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Demand for FedEx Corp. Calls Jumps

Today’s tickers: FDX, XRT, FRX & HANS

FDX - FedEx Corp. – Shares of the delivery services firm increased as much as 3.4% in the first half of the trading session to secure an intraday high of $90.49 after it was upgraded to ‘outperform’ from ‘neutral’ with a target share price of $111.00 at Credit Suisse. The positive ratings change and subsequent rally in the price of the underlying shares spurred demand for near-term call options. Bullish players expecting FedEx to extend gains purchased at least 2,800 now in-the-money calls at the December $90 strike for an average premium of $2.13 a-pop. Call buyers are poised to profit should FedEx Corp.’s shares increase another 1.80% over today’s high of $90.49 to exceed the average breakeven price of $92.13 ahead of December expiration. More than 5,800 calls changed hands at the December $90 strike versus previously existing open interest of 4,243 lots at that strike. Options strategists also exchanged 1,400 calls at the higher December $95 strike by 1:15 pm in New York trading. The surge in demand for near-term call options on FDX lifted the stock’s overall reading of options implied volatility 5.9% to 29.91% this afternoon.

XRT - SPDR S&P Retail ETF – Put players flocked to the retail SPDR to initiate bearish positions on the fund right out of the gate this morning. Shares of the XRT, an exchange-traded fund designed to replicate the performance of the S&P Retail Select Industry Index, fell as much as 2.04% to touch down at an intraday low of $46.48. A sizeable ratio put spread drew our attention to the front month where one investor purchased 5,300 in-the-money puts at the December $47 strike for a premium of $1.45 each, and sold 10,600 puts at the lower December $45 strike at a premium of $0.69 apiece. The net cost to establish the ratio spread amounts to $0.07 per contract. Thus, the investor responsible for the trade is prepared to make money – or realize downside protection on a long position in the underlying shares – should the price of the underlying fund trade below the effective breakeven price of $46.93 through expiration day next month. Maximum available profits of $1.93 per contract are available to the trader if shares of the XRT slide 3.2% from the current intraday low of $46.48 to settle at $45.00 at expiration. The parameters of the transaction suggest that while the investor is wary of limited downside potential in shares of the XRT, he does not expect an all out collapse in the price of the underlying in the near-term. This is because the put-spreader faces losses should shares of the retail fund plunge 7.3% to trade below the lower breakeven price of $43.07 by expiration. Finally, pessimists picked up some 4,600 puts at the January 2011 $46 strike for an average premium of $1.70 apiece. Put buyers at this strike make money if shares of the fund fall 4.7% to breach the average breakeven price of $44.30 by expiration day in January. Options implied volatility on the XRT is higher by 6.8% to arrive at 28.38% just before 12:00 pm in New York trading.

FRX - Forest Laboratories, Inc. – Call options on the manufacturer of branded drug products are more active than usual this morning on takeover speculation, as cited by theflyonthewall.com. Shares in Forest Labs rallied as much as 2.45% earlier in the session to hit an intraday high of $32.63, but currently stand 0.55% high on the day at $32.03 as of 11:35 am in New York. December contract in- and out-of-the-money calls were scooped up by investors positioning for shares to continue higher ahead of expiration day next month. The surge in demand for calls on Forest Labs as well as takeover speculation lifted the stocks overall reading of options implied volatility 16.1% to 28.60% in the first half of the trading day. Investors picked up nearly 1,000 in-the-money calls at the December $32 strike for an average premium of $0.83 apiece, and purchased nearly 1,500 calls at the higher December $33 strike at an average premium of $0.47 each. Trading traffic is heaviest up at the December $34 strike where more than 3,950 calls changed hands versus previously existing open interest of just 733 contracts. It looks like approximately 3,050 of the December $34 strike calls were purchased by bullish players for an average premium of $0.31 per contract. Call buyers at this strike are poised to profit should FRX shares surge 7.1% over the current price of $32.03 to surpass the average breakeven point to the upside at $34.31 ahead of December expiration day.

HANS - Hansen Natural Corp. – Beverage maker Hansen Natural Corp., popped up on our scanners this morning after one bullish strategist dabbled in March 2011 contract call options. It looks like the investor extended bullish sentiment on the stock by booking profits on a previously established long call position, and ultimately rolling those calls up to a higher strike price in the same expiry. Shares in Hansen Natural Corp., which makes Monster Energy drinks, declined 1.70% to $53.46 by 12:45 pm. The investor appears to have originally purchased at least 3,220 calls at the March 2011 $55 strike for a premium of $2.90 each back on October 22, 2010, when HANS shares were trading around $52.05. Today, the trader sold 3,220 March 2011 $65 strike calls for a premium of $3.20 each to pocket net profits of $0.30 per contract. Next, the investor purchased a new batch of 3,220 calls up at the March 2011 $60 strike for a premium of $1.65 apiece. The new bullish stance on Hansen Natural positions the trader to make money should shares in HANS surge 15.3% over the current price of $53.46 to exceed the effective breakeven point on the upside at $61.65 by expiration day in March. Hansen’s overall reading of options implied volatility stands 4.9% higher this afternoon at 32.18%. 


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