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Contrarian Player Plants Bull Call Spread on Seed Maker Monsanto Co.

 Today’s tickers: MON, EWZ, XLB, HPQ, V, BCSI & SLB

MON - Monsanto Co. – Shares of the maker of genetically modified seeds seemed to be recovering at the start of the current session following Tuesday’s horrendous performance wherein the stock fell as much as 9.80% from an intraday high of $52.64 to a low of $47.50. MON’s shares managed to rebound 4.50% off Tuesday’s low of $47.50 to briefly touch an intraday high of $49.62, although the rally proved to be short-lived and shares are down 1.00% at $48.25 as of 3:15 pm ET. Though MON was unable to keep hold of earlier gains, one contrarian player is optimistic that Monsanto’s shares will reverse course and head back up by November expiration. The investor purchased a call spread, buying 5,000 calls at the November $55 strike at a premium of $0.85 each, and selling the same number of calls at the higher November $60 strike for a premium of $0.27 apiece. Net premium paid to establish the transaction amounts to $0.58 per contract. Thus, the investor is ready to make money should Monsanto’s shares surge 15.20% over the current price of $48.25 to surpass the effective breakeven point on the spread at $55.58 by November expiration. Maximum potential profits of $4.42 per contract are available to the bullish player if MON’s shares jump 24.35% to trade above $60.00 by expiration day.

EWZ - iShares MSCI Brazil Index ETF – Investors are placing near-term bearish bets on the Brazil fund this afternoon by selling calls to finance the purchase of put spreads in the October contract. The large pessimistic plays could be the work of traders hedging long positions or the mark of outright bearish bettors expecting the price of the underlying fund to slip lower ahead of expiration next month. Shares of the EWZ, an exchange-traded fund designed to replicate the price and yield performance of publicly traded securities in the aggregate in the Brazilian market – as measured by the MSCI Brazil Index, rallied as much as 1.40% during the session to secure an intraday high of $76.46. Currently shares are up 0.65% to stand at $75.88 thirty minutes before the final bell. Traders may be bracing for shares of the EWZ to decline given the terrific run-up it has experienced in the past 5 months. Today’s high of $76.46 marks a 33.72% increase in shares since May 25, 2010, when the fund was trading around $57.18. Investors wary that shares will falter sometime in the near future sold approximately 16,000 calls at the October $78 strike, purchased some 16,000 puts at the October $75 strike, and sold about 16,000 puts at the lower October $70 strike. Net premium paid out by investors to establish the three-legged bearish spreads amounts to an average of $0.45 per contract. Therefore, traders profit if shares of the EWZ decline 2.50% from today’s high of $76.46 to breach the average breakeven price of $74.55 by October expiration. Maximum potential profits of $4.55 per contract are attainable if the REZ’s shares drop 8.45% to trade below $70.00 by expiration next month.

XLB - Materials Select Sector SPDR ETF – Shares of the Materials Select Sector SPDR, an exchange-traded fund designed to provide investment results that correspond to the price and yield performance of the Materials Select Sector of the S&P 500 Index, edged 0.45% lower by 1:20 pm ET to trade at $33.02. The Materials Select Sector mainly consists of companies involved in the chemicals, construction materials, containers and packaging, metals and mining and paper industries. The XLB popped up on our ‘most active by options volume’ market scanner after one investor picked up 30,000 puts at the December $29 strike at a premium of $0.50 per contract. The put buyer may be initiating an outright bearish bet that shares of the XLB are doomed to decline substantially be December expiration. Alternatively, the trader could be building up downside protection on a long position in the underlying fund. The investor starts to profit, or realizes downside protection, if shares of the fund plunge 13.7% lower to breach the effective breakeven price of $28.50 by expiration day in December.

