Today’s tickers: CAKE, LVS, IYR, TEVA, EEM, S, CREE & EXPE
CAKE – The Cheesecake Factory, Inc. – One premium-hungry options strategist sold a strangle on the full-service dining restaurants operator this afternoon in the expectation that its shares are set to trade within a narrow range through October expiration. Cheesecake Factory’s shares fell 1.45% late in the session to trade at $25.38 by 3:35 pm ET. The investor sold 3,000 puts at the October $25 strike for premium of $1.05 apiece and sold 3,000 calls at the October $26 strike at a premium of $1.05 each in order to pocket gross premium of $2.10 per contract. Full retention of the premium received today occurs as long as shares of the underlying stock trade between $25.00 and $26.00 through October expiration. Wayward shifts in the price of CAKE’s shares could give this strangle-player a severe stomachache as losses start to build should shares rally above the upper breakeven price of $28.10, or if shares dip under the lower breakeven point at $22.90, ahead of expiration day in October.
LVS – Las Vegas Sands Corp. – Shares in casino resort operator Las Vegas Sands commenced the session in the red but rallied in afternoon trading to stand 1.05% higher on the day at $31.32 as of 3:45 pm ET. Earlier in the day shares increased as much as 1.5% to secure a new 52-week high of $31.46. One long-term bullish investor hoping to see continued appreciation in the price of the underlying stock established a covered call in the March 2011 contract. The trader sold 10,000 calls at the March 2011 $40 strike for premium of $1.73 per contract. The transaction had a delta of .30 and was tied to the purchase of LVS shares at $31.20 each. Premium received on the sale of the calls effectively reduces the price paid by the investor to get long the stock. The bullish player is poised to accumulate maximum potential gains of 35.7% on the run up in LVS shares from an effective purchase price of $29.47 to $40.00 if the calls land in-the-money at expiration and the underlying position is called away from the trader at that time.
IYR – iShares Dow Jones U.S. Real Estate Index ETF – The construction of a debit put spread on the IYR, an exchange-traded fund that corresponds to the Dow Jones U.S. Real Estate Index – an index designed to measure the performance of the real estate sector of the U.S. equity market, indicates one options strategist is wary the price of the fund’s shares could slip substantially ahead of December expiration. Shares of the fund edged 1.2% lower in afternoon trading to arrive at $53.31 as of 3:20 pm ET. The put spreader purchased 4,000 lots at the December $53 strike for premium of $3.40 each, and sold the same number of puts at the lower December $49 strike at a premium of 1.94 apiece. The net cost of the transaction amounts to $1.46 per contract. Thus, the trader stands ready to make money – or realize downside protection should he hold a large position in shares of the fund – if the IYR’s shares fall 3.3% from the current price of $53.31 to breach the average breakeven point on the spread at $51.54 by December expiration. Maximum potential profits of $2.54 per contract are available to the investor if shares of the IYR plunge 8.085% lower to trade beneath $49.00 at expiration. Option implied volatility on the fund is up 8.5% to arrive at 27.93% with 30 minutes remaining in the trading session.
TEVA – Teva Pharmaceutical Industries Ltd. – The Israel-based manufacturer of generic and branded drugs attracted bullish options investors during the trading session. Teva’s shares increased as much as 2.70% in morning trading to touch an intraday high of $53.18. Call buyers dominated trading activity and exchanged more than 5.9 calls on the stock for each single put option in play thus far today. Investors picked up 2,800 now in-the-money calls at the September $52.5 strike for an average premium of $0.78 each. Traders long the calls are poised to profit should Teva’s shares exceed the average breakeven price of $53.28 by expiration. Bullish sentiment spread to the higher September $55 strike where approximately 5,100 calls were picked up for an average premium of $0.21 each. The drug manufacturer’s shares must increase 3.8% over today’s high of $53.18 in order for September $55 strike call buyers to start to accumulate profits above the average breakeven point of $55.21. Finally, uber-bulls bought roughly 1,300 calls at the September $60 strike for premium of $0.05 a-pop. Traders holding these contracts make money if TEVA shares jump 12.9% to trade above the effective breakeven price of $60.05 by September expiration. The firm’s overall reading of options implied volatility climbed 8.5% to 23.51% by 1:00 pm ET.
