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Near-Term Bulls Shop Around for Call Options at Newell Rubbermaid

Today’s tickers: NWL, GRS, OIH, HIG, EWZ, MBT & XOP

NWL - Newell Rubbermaid, Inc. – The global marketer of everyday commercial and consumer products popped up on our ‘hot by options volume’ market scanner during the second half of the trading session due to bullish activity in the December contract. Shares in Newell Rubbermaid are up 3.35% to stand at $17.33 with 45 minutes remaining before the final bell. Options traders exchanged more than 3,460 call options at the December $17.5 strike, versus previously existing open interest of just 980 contracts. It looks like more than 3,000 of the calls were purchased for a premium of $0.35 per contract. Plain-vanilla call buyers are prepared to make money should shares increase another 3.00% to exceed the effective breakeven point to the upside at $17.85 ahead of December expiration day. Rubbermaid’s shares last traded above $17.85 as recently as November 5, 2010.

GRS - Gammon Gold, Inc. – Bullish players picked up call options on the gold mining company today with shares of the Halifax, Nova Scotia-based firm climbing 1.2% to $6.77 in the final hour of the session. Investors expecting Gammon’s shares to extend gains purchased more than 3,000 calls at the January 2011 $7.0 strike for a premium of $0.43 apiece. Call buyers at this strike are poised to profit should shares in Gammon Gold surge 9.75% over the current price of $6.77 to surpass the effective breakeven point at $7.43 by January expiration. More than 3,280 calls changed hands at the Jan. 2011 $7.0 strike, which is more than six times the number of contracts represented by the 531 lots of previously existing open interest at that strike. Bullish sentiment spread to the March 2011 $7.5 strike where another 1,000 call options were purchased for premium of $0.48 each. Investors holding these contracts profit if shares jump 17.9% to trade above the breakeven price of $7.98 by expiration day in March.

OIH - Oil Service HOLDRS Trust – Shares of the Oil Service HOLDRS Trust hit new 52-week highs today, but one options trader is positioned to see the price of the underlying rise another 7.0% by January 2011 expiration. The price of the underlying fund increased as much as 3.6% today to secure an intraday- and new 52-week high of $134.85. The bullish player initiated a call spread, buying 3,500 lots at the January 2011 $144.1 strike for a premium of $1.72 each, and selling the same number of calls at the higher January 2011 $154.1 strike at a premium of $0.44 each. Net premium paid to establish the spread amounts to $1.28 per contract. Thus, the trader stands ready to make money should OIH shares rally another 7.8% to surpass the effective breakeven point to the upside at $145.38 by January expiration day. Maximum potential profits of $8.72 per contract are available to the investor should shares of the fund jump 14.275% over today’s high of $134.85 to trade above $154.10 ahead of expiration in January.

HIG - Hartford Financial Services Group, Inc. – Options traders are placing bullish bets on the insurer this morning in order to prepare for the price of the underlying stock to continue higher over the next several months. HIG’s shares are currently up 3.6% to stand at $23.06 as of 11:30 am in New York. Investors employed a number of different bullish tactics using both call and put options expiring in March of 2011. Plain-vanilla call buyers scooped up approximately 3,500 contracts at the March 2011 $24 strike for an average premium of $1.58 apiece. Investors long the calls make money if HIG’s shares surge 10.9% over the current price of $23.06 to surpass the average breakeven point at $25.58 ahead of March expiration. Other optimistic options strategists targeted the March 2011 $21 strike and sold roughly 7,669 puts to take in an average premium of $1.22 a-pop. Put sellers keep the full premium received on the transaction as long as Hartford’s shares trade above $21.00 through expiration day next year. Investors initiating the sale of the put options are apparently happy to have shares of the underlying stock put to them at an effective price of $19.78 each in the event that the put options land in-the-money at expiration. The insurer’s shares have traded above $21.00 since the start of September 2010. Finally, debit call spreaders picked up approximately 1,700 calls at the March 2011 $24 strike for an average premium of $1.57 each, and sold about the same number of calls up at the March 2011 $28 strike at an average premium of $0.48 apiece. The average net cost of the transaction amounts to $1.09 per contract. Investors employing this strategy start to profit if shares in Hartford Financial rise 8.8% to exceed the average breakeven point on the spread at $25.09. Maximum potential profits of $2.91 per contract are available to these traders in the event that shares of the underlying stock jump 21.4% in the next four months to trade above $28.00 by March expiration. HIG’s shares rallied up to a 52-week high of $30.46 back in April. Options implied volatility on the insurance firm is down 6.1% to stand at 38.03% as of 11:50 am.

