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Bears Take a Bite Out of Las Vegas Sands Corp. Options

Today’s tickers: LVS, JPM, WNR, PFE, SLW, PCLN & XLK

LVS - Las Vegas Sands Corp. – Options strategists are initiating trades on the operator of casino resorts that suggest LVS shares could pull back further off recent highs. One big player wary of bearish movement in the price of the underlying shares purchased a large-volume ratio put spread in the January 2011 contract. Las Vegas Sands’ shares started the session in the red, but recovered this afternoon, and are currently up 1.65% at $52.84 as of 3:20 pm in New York. The put player purchased 20,000 contracts at the January 2011 $52.5 strike for a premium of $5.50 each, and sold 40,000 puts at the lower January 2011 $45 strike at a premium of $2.21 a-pop. Net premium paid to initiate the bearish spread amounts to $1.08 per contract. The investor responsible for the transaction is prepared to make money, or realize downside protection on a long position in the underlying shares, if LVS shares decline 2.7% from the current price of $52.84 to breach the effective breakeven point at $51.42 by January expiration. Maximum potential profits of $6.42 per contract are available to the trader if shares of the casino operator plunge 14.8% lower to settle at $45.00 at expiration. More than 216,000 option contracts have changed hands on LVS with 35 minutes remaining before the final bell. Options implied volatility on the stock is up 4.1% at 57.43%, the highest reading of IV since the end of July.

JPM - JPMorgan Chase & Co. – Shares of the financial services firm fell 0.85% to $40.59 late in the trading session, but earlier today one cautiously optimistic investor initiated a delta neutral hedge using longer-dated put options in the June 2011 contract. It looks like the investor picked up 6,790 puts at the June 2011 $39 strike for a premium of $3.24 each to cover the 271,600 shares purchased at $40.70 on a 0.40 delta. The long position in JPM shares suggests the trader is expecting JPMorgan’s shares to rise over the next 8 months. The put options serve to protect the value of the position in case the price of the underlying stock should falter rather than rally during that time period. More than 8,320 puts changed hands at the June $39 strike today versus paltry previously existing open interest of just 596 contracts.

WNR - Western Refining, Inc. – The crude oil refiner popped up on our scanners this morning after one investor first took profits off the table by closing out a previously established long call position, and next extended bullish sentiment on Western Refining. Shares of the El Paso, Texas-based firm increased as much as 1.6% thus far in the session to touch an intraday- and new 52-week high of $8.28. The optimistic player was well positioned to benefit from the rally in shares. It looks like the investor originally bought 2,300 in-the-money calls at the December $6.0 strike for a premium of $1.35 each back on November 4, when shares were trading at around $7.34. The subsequent rise in the price of the underlying stock lifted premium on the calls, allowing him to sell all 2,300 calls at that strike for a premium of $2.20 apiece. Net profits enjoyed on the sale amount to $0.85 per contract. Next, the options player initiated a fresh bullish stance on Western Refining, buying up 5,000 fresh calls out at the January 2011 $9.0 strike for an average premium of $0.425 per contract. The new position is nearly twice as large as the original, and is a profitable acquisition for the trader if WNR’s shares jump 13.8% over today’s high of $8.28 to surpass the effective breakeven price of $9.425 by expiration day in January.

PFE - Pfizer, Inc. – Long-term options activity on the pharmaceutical giant indicates some strategists expect shares in Pfizer to remain range-bound through June 2011 expiration. It looks like investors initiated both short strangles and straddles in the first half of the session to take in available premium. Shares are currently down 1.00% to stand at $17.01 as of 12:25 pm in New York trading. Strangle players appear to have sold 1,000 puts at the June 2011 $15 strike for an average premium of $0.72 each in combination with the sale of 1,000 calls at the June 2011 $20 strike at an average premium of $0.47 apiece. Gross premium enjoyed by strangle-sellers amounts to $1.19 per contract. Investors keep the full premium received on the sale as long as Pfizer’s shares trade within the boundaries of the strike prices described through expiration day. An options strategist expecting shares to trade within an even narrower range sold a 4,500 lots straddle at the June 2011 $17 strike for a gross premium of $2.71 per contract. The straddle-seller keeps the full amount of premium received on the transaction if Pfizer’s shares settle at $17.00 at expiration. Short positions taken in both call and put options at the June 2011 $17 strike expose the investor to losses in the event that PFE shares swing significantly in either direction away from the central strike price. Losses start to accumulate if the drug maker’s shares rally above the upper breakeven price of $19.71, or if shares slip beneath the lower breakeven point at $14.29 ahead of expiration day in June 2011. Both the short strangle and the short straddle strategies employed on Pfizer today indicate investors expect volatility in the price of the underlying shares to decline going forward.

