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Options Trader Eyes New Highs in Shares of Teck Resources, Ltd.

Today’s tickers: TCK, BSX, WPRT & AKS

TCK - Teck Resources, Ltd. – Options traders flocked to Teck Resources today as shares in the Canadian natural resources company rallied on reports that China’s Minmetals Resources, Ltd., extended a C$6.3 billion hostile takeover bid for Canada’s Equinox Minerals. Teck Resources also received an upgrade to ‘Top Pick’ with a 12-month target share price of $69.00 at Cormark Securities, helping shares in the Vancouver, BC-based company rise as much as 7.7% to secure an intraday high of $57.24. Near-term call options have been active throughout the first half of the trading day. Roughly 4.2 calls are changing hands on the stock for each single put option in action. Longer-dated options caught our eye after bullish player initiated a call spread in the August contract. It looks like the investor purchased 3,000 calls at the August $70 strike for a premium of $1.52 each, and sold the same number of calls up at the August $80 strike at a premium of $0.45 apiece. Net premium paid to establish the spread amounts to $1.07 per contract. Thus, the trader profits in the event that Teck’s shares jump 24.2% over today’s high of $47.24 to surpass the effective breakeven price of $71.07 by expiration day in August. Maximum potential profits of $8.93 per contract pad the investor’s wallet should shares in the natural resources company soar 39.8% higher in the next five months to surpass $80.00 by expiration. Shares in TCK reached their all-time high of $65.37 on January 12, 2011.

BSX - Boston Scientific Corp. – By the looks of trading patterns in Boston Scientific Corp. options today, investor appetite for puts on the medical devices maker has yet to be sated. Near-term puts were popular at the end of last week, and the contracts continue to fly off the shelves today. Shares in the Natick, MA-based company are currently down 2.05% to stand at $7.15 in early afternoon trade. Investors picked up more than 5,200 puts at the April $7.0 strike this past Friday, and picked up another 1,150 of the puts today for an average premium of $0.19 each. Fresh interest popped at the lower April $6.0 strike where investors purchased around 5,000 put options for an average premium of $0.10 apiece, on open interest of just 168 contracts. Options players buying puts at the lower strike price make money in the event that BSX shares plunge 17.5% to breach the average breakeven price of $5.90 ahead of April expiration. Investors long the April $7.0 strike contracts stand prepared to profit if the price of the underlying declines 4.75% to trade below the average breakeven point on the downside at $6.81 by expiration day this month. April contract options expire ahead of Boston Scientific’s first-quarter earnings report after the closing bell on April 19, 2011.

WPRT - Westport Innovations – Call options on the maker of natural-gas engines are active this morning with shares in the Vancouver, BC-based company extending last week’s rally. The price of the underlying rose as much as 13.4% during the current session to hit an intraday and new all-time high of $27.22, bringing recent gains up to a total of 36.2% since President Obama’s energy policy speech last week. It looks like one options player may have siphoned profits from a previously established bullish stance in the April contract. The investor appears to have sold 1,000 deep in-the-money calls at the April $20 strike for a premium of $5.20 each, in order to buy a fresh batch of 1,000 in-the-money calls at the April $25 strike for a premium of $1.15 apiece. Open interest patterns at the April $20 strike reveal that around 2,000 calls were purchased for just $0.55 per contract back on February 28, 2011. If the seller of the calls today was also responsible for the February 28 purchase, the roll up in half of the initial position yields net profits of $4.65 per contract on the original position, or profits of $3.50 apiece after factoring in the cost of buying the new April $25 strike calls. The trader starts to make money on the April $25 strike-long call position in the event that shares in Westport Innovations exceed the effective breakeven price of $26.15 through April expiration day. Alternatively, the two trades, today’s and the February 28 transaction, are unrelated events. Even so, the buyer of 2,000 of the April $20 strike calls for $0.55 each is poised to exit the position with serious profits in hand. The overall reading of options implied volatility on Westport Innovations is up 10.4% at 55.10% just after 12:15pm.

AKS - AK Steel Holding Corp. – Shares in the steel producer are up 1.70% at $16.15 this morning, but reports of renewed takeover speculation inspired some options traders to position for a far greater upside move in the price of the underlying in the next couple of months. Call options in the front month are most active just before 11:25am in New York. It looks like bulls purchased more than 2,400 in-the-money calls at the April $16 strike for an average premium of $0.55 apiece. Trading traffic is heaviest up at the April $17 strike where more than 7,490 calls changed hands. Investors purchased the majority of the April $17 strike calls for an average premium of $0.20 each. Call buyers stand prepared to profit in the event that AK Steel’s shares rally 6.5% over the current price of $16.15 to surpass the average breakeven point at $17.20 by expiration day. The April contract calls expire ahead of the firm’s first-quarter earnings report on April 26, 2011. May contract call options, however, are fair game for investors speculating on takeover rumors as well as the steel manufacturer’s earnings next month. More than 4,900 calls traded up at the May $18 strike on previously existing open interest of 1,968 contracts. Most of the calls at that strike appear to have been purchased for an average premium of $0.43 a-pop. Investors long the calls make money if shares in AK Steel surge 14.1% to surpass the average breakeven price of $18.43 ahead of May expiration day. Options implied volatility on the stock is up 11.2% to stand at 47.93% as of 11:30am.


Andrew Wilkinson

Senior Market Analyst

ibanalyst@interactivebrokers.com

Caitlin Duffy

Equity Options Analyst

 

 

 


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