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Motorola-Bull Cleans Up

Today’s tickers: MOT, RIMM, WMB, CAG, PFCB & SAI

MOT – Motorola, Inc. – Shares of the maker of the Droid smartphone fell in morning trading but recovered during the session to add as much as 3 pennies or 0.35% to arrive at an intraday-high of $8.39 this afternoon. Motorola appeared on our ‘most active by options volume’ market scanner today after one options player appears to have booked profits on a previously established bullish position. It looks like the investor originally purchased roughly 28,000 calls at the September $7.0 strike for an average premium of $0.70 each back on August 19, 2010, when MOT shares were trading at a volume-weighted average price of $7.55. The appreciation in the price of the underling since the calls were purchased lifted premium on the September $7.0 strike calls, allowing the trader to sell the contracts for $1.35 in premium apiece today. Net profits on the transaction amount to $0.65 per contract. Next, it looks like the bullish player re-opened, or rolled, the position to the higher October $8.0 strike where approximately 28,000 calls were picked up at an average premium of $0.10 a-pop. The investor starts to make money on the fresh batch of calls if Motorola’s shares surge 8.5% over the current price of $8.39 to surpass the effective breakeven price of $9.10 by expiration. We note that the investor may walk away with profits on the new long call position before October expiration if circumstances going forward lift the premium on those calls and the trader opts to sell the position at an advantageous price.

RIMM – Research in Motion Ltd. – Options on the Blackberry maker are a hot ticket item today ahead of the firm’s second-quarter earnings report scheduled for release after the closing bell this afternoon. Frenzied trading ensued right out of the gate this morning with investors heavily trafficking in September and October contract call and put options. Shares are currently up 1.1% at $46.02 as of 1:45 pm ET, but earlier rallied as much as 2.3% to reign in an intraday high of $46.58. The overall reading of options implied volatility on the stock increased 5.1% in the first half of the session to top out at 58.22%, but has come off to stand just 2.6% higher on the day at 56.82%. Although more than 1.7 call options changed hands for each single put on RIMM thus far in the session, it does not appear that most traders are taking bullish stances ahead of the earnings report. Furthermore, call buyers observed populating RIMM could be hedging short positions in the underlying shares. According to one Bloomberg article this morning, “bets against shares of Research in Motion Ltd. have doubled since April” as traders position for the Blackberry maker’s shares to continue to slide lower on steep competition from mobile making rivals, Apple and Google. RIMM’s shares, at the current price of $46.02, are down 40.00% since March 29, and off 47.75% from its September 23, 2009, 52-week high of $88.08. The most congested areas in RIMM options today are in September $50 strike calls and October $50 strike calls. Significant volume in September contract out-of-the-money puts is notable, as well. As of 2:05 pm ET, more than 34,000 calls changed hands at the September $50 strike, and upwards of 30,700 calls were exchanged at the $50 strike expiring in October. More than half of the volume in those calls was generated by call sellers. Not all of the trading was bearish though as a number of investors were seen selling out-of-the-money put options in the October contract. Additionally, call buying at out-of-the-money strike prices could be the work of speculators looking for earnings to beat expectations. The rapid pace and heavy volume in RIMM options, the rally in shares, and increased volatility on the stock ahead of earnings may also have attracted a good deal of intraday players who do not intend to hold positions through earnings. As of 2:15 pm ET, traders exchanged more than 243,000 contracts on the Blackberry manufacturer.

