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Delta Air Lines Receives Contrarian Bullish Combo Play

Today’s tickers: DAL, AKAM, GG & IYR

DAL – Delta Air Lines, Inc. – One contrarian investor initiated a three-legged bullish options combination play on Delta Air Lines today with shares of the underlying stock trading lower by 6.25% on the day at $10.65 as of 12:55 pm ET. It looks like the trader is betting Delta’s shares are not likely to fall much lower ahead of expiration in January 2011. The investor sold 4,000 puts at the January 2011 $10 strike for premium of $1.17 each, shed another 4,000 puts at the lower January 2011 $9.0 strike for premium of $0.80 apiece, and finally purchased 4,000 calls at the higher January 2011 $12.5 strike at a premium of $0.98 a-pop. The transaction yields a net credit of $1.00 per contract to the investor, which he keeps in full as long as the airline’s shares exceed $10.00 through expiration day. The long stance in call options implies the potential for additional profits to be made should DAL’s shares surge 17.4% over the current price of $10.65 to surpass the $12.50-level ahead of expiration in January. If shares continue to descend, however, the investor could wind up having a total of 800,000 shares put to him in the event both chunks of puts at the January 2011 $10/$9.0 strikes land in-the-money at expiration.

AKAM – Akamai Technologies, Inc. – Bullish players are dominating trading activity in Akamai Technologies’ options this morning due to reports of renewed takeover chatter. Investors expecting AKAM’s shares to climb higher are scooping up call options in the August and September contracts. The firm’s shares are currently up 2.8% on the day to arrive at $45.30 as of 11:30 am ET. Traders purchased at least 4,200 now in-the-money calls at the August $45 strike for an average premium of $0.45 apiece. Call buyers at this strike make money if, by expiration tomorrow, Akamai’s shares exceed the average breakeven price of $45.45. Optimism spread to the September contract where traders picked up 1,100 call options at the September $49 strike for an average premium of $0.69 a-pop. Investors long the September $49 strike calls are positioning for AKAM’s shares to rally to a new 52-week high by expiration day next month. The current 52-week high on the stock is $46.72, but the price of the underlying stock would need to surge 9.7% over the current price of $45.30 in order for shares to surpass the average breakeven point on the calls at $49.69. Investors hoping AKAM’s shares rally more dramatically purchased 3,200 calls at the sky-high September $55 strike for an average premium of $0.20 each. More than 5,390 calls changed hands at the September $55 strike by 11:40 am ET. AKAM’s shares must increase 21.9% in order for September $55 strike call buyers to start to amass profits about the effective breakeven price of $55.20 by expiration next month. Takeover speculation and increased demand for options on the provider of services for improving the delivery of content and applications over the Internet lifted the overall reading of options implied volatility on the stock 11.6% to 47.13% as of 11:45 am ET.

GG – Goldcorp, Inc. – A short strangle implemented on the Canadian company engaged in the acquisition, exploration, development and operation of precious metal properties today suggests one strategist expects the price of the underlying stock to remain range-bound through expiration in September. Goldcorp’s shares fell as much as 2.45% during the first half of the session to touch an intraday low of $41.59, but shares are currently on the mend, and are trading 0.95% lower on the day to arrive at $42.24 as of 12:40 pm ET. The investor responsible for selling the strangle may be taking advantage of Goldcorp’s earlier 5.5% increase in options implied volatility to today’s high of 34.18%. The options player sold 4,000 calls at the September $47.5 strike for premium of $0.18 each, and sold the same number of puts at the lower September $38 strike for a premium of $0.39 apiece. Gross premium pocketed on the transaction amounts to $0.57 per contract. The investor keeps the full amount of premium received as long as Goldcorp’s shares trade within the boundaries of the strike prices selected through expiration. Short positions in both call and put options in this case expose the trader to potentially devastating losses should shares break out of the $38.00 to $47.50 range. Losses accumulate for the strangle seller if Goldcorp’s shares rally above the upper breakeven price of $48.07, or if shares plummet through the lower breakeven point at $37.43 ahead of expiration day.

IYR – iShares Dow Jones U.S. Real Estate Index Fund – The purchase of a debit put spread on the IYR, an exchange-traded fund designed to provide investment results that correspond to the price and yield performance of the Dow Jones U.S. Real Estate Index – an index that measures the performance of the real estate sector of the U.S. equity market, suggests one options player is bracing for continued erosion in the price of the underlying fund through expiration in January 2011. Shares of the ETF are down 2.65% to stand at $50.22 as of 11:55 am ET. It looks like the pessimistic investor purchased 5,000 puts at the January 2011 $48 strike for an average premium of $3.71 each, and sold the same number of puts at the lower January 2011 $40 strike for an average premium of $1.50 apiece. Net premium paid to establish the spread amounts to $2.21 per contract. Thus, the trader responsible for the transaction is prepared to make money – or realize downside protection should the investor hold a long position in the underlying shares – if the fund’s shares fall 8.8% from the current price to slip beneath the effective breakeven point to the downside at $45.79 by expiration day next year. Maximum available profits of $5.79 are available to the trader if the fund’s shares plummet 20.35% to trade below $40.00 by expiration in January 2011. Options implied volatility on the fund surged 15.7% to 31.25% just before 12:00 pm ET.


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