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Ratio Put Spreader Tunes in to DISH Network Corp. Options

Today’s tickers: DISH, LBTYA, HGG, VECO, WBMD, VLO & TFSL

DISH – DISH Network Corp. – The implementation of a ratio put spread on the U.S. provider of direct broadcast satellite subscription television service this afternoon was perhaps put on by an investor looking to lock in recent share price gains. DISH shares, which are currently up 2.4% on the day to arrive at $20.77 by 3:40 pm ET, have rebounded nearly 17.5% since touching down to $17.75 on July 1, 2010. It looks like one trader purchased 3,000 puts at the December $20 strike for an average premium of $1.58 each, and sold 6,000 puts at the lower December $18 strike for an average premium of $0.83 a-pop. The investor responsible for the transaction receives a net credit of $0.08 per contract, and keeps the full amount at long as DISH’s shares exceed $20.00 through December expiration. The trader is perhaps utilizing the spread to protect the value of a position in the underlying shares. If this is the case, downside protection kicks in should shares reverse course to trade below $20.00 by expiration day. The decision to employ a ratio spread rather than a 1-by-1 spread or a plain-vanilla long put stance suggests this investor does not expect DISH shares to collapse ahead of expiration at the end of 2010. The firm is scheduled to report second-quarter earnings ahead of the opening bell on August 9, 2010.

LBTYA – Liberty Global, Inc. – It looks like one options strategist expects shares of the international producer of video, voice and broadband internet services to remain range-bound through October expiration. Liberty Global’s shares are currently down 0.20% to stand at $29.65 as of 3:05 pm ET. LBTYA reported an adjusted net loss of $2.42 a share for the second quarter of 2010 after the market closed on Tuesday. But, shares moved very little following earnings. Perhaps the lack of fluctuation in the price of the underlying shares during earnings season bolstered the strangle seller’s premonition that LBTYA’s shares are likely to trade within a specified range for the next couple of months. The investor appears to have sold roughly 10,000 puts at the October $27.5 strike for a premium of $0.70 each in combination with the sale of about the same number of calls at the October $32.5 strike for an average premium of $0.35 apiece. The trader pockets gross premium of $1.05 per contract, and keeps the full amount as long as Liberty Global’s shares trade between $27.50 and $32.50 through October expiration. The premium received on the trade provides limited protection for the trader should the stock experience wayward shifts in price. But, losses will start to accumulate for the investor if shares rally above the upper breakeven price of $33.55, or if shares slip beneath the lower breakeven point at $26.45, ahead of expiration in October.

HGG – HHGregg, Inc. – Shares of the specialty retailer of consumer electronics, home appliances and related services increased as much as 19.3% at the start of the trading session to grab hold of an intraday high of $25.42. HHGregg’s shares were unable to hold onto the majority of the initial rally, but are still up 6.6% at $22.71 as of 2:15 pm ET. The price of the underlying stock jumped after the firm announced better-than-expected sales and profits for the first quarter. HGG earned $0.07 a share, which is more than twice the consensus forecast of $0.03 per share. Investors expecting HHGregg’s shares to surpass the intraday high of $25.42 by September expiration purchased call options on the stock. Bulls picked up approximately 1,200 calls at the September $25 strike for an average premium of $1.08 a-pop. Call buyers make money if HGG’s shares surge 14.8% over the current price of $22.71 to exceed the average breakeven point to the upside at $26.08 by expiration day next month. Approximately 1,958 calls changed hands at the September $25 strike today versus previously existing open interest at that strike of just 2 contracts. The regional U.S. electronics retailer’s shares last traded above $26.08 back on June 28, 2010.