WMB – Williams Companies, Inc. – A large-volume long strangle initiated natural gas producer, Williams Companies, suggests one options strategist is expecting the price of the underlying stock to shift significantly head of expiration in January 2011. Williams’ shares are down 4.00% to arrive at $18.34 as of 11:45 am ET. The stock has been volatile throughout the morning, falling as much as 5.025% to an intraday low of $18.14 at the start of the session, and later recovering the majority of earlier losses to touch an intraday high of $18.74, before sliding back down to the current price of $18.34. Shares of the third-largest U.S. pipeline operator by market value slipped after the firm cut its profit forecasts for the next three years, citing lower-than-expected prices for natural gas and petroleum goods. The strangle-strategy selected by the options player suggests he is positioning for increased volatility in WMB shares as well as inflated options implied volatility. The investor picked up 10,000 calls at the January 2011 $20 strike for premium of $0.90 each, and purchased 10,000 puts at the January 2011 $17.5 strike for premium of $1.10 apiece. Net premium paid to establish the long strangle amounts to $2.00 per contract. Thus, the trader is prepared to make money if Williams’ shares rally above the upper breakeven price of $22.00, or should shares trade below the breakeven point to the downside at $15.50, by expiration day in January 2011. We note the investor may also walk away with profits if he is able to sell-to-close the strangle for more than $2.00 per contract at some point before the contracts expire next year.

CAG – ConAgra Foods, Inc. – The food company with well-known brands such as Hebrew National, Chef Boyardee and Hunt’s, popped up on our ‘hot by options volume’ market scanner this morning after one options player sold a strangle in the January 2011 contract. ConAgra’s shares fell 1.75% to $21.92 as of 12:00 pm ET. On Tuesday, Citigroup analysts cut their price target on ConAgra by $1.00 to $30.00. The strangle-player sold 2,000 calls at the January 2011 $24 strike for a premium of $0.30 each and shed 2,000 puts at the January 2011 $21 strike for premium of $0.70 apiece. Gross premium pocketed on the transaction amounts to $1.00 per contract. The investor keeps the full premium of $1.00 per contract, or $200,000.00, if CAG shares trade above $21.00 but below $24.00 through expiration. Premium received starts to erode at any price outside of the range described and gives way to potentially devastating losses should shares rally above the upper breakeven price of $25.00, or if shares trade below the lower breakeven point at $20.00, at expiration day in January. The strangle-seller is hoping to see CAG’s shares stagnate and implied volatility come off. Currently, the stock’s overall reading of options implied volatility is up 5.5% at 21.48% as of 12:10 pm ET.

PFCB – P.F. Chang’s China Bistro, Inc. – Bearish options traders are feasting on P.F. Chang’s put options this morning to position for the price of the restaurant operator’s shares to extend losses through September expiration day tomorrow. Shares of the owner of P.F. Chang’s China Bistro and Pei Wei Asian Diner plunged 8.525% in morning trading to touch down at an intraday low of $43.67. Investors unsure of how low the stock could go purchased approximately 1,250 now deep in-the-money puts at the September $45 strike for an average premium of $0.85 early in trading session. Traders who paid an average of $0.85 for the puts wisely picked up the contracts this morning because the same September $45 strike puts now tout an asking price of $1.60 per contract as of 11:35 am ET. Put buyers are positioned to amass profits to the downside should PFCB’s shares trade below the average breakeven price of $44.15 through expiration tomorrow. Options implied volatility on the restaurant operator is up 15.4% to stand at 42.92% just before 11:40 am ET.

SAI – SAIC, Inc. – Shares of the provider of scientific, engineering, systems integration and technical services and solutions to all branches of the U.S. military, agencies of the U.S. Department of Defense, the intelligence community, and many other government agencies increased as much as 3.3% during the first half of the trading day to secure an intraday high of $15.70. The price of the underlying may have been helped higher by news SAIC was awarded a task worth up to $10 million with the U.S. Securities and Exchange Commission to provide services in support of the SEC’s Office of Information Technology. Options traders, despite the rally in SAIC shares, focused in on longer-term put options. Investors purchased approximately 1,900 in-the-money puts at the February 2011 $16 strike for an average premium of $1.15 apiece. Put buyers may be picking up the contracts to protect the value of a long position in SAIC shares, or could be initiating outright bearish bets that the stock is set to reverse course ahead of expiration. Traders also scooped up another 1,800 puts at the lower February 2011 $15 strike for an average premium of $0.70 each. Investors long the puts make money, or realize downside protection, if the price of the underlying stock slips beneath the average breakeven price of $14.85, or $14.30, respectively.


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