SLW - Silver Wheaton Corp. – Options traders are busy populating the silver company with various strategies ahead of the firm’s third-quarter earnings report after the final bell this afternoon. Shares are up 4.2% at an intraday- and new 52-week high of $34.34 as of 11:55 am in New York. Bullish investors engaged in plain-vanilla call buying, picking up approximately 1,000 now in-the-money calls at the November $34 strike for an average premium of $1.33 each. Investors long the calls make money if Silver Wheaton’s shares rally another 2.9% to trade above the average breakeven price of $35.33 by November expiration. Optimism spread to the higher November $35 strike where another 1,000 calls were purchased for an average premium of $0.96 a-pop. Higher-strike call buyers are poised to profit should shares in Silver Wheaton rise 4.7% to trade above the average breakeven price of $35.96 by expiration day. A more cautious investor employed the use of a debit put spread, perhaps to lock in recent gains, or as a hedge against disappointing earnings after the closing bell. The trader picked up 2,000 in-the-money puts at the December $35 strike for a premium of $2.84 each, and sold the same number of puts at the lower December $32 strike at a premium of $1.40 apiece. The net cost of initiating the spread amounts to $1.44 per contract. Thus, the investor is prepared to make money, or realize downside protection, if the price of the underlying stock falls 2.3% from the current price of $34.24 to breach the effective breakeven point to the downside at $33.56 by expiration day next month. Maximum potential profits of $1.56 per contract is available to the trader should shares plunge 6.8% lower to trade below $32.00 by December expiration. Options implied volatility on Silver Wheaton Corp. is up 9.5% at 56.33% ahead of earnings.

PCLN - Priceline.com, Inc. – Shares of the online travel company are down slightly by 0.20% to stand at $388.12 this morning while options implied volatility is up 5.2% at 56.74% ahead of the firm’s third-quarter earnings report, which is scheduled for release after the closing bell today. One options strategist initiated a medium-term bullish stance on the stock ahead of earnings. It looks like the investor purchased 2,000 calls at the January 2011 $390 strike for a hefty premium of $31.10 per contract and sold approximately 2,700 calls at the April 2011 $430 strike at a premium of $29.00 each. Selling more of the longer-dated calls more than covers the cost of buying the nearer-term contracts and more efficiently positions the investor to profit should Priceline’s shares exceed $390.00 ahead of expiration day in January. The trader will continue to accrue profits if shares rise toward $430.00, but uncovered portion of 700 short calls at the April 2011 $430 strike could hurt the investor if those contracts land in-the-money by expiration. Shares in Priceline.com would need to jump 10.8% over the current price of $388.12 in order for shares to reach $430.00 by expiration day in April.

XLK - Technology Select Sector SPDR ETF – Activity in medium-term call options on the XLK, an exchange-traded fund designed to provide investment results that correspond to the price and yield performance of the Technology Select Sector of the S&P 500 Index, suggests some investors are positioning for shares of the ETF to continue to hit new highs ahead of expiration in January 2011. Shares of the fund increased as much as 0.20% in the first half of the session to hit a new 52-week high of $25.15 this morning. One bullish player purchased a call spread, buying 4,000 calls at the January 2011 $26 strike for a premium of $0.37 each, and selling the same number of calls at the higher January 2011 $27 strike at a premium of $0.12 apiece. The net cost of putting on the spread amounts to $0.25 per contract, and thus positions the investor to make money if shares of the XLK rally another 4.4% over today’s high of $25.15 to surpass the effective breakeven price of $26.25 by expiration day in January. The investor stands ready to amass maximum potential profits of $0.75 per contract if the tech-sector ETF’s shares surge 7.35% and trade above $27.00 by expiration next year. 


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