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Tuesday, June 18, 2024

Bulls Bulk Up On DryShips Call Options

Today’s tickers: DRYS, PG, LCC, MHP, GDX, AMR, AMGN & GMCR

DRYS – DryShips, Inc. – A number of options players boarded the DryShips, Inc. bullish bandwagon this afternoon after the dry bulk carrier was upgraded to ‘equal-weight’ from ‘underweight’ and given a target share price of $5.50 at Morgan Stanley. DryShips’ shares jumped 9.95% in the second half of the trading day to touch an intraday high of $4.53. In- and out-of-the-money call options on the shipping firm were in high demand, particularly in the October and November contracts. Traders scooped up some 2,300 in-the-money calls at the October $4.0 strike for an average premium of $0.45 each. Optimists also picked up roughly 6,700 calls at the higher October $5.0 strike by shelling out an average premium of $0.05 apiece. DRYS’ shares would need to rally another 11.5% over today’s high of $4.53 in order for October $5.0 strike call buyers to make money above the average breakeven point at $5.05 by October expiration. Bulls looked to the November $5.0 strike to take ownership of some 4,000 call options at an average premium of $0.14 a-pop. Investors long the calls are prepared to profit should the price of the underlying stock increase another 13.5% in the next couple months to trade above $5.14 by November expiration. Options implied volatility on DryShips surged 10.9% to 48.14% by 3:40 pm ET.

PG – Procter & Gamble Co. – Shares of the consumer goods manufacturer edged 0.60% lower this afternoon to trade at $61.26 with 30 minutes remaining in the trading session. One pessimistic player appears to be building up downside protection on the stock through expiration in January 2012. The investor initiated a ratio put spread, buying 2,000 puts at the January 2012 $60 strike for a premium of $6.00 each, and selling 4,000 puts at the lower January 2012 $45 strike at a premium of $1.80 apiece. The net cost of the transaction amounts to $2.40 per contract. Thus, the investor starts to make money – or realize downside protection on a long position in shares – if the price of the underlying stock falls 6.00% to slip beneath the effective breakeven price of $57.60 by expiration day. Maximum potential profits of $12.60 per contract are available to the trader, but require PG’s shares to collapse down to $45.00. Options implied volatility on PG is up 7.3% at 14.78% as of 3:30 pm ET.

LCC – US Airways Group, Inc. – Call buyers dominated trading activity in US Airways Group options today with the value of its shares rallying as much as 6.2% at the start of the session to secure an intraday high of $9.55. Shares are currently up 4.00% at $9.35 as of 1:20 pm ET. Trading traffic was heaviest at the November $10 strike where bullish players purchased approximately 20,000 calls at a premium of $0.65 apiece. Call buyers are poised to profit should LCC shares surge 13.9% over the current price of $9.35 to surpass the effective breakeven point at $10.65 by November expiration. US Airways’ shares last traded above $10.65 back on August 4, 2010.

MHP – McGraw-Hill Companies, Inc. – The implementation of a ratio call spread on the publishing giant today indicates one option strategist is positioning for the price of the underlying shares to rise ahead of expiration day in January 2011. McGraw-Hill’s shares slipped 1.05% lower by 12:05 pm ET to trade at $32.83. The optimistic investor picked up 1,000 in-the-money calls at the January 2011 $32.5 strike at a premium of $2.275 each, and sold 2,000 calls at the higher January 2011 $34 strike for a premium of $1.375 apiece. The investor pockets a net credit of $0.475 per contract on the transaction. Maximum potential profits, including the net credit received, of $1.975 per contract are available to the bullish player if MHP’s shares rally 3.50% to settle at $34.00 at expiration. The sale of twice as many higher-strike call options leaves the investor vulnerable to losses if shares surge 9.60% over the current price of $32.83 to exceed the upper breakeven price of $35.975 by expiration day in January.

