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Long-Term Bullish Strategies Detected in Gamestop Corp. Options

 Today’s tickers: GME, CHE, PENN, JPM, MED, SLE & WYNN

GME - Gamestop Corp. – Bullish options strategies were initiated on the video game retailer today despite the 0.70% dip in the price of the underlying shares to $19.86. One long-term optimistic individual employed the use of a three-legged combination, selling puts to buy a call spread, in order to prepare for a rebound in Gamestop’s shares by April expiration. The investor purchased 3,000 calls at the April 2011 $20 strike for a premium of $2.13 each, sold 3,000 calls at the higher April 2011 $24 strike for premium of $0.72 apiece, and shed 3,000 puts at the April 2011 $16 strike at a premium of $0.81 a-pop. Net premium paid to initiate the spread amounts to $0.60 per contract. Thus, the trader is poised to profit should GME’s shares rally above the effective breakeven price of $20.60 by April expiration day. Maximum available profits of $3.40 per contract are safe in the investor’s wallet if the video game seller’s shares jump 20.85% over the current price of $19.86 to exceed $24.00 by expiration. Finally, a 3,000-lot October $20/$24 strike call spread traded around the same time as the three-legged transaction. Open interest in the near-term calls is sufficient to cover today’s volume. The investor responsible for the October contract activity may be rolling the spread up to the April contract and adding the short puts to provide additional financing on the bullish stance.

CHE - Chemed Corp. – Shares of the provider of hospice care as well as various consumer services such as plumbing and sewer cleaning via its Roto-Rooter segment slipped 2.00% to $55.34 as of 3:40 pm ET. Investors with a near-term bearish view on the stock appear to have sold 2,000 calls outright at the November $60 strike to pocket premium of $0.55 per contract. Call sellers keep the full premium received on the trade as long as Chemed’s shares fail to rally above $60.00 by expiration day next month. Investors could start to accumulate losses if CHE shares reverse course and rally 9.4% over the current price to trade above the effective breakeven point at $60.55 ahead of expiration day in November. Options implied volatility on Chemed is up 8.1% at 30.22% as of 3:45 pm ET. CHE is slated to report its results for the third-quarter after the closing bell on October 26, 2010.

PENN - Penn National Gaming, Inc. – Shares of the owner and manager of gaming properties are up 1.15% to stand at $30.43 as of 12:40 pm ET, but earlier surged 2.73% to an intraday high of $30.90 after receiving an upgrade to ‘buy’ from ‘neutral’ at Merriman Capital. PENN was rated new ‘outperform’ at Wells Fargo Securities last week. Investors expecting the gaming firm’s shares to extend gains picked up 1,680 in-the-money calls at the November $30 strike for an average premium of $1.89 apiece. Call buyers stand ready to make money should PENN’s shares jump 4.80% over the current price of $30.43 to surpass the average breakeven point to the upside at $31.89 by expiration day next month. The current 52-week high on Penn National Gaming is 31.95, attained back on April 27, 2010. The firm is scheduled to report third-quarter earnings ahead of the opening bell on October 21. Options traders exchanged 2,000 calls at the November $30 strike by 12:50 pm ET versus previously existing open interest of just 165 contracts at that strike.

JPM - JPMorgan Chase & Co. – Three-legged bullish options combinations enacted on JPMorgan Chase & Co. at the start of the trading session indicates investors are expecting the price of the underlying shares to rally significantly by November expiration. Shares started to rally late last week on news the bank may increase its dividend next year and rise as much as 45% in the next two years on acquisitions made during a down economy and on the strength of its senior management team, according to analysts cited in Barron’s. JPMorgan’s shares are currently up 0.80% at $39.07 as of 11:30 am ET, but earlier increased as much as 2.00% to touch an intraday high of $39.54. Bullish players purchased approximately 11,000 now in-the-money calls at the November $39 strike for an average premium of $1.91 each, sold roughly 11,000 calls at the higher November $43 strike at an average premium of $0.42 apiece, and shed some 11,000 puts at the November $37 strike for an average premium of $0.85 a-pop. Average net premium paid to establish the spread amounts to $0.64 per contract. Thus, traders employing this strategy are poised to profit should JPM’s shares rally above the average breakeven price of $39.64 by expiration day in November. Maximum potential profits of $3.36 per contract are available should the bank’s shares surge 10.05% over the current price of $39.07 to exceed $43.00 by November expiration.

MED - Medifast, Inc. – Contrarian players initiated bull call spreads on the maker of weight management products this morning despite the 2.10% decline in the price of the underlying shares to $26.29. It looks like investors purchased 2,000 calls at the January 2011 $29 strike for an average premium of $2.38 each, and sold the same number of calls at the higher January 2011 $33 strike at an average premium of $1.15 apiece. The net cost of buying the spread amounts to $1.23 per contract. Profits start to accumulate for call-spreaders should Medifast’s shares surge 15.00% over the current price of $26.29 to surpass the effective breakeven price of $30.23 by January expiration. Maximum potential profits of $2.77 per contract are available to the investor if MED’s shares jump 25.5% and trade above $33.00 by expiration day next year. Medifast is scheduled to report third-quarter earnings ahead of the opening bell of November 4, 2010. Demand for calls on the stock helped lift the overall reading of options implied volatility 5.00% to 54.30% by 11:45 am ET.

SLE - Sara Lee Corp. – Shares of the manufacturer of branded consumer goods such as meats, baked goods, beverages and household products jumped as much as 12.80% at the start of the trading session to an intraday high of $15.15 – the biggest gain in nearly two years – after the New York Post reported Sara Lee Corp. rejected a $12 billion unsolicited leveraged buyout offer by KKR & Co. SLE’s shares cooled somewhat by 11:55 am ET to stand 8.40% higher on the day at $14.56. Takeover speculation and rising demand for options on the stock lifted Sara Lee’s overall reading of options implied volatility 33.2% to 30.40% in the first half of the trading session. Investors hoping to see the price of the underlying stock continue higher purchased some 3,800 calls at the November $15 strike for an average premium of $0.57 per contract. Call buyers are prepared to profit should Sara’s shares surge 6.95% over the current price of $14.56 to exceed the average breakeven point to the upside at $15.57 by November expiration day. Approximately 5,430 calls changed hands at the November $15 strike versus paltry existing open interest of just 40 contracts at that strike.

WYNN - Wynn Resorts, Ltd. – Casino companies rallied today after Macau, the world’s largest gambling arena, reported that revenue jumped 40% in the month of September. Shares in Las Vegas, NV-based Wynn Resorts increased as much as 5.82% in morning trading to secure an intraday high of $92.16. The stock is currently up 3.60% at $90.25 as of 12:10 pm ET. Bullish players betting WYNN’s shares could extend gains through October expiration scooped up in- and out-of-the-money call options. Traders picked up roughly 1,500 in-the-money calls at the October $90 strike for an average premium of $3.02 each. In-the-money call buyers make money if the casino operator’s shares rally 3.1% over the current price of $90.25 to surpass the average breakeven point at $93.02 by expiration day. Bullish sentiment spread to the higher October $95 strike where approximately 2,600 calls were purchased for an average premium of $1.11 apiece. Investors long the contracts make money if Wynn Resorts’ shares rise 6.50% to trade above $96.11 by October expiration. Finally, options traders coveted 1,000 calls at the October $100 strike by shelling out an average premium of $0.35 per contract. Options implied volatility on the stock is up 4.9% at 45.34% as of 12:15 pm ET.


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