EEM – iShares MSCI Emerging Markets Index ETF – One cautiously optimistic options player initiated a large-volume equity collar in the March 2011 contract on the emerging markets fund in the first half of the trading day. Shares of the EEM, an exchange-traded fund designed to correspond to the MSCI Emerging Markets Index – an index created to measure equity performance in the global emerging markets, slipped 1.15% lower to stand at $41.55 just after 12:45 pm ET. The investor appears to have enacted a 20,000-lot equity collar with a .59 delta, selling 20,000 calls at the March 2011 $45 strike for premium of $1.90 each in order to buy the same number of puts at the March 2011 $35 strike at a premium of $1.68 apiece. The sale of the calls to buy the puts results in a net credit of $0.22 per contract – or $440,000 – to the trader. The collar was tied to the purchase of 1,180,000 EEM shares at $41.58 each, as indicated by the .59 delta. It seems the investor is hoping to see shares appreciate and perhaps have the underlying position called from him at $45.00 if the calls land in-the-money at expiration next year. But, the long puts provide downside protection in case shares falter rather than fly higher. The parameters of the transaction suggest the trader will adjust the underlying position in accordance with shifts in delta as influenced by changes in the value of the equity. Options implied volatility on the EEM is higher by 9.7% to arrive at 26.61% as of 12:55 pm ET.
S – Sprint Nextel Corp. – The implementation of a short strangle on Sprint in the first half of the trading session indicates one options strategist expects the price of the underlying stock to trade within a narrow range through November expiration. The wireless telecommunications company’s shares are currently up 0.92% to stand at $4.38 as of 12:25 pm ET. The strangle-player sold 10,000 puts at the November $4.0 strike for premium of $0.22 each and shed 10,000 calls at the higher November $5.0 strike at a premium of $0.18 apiece. Gross premium pocketed on the transaction amounts to $0.40 per contract. The investor responsible for the trade keeps the full premium received as long as Sprint’s shares trade above $4.00 and below $5.00 through expiration day in a couple of months time. But, the short positions in both call and put options expose him to losses should shares shift significantly ahead of November expiration. Losses start to amass if Sprint’s shares rally above the upper breakeven point at $5.40, or if shares slip beneath the lower breakeven price of $3.60, by expiration day.
CREE – Cree, Inc. – September contract call options on the manufacturer of semiconductor materials and devices are very active this morning. It looks like a number of call traders are initiating bullish stances on the stock even though Cree’s shares fell as much as 2.05% in morning trading to an intraday low of $55.33. The company is reportedly scheduled to present at Citigroup’s 17th annual Global Technology Conference today. Options players picked up roughly 1,600 calls at the September $57.5 strike for an average premium of $1.62 each. Investors long the calls make money if Cree’s shares rally 6.85% over today’s low of $55.33 to trade above the average breakeven point at $59.12 by September expiration. Optimism spread to the higher September $60 strike where some 1,500 calls were coveted at an average premium of $0.86 a-pop. Traders holding these contracts are poised to profit should CREE shares increase 10% in the next couple of weeks to exceed the effective breakeven price of $60.86 by expiration day. Finally, bulls picked up another 1,600 calls at the September $62.5 strike for premium of $0.44 apiece. Call buyers make money if the semiconductor maker’s shares surge 13.75% to surpass the average breakeven point to the upside at $62.94 ahead of September expiration. Increased investor demand for options on Cree, Inc. helped lift the overall reading of options implied volatility on the stock 11.5% to 54.14% as of 11:55 am ET.
EXPE – Expedia, Inc. – Options traders established bullish positions on the online travel company this morning despite the 2.2% decline in the value of its shares to an intraday low of $24.85. Investors itching for a sharp rebound in the price of the underlying stock scooped up approximately 1,700 calls at the October $27.5 strike for an average premium of $0.49 apiece. Call buyers make money if, by October expiration, shares in Expedia surge 12.6% to trade above the average breakeven price of $27.99. Bulls also picked up another 1,400 calls at the higher October $29 strike at an average premium of $0.25 each. Investors long the calls stand ready to accrue profits if shares jump 17.7% over today’s low of $24.85 to surpass the average breakeven price of $29.25 by expiration day next month. The overall reading of options implied volatility on the stock is up 12.4% at 41.12% as of 11:35 am ET.