EWZ - iShares MSCI Brazil Index ETF – One Brazil-bull staked a claim in December contract call options within the first 30 minutes of the session to position for the price of the underlying fund to extend gains ahead of expiration this month. Shares of the EWZ, an exchange-traded fund designed to correspond to the price and yield performance of publicly traded securities in the aggregate in the Brazilian market – as measured by the MSCI Brazil Index, are up 2.3% to trade at $76.57 as of 12:00 pm in New York. The investor responsible for the bullish play appears to have initiated a ratio call spread, buying 2,000 calls at the December $78 strike for a premium of $1.27 each, and selling 4,000 calls at the higher December $80 strike at a premium of $0.57 apiece. The net cost to the trader reduces down to $0.13 per contract, thus positioning him to profit should shares of the EWZ rise roughly 2.0% to trade above the effective breakeven price of $78.13 by December expiration day. Maximum potential profits of $1.87 per contract pad the investor’s wallet in the event that, at expiration, shares of the underlying fund have jumped 4.5% to $80.00. The ratio of twice as many short calls at the higher strike suggests the investor expects limited upward movement in the fund’s shares, at least in the near-term, because of the potential to lose money above a certain point. The trader faces losses if shares rally above the upper breakeven price of $81.87, but this scenario requires shares to climb 6.9% and break above their current 52-week high of $81.77.

MBT - Mobile TeleSystems OJSC – Russia’s largest mobile phone operator popped up on our scanners this morning due to call and put action in the March 2011 contract. It looks like investors expecting MBT’s shares to remain range-bound over the next four months are building up interest in short straddles. Shares of the cell phone communications services provider are currently up 0.75% to stand at $21.13 as of 12:50 pm. Mobile TeleSystems said earlier this week that subscribers fell 0.2% to 105 million in the month of October. Short-straddlers appear to have sold 4,500 calls for a premium of $1.60 apiece and 4,500 puts at a premium of $1.40 each at the March 2011 $21 strike. Gross premium pocketed on the sale amounts to $3.00 per contract. Investors keep the full premium received on the transaction if MBT’s shares settle at $21.00 at expiration. Traders relinquish the full premium pocketed on the straddle-strategy and start to incur additional losses should shares rally above the upper breakeven point at $24.00, or if shares slip beneath the lower breakeven price of $18.00, ahead of March expiration. Investors seem to have employed the same strategy by selling a 2,425-lot straddle at the same March 2011 $21 strike back on November 16, 2010, to pocket gross premium of $3.45 per contract. The overall reading of options implied volatility on MBT edged 3.9% lower by 1:00 pm to stand at 31.35%.

XOP - SPDR S&P Oil & Gas Exploration & Production ETF – The sale of a large chunk of out-of-the-money put options on the XOP this morning is a sign of investor optimism on the sector. Shares of the XOP, an exchange-traded fund designed to track the performance of an index that represents the oil and gas exploration and production sub-industry portion of the S&P Total Stock Market Index, are trading 2.65% higher this afternoon at an intraday- and new 52-week high of $49.53 as of 1:20 pm. The near-term bullish player sold 25,000 puts at the December $47 strike to pocket premium of $0.45 per contract. The put seller keeps the full $0.45 premium received on the transaction as long as XOP’s shares exceed $47.00 through expiration day in a few weeks time. The trader expects shares of the underlying fund to trade above $47.00, but is obliged to have the stock put to him at an effective price of $46.55 should the put contracts land in-the-money at expiration. Options implied volatility on the fund plunged 12.7% to 24.42% in early afternoon trading.


Andrew Wilkinson

Senior Market Analyst

ibanalyst@interactivebrokers.com

Caitlin Duffy

Equity Options Analyst

 


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