Rumor Mill Sends Traders to Shire Options, Drives Shares to All-Time High
by Option Review - May 11th, 2011 4:02 pm
Today’s tickers: SHPGY, ODP, SKX & GNW
SHPGY - Shire PLC – The maker of Adderall XR and other pharmaceutical products attracted a diverse crowd of bullish options strategists during the session on speculation there are parties interested in acquiring the biopharmaceutical company. Shares in Shire are currently up 2.95% to arrive at an intraday- and new all-time high of $96.00. Plain-vanilla call buyers flocked to front month to position for continued new highs in Shire’s shares ahead of May expiration. Meanwhile, June contract put options provided the medium for a different type of bullish play today. Speculators engaging near-term call options picked up in- and out-of-the-money contracts, purchasing around 500 calls as high as the May $100 strike for an average premium of $0.23 each. Call buyers at the May $100 strike profit at expiration if shares in Shire are trading above $100.23. Investors may also choose to sell the calls ahead of expiration at an advantageous price should takeover chatter continue to bump up the price of the underlying, and perhaps more importantly, options implied volatility. Shire’s overall reading of implied volatility is up 24.5% to stand at 26.59% as of 2:15pm in New York. The options trader targeting put options is positioning to maximize profits on a credit spread should shares in Shire exceed $92.50 through June expiration. It looks like the investor sold approximately 2,400 puts at the June $92.5 strike for a premium of $1.63 each, and purchased roughly the same number of puts at the lower June $85 strike at a premium of $0.45 apiece. The investor pockets a net credit representing maximum potential profits on the spread of $1.18 per contract, and keeps all of it as long as the put options expire worthless at expiration. The risk involved in this type of strategy is not for the faint of heart. Shares in SHPGY could potentially reverse course ahead of expiration. In such a case, the trader starts losing money below a breakeven share price of $91.32. Maximum potential losses on the transaction, while limited to $6.32 per contract, far exceed the net credit received for bearing the risk. However, it seems the investor is willing to tolerate this risk-reward profile…
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Cemex Share Issue Has Bears Target Option Risk-Reversals
by Option Review - September 22nd, 2009 4:31 pm
Today’s tickers: CX, RIMM, FCX, LAVA, XLF, M, MBI, JDSU & SHPGY
CX - The Mexican cement company’s shares have edged slightly lower by less than 0.5% to $13.04 this afternoon due to the firm’s plan to issue stock to pay down debt. Option traders have braced for further declines by employing bearish risk reversals in the October contract. It appears investors shed 6,500 calls at the October 14 strike for 43 cents apiece in order to partially finance the purchase of 6,500 puts at the lower October 12 strike for 45 cents each. The net cost of picking up protective put options is reduced to just 2 pennies per contract. If traders are long the underlying stock, downside protection will kick in if shares slip beneath the breakeven point at $12.98 by expiration next month. – Cemex SAB de CV –
RIMM - Blackberry producer, Research in Motion, attracted bullish investors who initiated call spreads on the stock today. Shares are slightly higher by less than 0.25% to stand at the current price of $84.25. One investor targeted the November contract where it appears put options were sold to offset the cost of purchasing a call spread. The spread involved the purchase of 6,000 calls at the November 105 strike for 1.28 each against the sale of 6,000 calls at the higher November 120 strike for 33 cents per contract. Finally, the November 70 strike had 6,000 puts shed for an average premium of 1.87 apiece. The investor receives a net 91 cent credit on the three-legged strategy. He will retain the full premium as long as shares of RIMM remain higher than $70.00 by expiration day. Additional profits are available to the trader if the stock surges 25% from the current price to breach the $105.00 level. Maximum potential profits of 15.00 per contract would be attained if Research in Motion skyrocketed 42% to $120.00. Another trader put on a ratio call spread in the January contract. The bullish trade was established through the purchase of 1,500 calls at the January 90 strike for 6.81 spread against the sale of 3,000 calls at the higher January 115 strike for a premium of 1.42 apiece. The net cost of the transaction amounts to 3.97 per contract. The investor will begin to garner profits if shares rise through the breakeven point at $93.97 by January’s expiration. – Research in Motion Limited…
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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.