GDX – Market Vectors Gold Miners Index ETF – A large-volume call Christmas tree strategy employed on the Market Vectors Gold Miners Index ETF in the first half of the trading session indicates one big player is expecting the price of the underlying fund to rise substantially and exceed its current 52-week high ahead of December expiration. The bullish play appears to be a bet that the gold rally has not yet run its course. Shares of the GDX, an exchange-traded fund designed to replicate the price and yield performance of the NYSE Arca Gold Miners Index – an Index that provides exposure to companies engaged in mining for gold, slipped 0.55% to $55.37 as of 12:35 pm ET. The investor paid a net premium of $0.68 per contract for the transaction in which he purchased 15,000 calls at the December $56 strike, sold 15,000 calls at the higher December $60 strike and shed 15,000 calls at the December $62 strike. Thus, the gold-bull is poised to profit should shares of the ETF rally 2.4% to trade above the effective breakeven price of $56.68 by December expiration. Maximum potential profits of $3.32 per contract, or $4.98 million, are available to the trader should shares of the GDX jump 8.4% to settle at $60.00 at expiration day. While profit potential is limited, loss exposure is effectively unlimited due to the profile of the trade. Losses start to accumulate for the investor if shares surge 14.35% to exceed the upper breakeven price of $63.32 by expiration day in December. The willingness of the trader to bear such risk suggests he does not see the price of the underlying fund rallying through $60.00 in the next several months. But, the Christmas tree strategy is a very cost effective way of positioning to get long the basket of gold mining companies by the end of 2010. Options implied volatility on the fund is higher by 5.1% to stand at 29.76% as of 12:45 pm ET.

AMR – AMR Corp. – Call options on the parent company of American Airlines are flying off the shelves this morning as a number of bullish players position for the price of the underlying stock to rise ahead of November expiration. AMR’s shares are up 2.35% to stand at $6.53 as of 11:35 am ET. Traders gravitated to the November $7.0 strike where more than 31,000 call options changed hands versus previously existing open interest of 14,043 lots. Most of the contracts, roughly 25,000 calls, were purchased outright at an average premium of $0.43 apiece. Call buyers make money if AMR’s shares rally another 13.8% to trade above the average breakeven price of $7.43 by November expiration. Optimism on AMR Corp., as well as a number of other carriers, follows Southwest’s decision to purchase AirTran for $1.4 billion in cash and stock this morning. Additionally, AMR Corp. is scheduled to report third-quarter earnings on October 20, 2010. Perhaps investors are initiating bullish stances on AMR heading into earnings. The overall reading of options implied volatility on the airline operator is up 11.7% at 55.42% as of 11:50 am ET.

AMGN – Amgen, Inc. – Shares of the biotechnology company are down 0.10% as of 11:05 am ET to stand at $56.27. The price of the underlying stock could have been helped lower on news the firm is recalling some lots of its Epogen and Procrit anemia drugs on concerns the injected treatments may contain glass flakes that could lead to, among other problems, blood clots, swelling of veins and immune system reactions. Investors expecting Amgen’s shares to head lower ahead of January 2011 expiration initiated ratio put spreads this morning. It looks like trader purchased approximately 1,350 puts at the January 2011 $55 strike for an average premium of $3.09 each, and sold 2,700 puts at the lower January 2011 $47.5 strike at an average premium of $1.08 apiece. Net premium paid to establish the spread amounts to $0.93 per contract. Thus, traders are prepared to profit should Amgen’s shares fall another 3.90% to breach the effective breakeven price of $54.07 by expiration day next year. Maximum potential profits of $6.57 per contract are available to investors if the price of the underlying stock plummets 15.6% lower to settle at $47.50 at expiration.

GMCR – Green Mountain Coffee Roasters, Inc. – Bullish players flocked to the specialty coffee maker this morning to scoop up call options in the October contract. Green Mountain Coffee Roasters’ shares are up 2.35% as of 11:20 am ET to arrive at $37.07. Earlier in the session, GMCR shares rallied 3.45% to touch an intraday- and new 52-week high of $37.47. Investors hoping to see continued appreciation in the price of the underlying picked up 1,200 calls at the October $39 strike for an average premium of $0.54 each. Call buyers at this strike make money if the coffee maker’s shares increase another 6.70% over the current price of $37.07 to exceed the average breakeven point to the upside at $39.54 by October expiration day. Optimism spread to the higher October $40 strike where bulls purchased some 2,300 calls at an average premium of $0.34 a-pop. Traders holding these contracts start to amass profits if shares jump 8.80% to surpass the effective breakeven price of $40.34 by expiration next month. The rise in demand for Green Mountain call options helped lift the stock’s overall reading of options implied volatility 6.1% to 47.32% by 11:25 am ET.

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