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Dell Call Options Active in Afternoon Trading

Today’s tickers: DELL, AGU, EEM, GERN, SPY, IP, SFD & CHS

DELL - Dell, Inc. – Speculation that Michael Dell, Chairman and CEO of Dell, Inc., may buy the computer company or pay a special dividend lifted shares of the world’s third-largest PC maker this afternoon and spurred demand for out-of-the-money call options. Dell’s shares rallied nearly 3.00% today to touch an intraday high of $14.14, but are currently up 1.50% at $13.94 as of 3:05 p.m. Options traders honed in on October $14 strike calls, exchanging more than 23,100 of those contracts by 3:00 p.m., versus previously existing open interest of 10,783 calls at that strike. It looks like roughly 11,800 of those call options were purchased at an average premium of $0.21 a-pop. Call buyers make money if Dell’s shares exceed the average breakeven price of $14.21 by October expiration on Friday. Other optimistic signaling on the stock involved the sale of some 2,100 in-the-money puts at the October $14 strike where investors received an average premium of $0.34 per contract. Options implied volatility is up 15.2% to stand at 41.52% with less than one hour remaining before the final bell.

AGU - Agrium, Inc. – Shares of Canada’s second-largest fertilizer producer rallied as much as 3.2% today to reign in an intraday high of $85.66 after corn futures jumped to a near two-year high. Agrium was upgraded to ‘sector outperformer’ from ‘sector performer’ at CIBC World Markets where analysts upped their target share price on the company to $100.00 from $70.00. One options trader was prepared for the bullish move in the Agrium’s shares and opted to book profits, as well as extend optimism on the stock in the November contract. It looks like the investor purchased 10,000 calls at the November $85 strike for an average premium of $2.75 apiece back on October 8, 2010, when shares were trading around $80.36. Today the trader sold the calls for a premium of $4.10 apiece to pocket net profits of $1.35 per contract. Next, the investor extended bullish sentiment on the stock by picking up a fresh batch of 10,000 calls at the higher November $90 strike for an average premium of $2.375 each. The new long call position is profitable for the investor if Agrium’s shares surge 7.85% over today’s high of $85.66 to surpass the average breakeven point at $92.375 by November expiration.

EEM - iShares MSCI Emerging Markets Index ETF – A sizable put spread on the EEM, an exchange-traded fund created to provide investment results that correspond to the price and yield performance of the MSCI Emerging Markets Index – an Index designed to measure equity market performance in the global emerging markets, indicates one strategist is protected in case shares of the underlying fund fall ahead of January 2011 expiration. Shares of the ETF edged 0.60% lower in late-afternoon trading to arrive at $45.93 by 3:10 p.m. The put player appears to have purchased 25,000 puts at the January 2011 $42 strike for a premium of $1.45 each, and sold the same number of puts at the January 2011 $36 strike at a premium of $0.45 apiece. Net premium paid for the transaction amounts to $1.00 per contract. The investor makes money, or realizes downside protection, if shares of the fund plunge 10.7% lower to breach the effective breakeven point at $41.00 by expiration day next year. Maximum potential profits of $5.00 per contract are available to the trader should shares tumble 21.6% to trade below $36.00 ahead of January expiration.

GERN - Geron Corp. – Shares of the biotechnology company are up 10.05% at $6.24 as of 1:25 p.m. in New York trading on news the company started a Phase 1 clinical trial to test the safety and tolerability of its embryonic stem cell therapy aimed at spinal cord injuries. An analyst at Rodman & Renshaw reaffirmed his ‘market outperform’ rating on the stock with a target share price of $9.00 today. Earlier in the trading session Geron’s shares increased as much as 11.46% to touch an intraday high of $6.32, the highest recorded price since August 2, 2010. Geron Corp.’s embryonic stem cell therapy clinical trial is the first of its kind approved by the FDA. Bullish traders hoping to see the biotechnology firm extend gains picked up in- and out-of-the-money call options in the October and November expiries. Investors purchased approximately 1,000 in-the-money calls at the October $6.0 strike for a premium of $0.25 each. In-the-money call buyers make money if the price of the underlying stock exceeds the average breakeven price of $6.25 through expiration on Friday. Bullish sentiment spread to the higher November $7.0 strike where nearly 1,000 calls were purchased for an average premium of $0.355 a-pop. Traders holding these contracts stand ready to amass profits should shares surge 16.4% over today’s high of $6.32 to trade above the average breakeven price of $7.355 by November expiration. The overall reading of options implied volatility on the biotechnology company is up 26.1% to stand at 73.79% this afternoon.