HPQ - Hewlett-Packard Co. – One optimistic strategist initiated a sizeable three-legged bullish options combination play on the world’s largest computer maker in early morning trading to position for the price of the underlying shares to rise by January 2011 expiration. HPQ’s shares are currently up 2.00% at $42.46 as of 11:40 am ET. Shares rallied as much as 2.6% earlier in the session to touch an intraday high of $42.69 after the firm forecast earnings and sales for 2011 that surpassed analysts’ estimates. The computer manufacturer predicts it will earn $5.05 to $5.15 a share on revenue of $131.5 billion to $133.5 billion for fiscal 2011. Hewlett-Packard has yet to announce a new CEO to fill Mark Hurd’s vacated position. The medium-term bullish options player prepared for an HPQ-rally by purchasing 13,545 calls at the January 2011 $42 strike at a premium of $2.97 each, selling the same number of calls at the higher January 2011 $48 strike for a premium of $0.80 apiece, and shedding 13,545 puts at the January 2011 $37 strike at a premium of $0.97 a-pop. Net premium paid to establish the bullish strategy amounts to $1.20 per contract. Thus, the trader stands ready to make money if HPQ’s shares rally above the effective breakeven price of $43.20 by expiration. Maximum potential profits of $4.80 per contract are available to the investor should shares surge 13.05% over the current price of $42.46 to trade above $48.00 by expiration day next January. The tech-giant’s shares last exceeded $48.00 back on June 21, 2010.

V - Visa, Inc. – A diminutive bullish call butterfly spread on the global payments technology firm indicates one options strategist expects Visa’s shares to rally significantly by December expiration. Shares of the credit card issuer increased 1.00% by 12:55 pm ET to trade at $74.00. The bullish individual purchased 1,000 calls at the December $80 strike at an average premium of $1.41 each, sold 2,000 calls at the December $85 strike for an average premium of $0.56 apiece, and picked up 1,000 calls at the higher December $90 strike at an average premium of $0.26 a-pop. Net premium paid to purchase the call ‘fly amounts to $0.55 per contract. The investor responsible for the transaction is positioned to profit should Visa’s shares surge 8.85% to exceed the effective breakeven price of $80.55 by expiration day in December. Maximum potential profits of $4.45 per contract pad the investor’s wallet if the price of the underlying shares increases 14.865% to settle at $85.00 at expiration. The butterfly spread strategy is a very efficient way to take a bullish stance on Visa, Inc. because potential losses are capped at $0.55 per contract, but potential rewards of $4.45 apiece are more than 8-times greater.

BCSI - Blue Coat Systems, Inc. – Renewed takeover speculation on the provider of wide area network optimization software pushed BCSI shares up as much as 6.30% in the first half of the trading session to an intraday high of $24.77. Bullish options traders were quick to covet near-term call options on the stock in case this round of chatter from the rumor mill has legs to stand on. Investors hoping to see Blue Coat’s shares continue higher ahead of expiration day next month picked up some 1,100 calls at the October $25 strike for an average premium of $0.75 apiece. Trading traffic was heaviest, however, at the higher October $26 strike where more than 8,100 calls changed hands by 12:05 pm ET. It looks like the majority of those contracts, approximately 5,300 of them, were purchased at an average premium of $0.44 a-pop. Call buyers are poised to profit should shares rally another 6.75% over today’s high of $24.77 to surpass the average breakeven point to the upside at $26.44 by October expiration. The fresh bout of takeover speculation helped the stock’s overall reading of options implied volatility rise 13.53% to 53.55% earlier in the trading session. Volatility is currently up a lesser 6.6% to 50.28% as of 12:10 pm ET.

SLB - Schlumberger, Ltd. – Near-term bullish players are piling into in- and out-of-the-money call options on the provider of oil equipment and services today with the value of its shares priced 2.25% higher at $61.64 as of 12:20 pm ET. Investors looking for Schlumberger to extend gains through expiration day next month purchased approximately 5,000 in-the-money calls at the October $60 strike at an average premium of $1.97 apiece. Call buyers at this strike make money if SLB shares trade above $61.97 ahead of October expiration. Optimism spread to the higher October $62.5 strike where some 4,300 call options were picked up at an average premium of $0.76 each. Investors long the calls stand ready to accumulate profits should the price of the underlying stock increase 2.60% over the current price of $61.64 to exceed the average breakeven point at $63.26 by expiration day. Schlumberger’s shares have traded below $63.26 since August 5, 2010.


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