Barrage of Bearish Plays Befall Airgas, Inc.
by Option Review - May 19th, 2010 4:24 pm
Today’s tickers: ARG, QSFT, VTR, MET, SPWRA, USO, JPM, BMY, ADI & EXPE
ARG – Airgas, Inc. – Options investors initiated diverse bearish strategies on the distributor of industrial, medical and specialty gases this afternoon with shares of the underlying stock lower by 1.75% to $61.73 as of 3:15 pm (ET). Pessimistic players are likely wary of potential sharp share price erosion should Air Products & Chemicals Inc., the industrial gases maker forging a hostile takeover of Airgas in a proposed $5.1 billion bid for the company, fail to ultimately close the deal. Maybe bearish options investors are taking a cue from Paul Huck, CFO at Air Products & Chemicals, who yesterday stated, “there is a large drop in the stock price awaiting this, should Air Products go away” because “If we go away, who else is going to show up and pay this?” Airgas’s share price, which is up roughly 39% since Air Products’ offer went public ahead of February 5, 2010, would likely come crashing down if for some reason Air Products walks away given the lack of other serious competing offers for ARG at this time. Bearish traders bracing for potential share price hemorrhaging purchased a debit put spread and sold calls in the July contract and enacted a ratio bearish risk reversal in the October contract. One investor purchased 2,925 puts at the July $55 strike for a premium of $1.50 each, and sold the same number of puts at the lower July $50 strike for $0.65 apiece. Net premium paid for the spread amounts to $0.85 per contract, thus yielding maximum potential profits of $4.15 each if Airgas shares decline 19% to breach the $50.00 level by expiration day. The sale of 5,000 calls at the July $65 strike for an average premium of $1.05 each may or may not be the work of the same investor. Open interest of 19,000+ calls at the July $65 strike implies the call seller could be closing out a previously established long stance on the stock. Otherwise, the responsible party expects to keep the $1.05 premium per contract received on the sale as long as shares of the underlying stock do not exceed $65.00 ahead of July expiration. Finally, one pessimistic individual populating the October contract sold 5,000 calls at the October $70 strike for a premium of $1.28 each in order to buy twice as many puts…
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Profit-Taking on Illumina, Inc. Options Illuminated
by Option Review - October 20th, 2009 4:18 pm
Today’s tickers: ILMN, USB, CCJ, BSX, VMED, SPY, GME & QSFT
ILMN – Illumina Inc. – The biotechnology firm’s shares slipped 3% today to $42.48. Profit-taking by one investor pushed the ILMN ticker symbol onto our ‘hot by options volume’ market scanner. It appears the trader originally sold 5,000 puts short at the November 35 strike for 95 cents apiece back on September 22, 2009. Today, the investor closed out the short position by buying the put options back for 25 cents each. Net profits enjoyed on the closing purchase amount to 70 cents per contract for a total of $350,000. Next, the investor reestablished a short put position by selling 5,000 puts at the November 40 strike for an average premium of 1.12 apiece. The full 1.12 premium may be fully pocketed by the trader if shares of ILMN remain higher than $40.00 through expiration.
USB – US Bancorp. – Options activity in the near-term November contract suggests at least one investor anticipates greater volatility in the price of USB shares through expiration. Shares of the financial holding company edged 1% lower this afternoon to $23.56. A long strangle play took place through the purchase of approximately 2,000 puts at the November 23 strike for an average premium of 65 cents each, and the purchase of 2,000 calls at the November 24 strike for about 73 cents apiece. The strangle cost the investor a net 1.38 per contract to implement. The transaction may prove to be profitable to the trader if shares of USB either shift above the upper breakeven point at $25.38, or if the stock moves beneath the lower breakeven price of $21.62, by expiration day. Volatility on USB rose 13% from an intraday low of 31% to a high of 35.5%.
CCJ – Cameco Corp. – The world’s second-largest producer of Uranium experienced a more than 5.5% rally in shares during the trading session to $31.31. Shares in a number of uranium companies rose after an Australian newspaper revealed BHP Billiton Ltd. declared force majeure on uranium and copper sales from its Olympic Dam mine. Force majeure is a contract provision that excuses a supplier from liability due to uncontrollable circumstances. In this case, a BHP mine in South Australia will be out of commission for at least a month due to mechanical difficulties. Investors expecting shares of CCJ to rally higher purchased near-term call options…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW.