the price of its shares through August expiration. PG’s shares surrendered 4.00% of their value on Tuesday after portions of its second-quarter earnings report disappointed analysts and investors alike. The stock recovered slightly during the current session, rebounding as much as 1.70% off yesterday’s low of $59.55 to reach today’s high point of $60.57. One trader appears to be selling a 5,000 lot August $60/$57.5 strangle at an average premium of $1.15 per contract. The investor keeps the full premium received on the transaction as long as PG’s shares trade within the boundaries of the strike prices described through expiration day. Other options traders populating the August contract sold some 2,100 calls at the August $62.5 strike for an average premium of $0.11 each, and shed 2,700 puts at the lower August $60 strike for an average premium of $0.77 apiece. The sale of options at these strikes points to investors’ expectations PG’s shares are not likely to rally above $62.50 or fall beneath $60.00 ahead of expiration this month. Options implied volatility fell 6.00% to 16.52% by 1:05 pm ET.

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