SPY - SPDR S&P 500 ETF – A massive bearish put spread purchased on the SPY this morning suggests one big options market participant is bracing for the S&P 500 Index to pull back ahead of November expiration. Shares of the SPY, an exchange-traded fund designed to correspond to the price and yield performance of the S&P 500 Index, edged 0.15% lower to $116.47 by 11:45 a.m. in New York trading. Domestic stocks have had a terrific run up since the end of August, but bullish momentum hit a speed bump this morning as news out of China inspired a return to risk aversion, rally in the dollar and renewed concerns the Chinese economy may slow down. The bearish put spread was initiated ahead of the release of FOMC minutes and perhaps reflects uncertainty regarding the amount and form quantitative easing may take. The put player purchased 100,000 puts at the November $112 strike at an average premium of $1.575 each, and sold the same number of puts at the lower November $110 strike for a premium of $1.15 apiece. Net premium paid to establish the spread amounts to $0.425 each, or total premium of $4.250 million. Thus, profits or downside protection are available to the investor if shares of the SPY fall approximately 4.145% from the current level of 116.4 to breach the average breakeven point at 111.575 by expiration day. Maximum potential profits of $1.575 or $15.750 million are available to the put spreader if the SPY ETF falls 5.5% to trade below 110.0 by November expiration. The S&P 500 Index would need to undergo an approximate 50% retracement of the past month’s gains in order for the trader to book maximum available profits by expiration day.

IP - International Paper Co. – Shares of the paper maker are up 0.45% to stand at $22.49 as of 12:10 p.m., but earlier surged as much as 3.25% to touch an intraday high of $23.12. The rally in its shares this morning enticed a number of bullish options strategists to position for the stock to extend gains. Investors engaged in plain-vanilla call buying at the October $23 strike where it looks like some 6,600 calls were purchased at an average premium of $0.26 apiece. Call buyers make money if International Paper’s shares exceed the average breakeven price of $23.26 through expiration on Friday. Optimism spread to the November contract where other bulls established call spreads. Traders picked up approximately 1,500 calls at the November $24 strike at an average premium of $0.74 each, and sold about the same number of calls at the higher November $26 strike for an average premium of $0.29 apiece. The average net cost faced by call spreaders amounts to $0.45 a-pop. Investors are poised to profit should IP’s shares rally 8.7% over the current price of $22.49 to surpass the average breakeven point to the upside at $23.45 by expiration day next month. Maximum potential profits of $1.55 per contract are available to traders if the paper maker’s shares surge 15.6% to trade above $26.00 by November expiration. The sharp increase in demand for IP calls helped lift the stock’s overall reading of options implied volatility 16.8% to 48.03% by 12:20 p.m.

SFD - Smithfield Foods, Inc. – The hog producer and pork processor popped up on our ‘most active by options volume’ market scanner this morning after one options strategist initiated what appears to be a bullish ratio risk reversal in the November contract. Smithfield’s shares are up 2.90% at $15.60 in early afternoon trading, but earlier increased as much as 4.485% to secure an intraday high of $15.84. The optimistic player sold 4,000 puts at the November $15 strike for an average premium of $0.56 each in order to purchase 2,000 calls at the higher November $16 strike at an average premium of $0.55 apiece. The investor pockets a net credit of $0.57 per contract on the risk reversal, and keeps the full amount as long as the meat maker’s shares exceed $15.00 through November expiration. Additional profits start to accumulate should SFD shares rally above $16.00 by expiration next month. Selling 4,000 puts at the November $15 strike indicates the trader is willing to have 400,000 shares of the underlying stock put to him at an effective price of $14.43 each in the event that the puts land in-the-money at expiration.

CHS - Chico’s FAS, Inc. – Options traders touting bullish views of the retailer are shopping around for call options today with the price of the underlying stock rallying as much as 4.00% in the first half of the session to an intraday high of $11.38. CHS was rated new ‘market perform’ by analysts at Raymond James this morning. Investors picked up roughly 4,200 now in-the-money calls at the October $11 strike for an average premium of $0.31 each. Call buyers at this strike make money if the clothing retailer’s shares trade above the average breakeven price of $11.31 through expiration on Friday. Near-term bulls looked to the higher October $12 strike where another 1,175 calls were purchased at an average premium of $0.10 a-pop. Optimism spread to the November contract where traders scooped up 1,500 in-the-money calls at the $10 strike for an average premium of $1.25 apiece. Roughly 3,000 in-the-money calls were picked up at the November $11 strike at a premium of $0.90 each, while 2,200 calls were purchased at the November $12 strike for an average premium of $0.40 apiece. Calls buyers are well-positioned to benefit should shares of the retailer continue to rally through expiration. Additionally, the company is slated to report third-quarter earnings ahead of the opening bell on November 17, 2010. Options implied volatility on CHS is up 13.00% at 63.10% as of 12:30 p.m. in New York. 


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