VECO – Veeco Instruments, Inc. – One options strategist initiated a ratio bull call spread on the electronic equipment manufacturer despite the 12.45% decline in the price of the underlying shares to an intraday low of $39.76. VECO’s shares plunged following reports The Commercial Times, a Taiwan-based newspaper, said flat-panel makers are placing fewer orders in the LED sector. One contrarian player seems to think the drop in shares is merely a temporary setback and thusly took advantage of reduced premium on out-of-the-money calls by purchasing a ratio spread. It looks like the investor picked up 6,500 call options at the September $41 strike for an average premium of $3.05 each, and sold 13,000 calls at the higher September $45 strike at an average premium of $1.36 apiece. Average net premium paid to purchase the spread amounts to approximately $0.33 per contract. Therefore, the investor stands ready to make money should Veeco’s shares reverse course and rebound 3.95% off today’s low of $39.76 to surpass the average breakeven price of $41.33 by expiration day next month. The trader walks away with maximum potential profits of $3.67 per contract as long as the price of the underlying stock jumps 13.2% to settle at $45.00 at expiration. Veeco’s overall reading of options implied volatility increased 12% to 61.12% by 1:05 pm ET.

WBMD – WebMD Health Corp. – Shares of the provider of health information services to consumers, physicians and healthcare professionals surged 7.45% to an intraday high of $50.77 by 11:50 am ET, trading just $0.42 below the stock’s current 52-week high of $51.19. WebMD reported net income of $0.13 per share for the second quarter this past Tuesday, swinging to profitability from losses experienced in the same quarter last year. The price of the underlying stock shot up after the firm announced it will pay $50 per share, a 5.8% premium over Wednesday’s closing value, to buyback up to 3 million of its shares. Bullish options players took advantage of the situation by selling near-term put options. Traders shed approximately 1,300 puts at the August $50 strike to pocket an average premium of $0.90 per contract. Put sellers keep the full premium received on the sale as long as WBMD’s shares exceed $50.00 through expiration day in August. Investors short the puts are apparently happy to have WebMD shares put to them at an effective price of $49.10 should the puts land in-the-money at expiration. The overall reading of options implied volatility on WBMD plunged 14.3% to 21.82% by 12:00 pm ET.

VLO – Valero Energy Corp. – An investor expecting the price of the oil refiner’s shares to move significantly ahead of September expiration appears to have purchased a sizeable long strangle today. Valero’s shares rallied as much as 1.7% during the first half of the trading session to secure an intraday high of $18.29. The stock is currently up 1.05% on the day to stand at $18.17 just before 11:40 am ET. Hoping to see the price of the underlying stock move, the strangle strategist purchased 7,500 puts at the September $17 strike at a premium of $0.47 each, and picked up the same number of calls at the September $19 strike for a premium of $0.48 apiece. The net cost of the transaction amounts to $0.95 per contract. The strangle positions the investor to benefit from wayward shifts in the price of Valero’s shares through expiration next month. Shares must rally at least 9.8% to surpass the upper breakeven price of $19.95, or plunge 11.7% lower to breach the breakeven point on the downside at $16.05, in order for the investor to start to make money on the trade. The strangler may also benefit if options implied volatility on the stock increases ahead of expiration. Increases in IV tends to lift premium on both call and put options and could allow the trader to sell the strangle at an advantageous price. Valero’s shares last traded above $19.95 on May 28, but have not traded below $16.05 since December 4, 2009.

TFSL – TFS Financial Corp. – Shares of the holding company for firms engaged in retail consumer banking fell as much as 21.06%, the biggest price decline since its public listing in 2007, to touch down at an intraday- and new 52-week low of $9.82. Hemorrhaging in TFSL’s shares commenced on news it stopped paying dividends and suspended share buybacks due to concerns at the Office of Thrift Supervision regarding the firm’s home equity line of credit portfolio. Investors expecting shares to continue to decline ahead of October expiration purchased approximately 2,500 now in-the-money puts at the October $10 strike for an average premium of $0.625 per contract. Put buyers make money if TFSL’s shares decline another 4.5% off today’s low of $9.82 to breach the average breakeven point on the downside at $9.375 by expiration day. More than 4,800 puts changed hands at the October $10 strike out of the stock’s total volume of 5,490 contracts exchanged by 12:45 pm ET. Overall options volume of 5,490 is more than 3.6 times greater than previously existing overall open interest on TFSL of 1,522 lots. The demand for options on the stock coupled with rising uncertainty pushed options implied volatility on TFSL 65.3% higher to 36.43% by 12:50 pm ET. Finally, some contrarians may be selling October $10 strike puts 1,700 times to pocket available premium of $0.625 each. Put sellers may expect shares to edge up over $10.00 by expiration day, but are happy to have shares of the stock put to them if that does not happen.


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