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Demand for GM Calls Rises as Analyst Upgrades Lift Shares

 Today’s tickers: GM, CECO, PFE & EDMC

GM - General Motors Co. – An onslaught of analyst upgrades for General Motors sent the automaker’s shares higher and kicked bullish trading in its options into high gear today. GM’s shares increased as much as 3.00% to secure an intraday high of $35.64 as of 12:55pm. The car and truck manufacturer was rated new ‘outperform’ with a target share price of $43.00 at Credit Suisse, new ‘hold’ with a 12-month target of $38.00 at Soleil Securities, new ‘buy’ with a target share price of $45.00 at Citigroup, and was rated new ‘overweight’ at JPMorgan Chase & Co., Barclays PLC and Morgan Stanley, among others. While near-term calls were active during the session, it was a large print in March 2011 contract calls that caught our eye. It looks like one bullish player scooped up 10,000 calls at the March 2011 $38 strike, which is more than two times greater than the 4,463 lots of previously existing open interest at that strike, for a premium of $0.85 per contract. The call buyer stands ready to profit should GM’s shares jump 9.00% over the current price of $35.64 to trade above the effective breakeven point at $38.85 before the contracts expire in March. It looks like General Motors may report fourth-quarter results at some point on March 10, 2011.

CECO - Career Education Corp. – Put buying observed on the beleaguered provider of for-profit education services on Monday continued this morning as shares in Career Education Corp. slipped 1.6% lower to $19.95 in the first half of the session. Investors positioning for shares in CECO to decline significantly in the next couple of months purchased at least 2,000 puts at the February 2011 $17 strike for a premium of $0.39 apiece yesterday. Today, bears once again targeted the same February 2011 $17 strike, buying up more than 2,400 puts for an average premium of $0.49 each. Put buyers paying $0.49 in premium per contract are poised to profit should Career Education’s shares plunge 17.2% from the current price of $19.95 to breach the average breakeven point to the downside at $16.51 by expiration day in February. CECO’s shares hit a 52-week low of $16.36 as recently as October 14, 2010. Demand for out-of-the-money puts suggests some investors fear the education company’s shares may trend lower in the near future.

PFE - Pfizer, Inc. – The world’s largest drug company popped up on our scanners at the start of trading on Tuesday after huge chunks of April 2011 contract call options changed hands on the stock. Shares in Pfizer are currently up 0.75% to stand at $17.62 as of 11:35am in New York. Investors exchanged more than 108,000 calls at the April 2011 $19 strike, versus paltry previously existing open interest of 572 contracts at that strike, within the first hour of the trading session. It looks like a minimum of 80,000 of those contracts were purchased by one investor for an average premium of $0.255 apiece. In the absence of information regarding the trader’s potential short, long or lack of a position in the underlying shares, the call action appears bullish in nature. Buying the calls prepares the investor to make money if Pfizer’s shares surge 9.3% over the current price of $17.62 to exceed the average breakeven point to the upside at $19.255 by expiration day in April. The drug maker’s shares traded up as high as $20.36 just under one year ago, on January 20, 2010. Options implied volatility on Pfizer, Inc. is up 4.9% to arrive at 20.47% as of 11:45am.

EDMC - Education Management Corp. – Shares of the for-profit provider of post-secondary education programs in North America rallied as much as 3.9% today to touch an intraday high of $16.58 by 12:30pm in New York. Education Management Corp.’s shares, which tumbled to a 52-week low of $7.76 on August 31, 2010, have rebounded 113.65% in the past four months to reach today’s high of $16.58. Investors expecting EDMC’s shares to extend gains in the first few months of 2011 picked up out-of-the-money call options in the March 2011 contract this morning. More than 3,400 calls changed hands at the March 2011 $17.5 strike, versus previously existing open interest of just 150 contracts at that strike. It looks like the majority of the calls were purchased at an average premium of $1.50 apiece. Call buyers are prepared to make money in the event that Education Management’s shares jump 14.6% over today’s high of $16.58 to trade above the effective breakeven price of $19.00 by March expiration day.


Andrew Wilkinson

Senior Market Analyst

ibanalyst@interactivebrokers.com

Caitlin Duffy

Equity Options Analyst


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