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Cautiously Optimistic Player Enacts Delta Neutral Hedge Ahead of Oracle Earnings

Today’s tickers: ORCL, DV, JNY, HOG, FDO & UA

ORCL – Oracle Corp. – Shares of the software company rallied as much as 1.45% this afternoon to touch an intraday high of $25.75, which is just $0.88 below the stock’s current 52-week high of $26.63. Options activity on Oracle is quite active ahead of the firm’s first-quarter earnings report scheduled for release after the closing bell tomorrow evening. One options investor hoping to see Oracle’s shares extend gains through the start of 2011 initiated a delta neutral hedge in the January 2011 contract. It looks like the trader purchased a total of 12,500 puts at the January 2011 $21 strike for a premium of $0.45 apiece, tied to the purchase of a large number of ORCL shares for $25.65 each, on a 0.15 delta. The long position in shares suggests perhaps that the investor expects tomorrow’s earnings report to lift shares and/or foresees continued bullish movement in the price of the underlying stock over the next 5 months. But, the put options serve as a type of insurance policy for the trader in case Oracle’s shares falter going forward. Options investors exchanged more than 77,800 contracts on the software maker by 3:10 pm ET.

DV – DeVry, Inc. – The for-profit operator of colleges and universities popped up on our ‘hot by options volume’ marker scanner after one investor initiated a call spread in the November contract. DeVry’s shares fell as much as 2.9% in the first half of the trading session to touch down at an intraday low of $41.25, but made a strong recovery in early afternoon trading, and currently stand 1.25% higher on the day at $43.01 as of 12:52 pm ET. The investor populating the November contract wisely established a contrarian debit call spread on the stock when shares were still in the red. The options strategist purchased 2,000 calls at the November $45 strike at a premium of $2.00 each, and sold the same number of calls at the higher November $50 strike for premium of $0.65 apiece. Net premium paid to purchase the spread amounts to $1.35 per contract. The investor is positioned to make money if DeVry’s shares rally another 7.8% over the current price of $43.01 to surpass the effective breakeven point at $46.35 by expiration day in November. Maximum potential profits of $3.65 per contract are available to the call-spreader if shares surge 16.25% and exceed $50.00 at expiration. It looks like the investor responsible for the transaction expects DeVry’s recovery to continue. The stock had plunged 51.1% from a 52-week high of $74.36 on April 22 to a 52-week low of $36.34 on August 20. Since then, shares have rebounded approximately 18.3% off the 52-week low to today’s high of $43.01.

JNY – Jones Apparel Group, Inc. – One long-term optimistic investor initiated a three-legged bullish options combination play on Jones Apparel Group today to position for a significant rally in the price of the underlying shares by expiration in February. Shares of the manufacturer of women’s clothing, footwear and accessories, under brand names such as Nine West and Anne Klein, increased as much as 0.92% during the first half of the trading day to secure an intraday high of $18.70. The bullish player populating JNY options sold 2,000 puts at the February 2011 $15 strike for premium of $0.95 each, purchased the same number of February 2011 $19 strike calls at a premium of $2.15 apiece, and shed 2,000 calls at the February 2011 $22.5 strike for a premium of $0.85 a-pop. Net premium paid to establish the three-legged transaction amounts to $0.35 per contract. Thus, the investor responsible for the trade stands ready to accumulate profits if Jones’ shares rally 3.475% over today’s high of $18.70 to trade above the effective breakeven price of $19.35 by February expiration day. Maximum potential profits of $3.15 per contract are available to the trader if the women’s fashion firm’s shares jump 20.3% to exceed $22.50 by expiration in February. Jones Apparel’s shares last traded above $22.50 back on May 3, 2010.

HOG – Harley-Davidson, Inc. – The motorcycle maker’s shares are up 2.1% as of 11:40 am ET, but earlier surged 3.00% to an intraday high of $28.29. Recovery in Harley’s shares spurred bullish investors to action and inspired increased demand for HOG-calls. Options traders exchanged more than 9.8 calls on the stock for each single put option in action thus far in the trading session. Bulls scooped up approximately 2,800 now in-the-money calls at the September $28 strike for an average premium of $0.28 apiece. Investors long the calls make money as long as Harley-Davidson’s shares exceed the average breakeven price of $28.28 at expiration on Friday. Optimism spread to the October $29 strike where some 1,300 calls were coveted at an average premium of $0.70 a-pop. HOG’s shares must increase another 5.00% in order to surpass the $29.70 average breakeven point faced by October $29 strike call buyers. Another 1,500 call options were picked up at the higher October $30 strike by traders willing to shell out an average premium of $0.43 per contract. These investors stand ready to amass profits should HOG’s shares jump 7.55% over today’s high of $28.29 to rally above the effective breakeven price of $30.43 by October expiration day. Finally, traders doubting the motorcycle company’s shares will rally above $31.00 in the next month shed roughly 1,500 calls at the October $31 strike to pocket an average premium of $0.27 apiece. Call sellers keep the premium received as long as shares fail to rally above $31.00 by October expiration. But, if these are uncovered short call stances, investors could incur losses if HOG’s shares trade above the average breakeven point to the upside at $31.27 by expiration day next month.

FDO – Family Dollar Stores, Inc. – Bearish smoke signals curling around the operator of general merchandise retail discount stores suggest some options investors are bracing for the price of the underlying shares to decline by October expiration. Family Dollar Stores’ shares slipped 0.45% lower to $42.83 by 11:35 am ET. Nearly all of the activity initiated in FDO options today involved October $42 strike puts. More than 12,800 puts changed hands at the October $42 strike versus paltry previous open interest of 806 contracts. It looks like the majority of the puts were purchased at an average premium of $1.20 apiece. Put buying players are prepared to make money should FDO’s shares fall another 4.7% from the current price of $42.83 to breach the average breakeven point to the downside at $40.80 by expiration day next month. Increased demand for bearish put options coupled with erosion in FDO shares helped lift the stock’s overall reading of options implied volatility 7.7% to 33.19% by 11:40 am ET.

UA – Under Armour, Inc. – Bullish investors are donning Under Armour call options this morning to position for continued appreciation in the value of the athletic clothing and accessories manufacturer’s shares. Shares of the clothing company rallied as much as 4.6% during the first half of the trading session to touch an intraday- and new 52-week high of $44.14, but have cooled slightly since, and currently stand 2.2% higher on the day at $43.14 as of 11:25 am ET. Optimistic options traders picked up 1,200 calls at the September $44 strike for an average premium of $0.43 apiece. Call buyers at this strike are poised to profit should UA’s shares rally above the average breakeven price of $44.43 ahead of expiration on Friday. Bulls hoping Under Armour’s shares increase dramatically by expiration next month purchased approximately 1,400 calls at the October $50 strike for an average premium of $0.34 each. Investors long the calls make money if the apparel designer’s shares surge 14.05% over today’s high of $44.14 to surpass the effective breakeven price of $50.34 by October expiration. Increased demand for calls on Under Armour today lifted the stock’s overall reading of options implied volatility 11.2% to 46.07% as of 11:30 am ET.


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