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Call Options Fly Off the Shelves at Yahoo!

 Today’s tickers: YHOO, TSN, BJ & CEPH

YHOO - Yahoo, Inc. – Large prints in Yahoo! call options today indicate some strategists see shares in the name rising in the next couple of months. Shares in the online media company rallied as much as 1.8% today to trade around $16.87 by 12:00pm in New York. A massive call spread appears to have been purchased in the April contract. The investor responsible for the transaction purchased 46,500 calls at the April $18 strike for a premium of $0.50 each, and sold the same number of calls at the higher April $20 strike at a premium of $0.20 a-pop. Net premium paid to initiate the spread amounts to $0.30 per contract. Thus, the investor responsible for the spread is poised to profit should shares in Yahoo! rally 8.5% over today’s high of $16.87 to surpass the effective breakeven price of $18.30 ahead of April expiration. Maximum potential profits of $1.70 per contract are available to the investor if shares in YHOO jump 18.6% to trade above $20.00 before the options expire in April. Earlier in the session, another bullish player initiated a similar spread, buying around 5,000 calls at the March $17 strike for an average premium of $0.54 each, and selling the same number of calls at the higher March $19 strike at an average premium of $0.19 apiece. The net cost of the transaction amounts to $0.35 per contract and positions the trader to make money in the event that Yahoo’s shares rise above $17.35 by March expiration. The sharp rise in demand for options on Yahoo! sent the overall reading of options implied volatility on the stock up 10.6% to 33.41% in early afternoon trade.

TSN - Tyson Foods, Inc. – Bullish options traders are picking up calls on the producer of chicken, beef, pork and prepared food products this morning ahead of the firm’s first-quarter earnings report, scheduled for release before the market opens on Friday. Shares in Tyson Foods increased as much as 2.2% during the first half of the trading day to secure an intraday high of $17.46. Investors expecting shares of the meat manufacturer to rally substantially in the next few months purchased at least 3,000 calls at the April $19 strike for an average premium of $0.35 each. More than 5,100 calls changed hands at this strike on open interest of 4,149 contracts. Judging by open interest patterns, it appears buyers of the call options today are adding to long open call positions initiated in the first week of the New Year. Investors paying an average premium of $0.35 per contract start to make money if shares in Tyson Foods jump 10.8% over today’s high of $17.46 to surpass the average breakeven price of $19.35 by expiration day in April. Bulls’ appetite for calls spread to the July $18 strike where another 1,200 contracts were purchased for an average premium of $1.15 a-pop. Call buyers at this strike profit in the event that the pork producer’s shares surge 9.7% to trade above the breakeven point to the upside at $19.15 by July expiration. Options implied volatility on the meat maker is higher by 4.3% this morning to stand at 33.79% at 11:15am in New York.

BJ - BJ’s Wholesale Club, Inc. – Shares in the warehouse club operator increased as much as 14.6% at the start of the session to secure a new 52-week high of $49.30 on reports the firm’s board is looking at various strategic options and could potentially decide to put the firm up for sale. Options traders reacted by exchanging calls and puts across multiple expiries. One long-term bullish player dabbled in June contract calls, buying 4,000 of the June $52.5 strike contracts for a premium of $1.50 each, and selling the same number of calls at the higher June $57.5 strike at a premium of $0.40 apiece. The call-spreader paid a net $1.10 per contract for the transaction, and stands ready to make money should shares in BJ’s Wholesale Club rally another 8.7% over today’s high of $49.30 to surpass the effective breakeven price of $53.60 ahead of June expiration. The investor could walk away with maximum potential profits of $3.90 per contract if shares in the name jump 16.6% to trade above $57.50 before expiration day.

CEPH - Cephalon, Inc. – The biopharmaceutical company popped up on our scanners at the start of the session after one options player initiated a sizeable bullish stance on the stock in the March contract. Shares in Frazer, PA-based Cephalon are currently down 0.40% to stand at $59.66 as of 11:30am. The drug maker will reveal earnings for the fourth quarter after the market closes for the day on February 10, 2011. One optimistic trader scooped up some 3,000 calls at the March $65 strike for a premium of $0.65 per contract. The investor stands prepared to profit should shares in the name rally 10.0% to exceed the effective breakeven price of $65.65 in the time remaining to March expiration. Cephalon’s shares were trading above $65.65 as recently as December 20, 2010. The majority of options activity on the stock today is centered in calls, with investors exchanging more than 6.4 of the contracts on the pharmaceutical firm for each single put option that has traded thus far in the session.


Andrew Wilkinson

Senior Market Analyst

ibanalyst@interactivebrokers.com

Caitlin Duffy

Equity Options Analyst


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