Today’s tickers: XLF, JPM, C, AGN, RHT, SU & SWY

XLF – Financial Select Sector SPDR – Shares of the financials ETF are soaring upwards by more than 9% today to stand at $8.89. One investor took action in the June contract by enacting a bullish trade as banking stocks make gains across the board. At the June 7.0 strike price the trader sold 12,000 puts for a premium of 60 cents apiece in order to fund the purchase of 12,000 calls at the June 11 strike for 60 cents each. The trade was initiated at no cost this investor although shares will need to rally higher by 23% in order for the calls to land in-the-money by expiration.

JPM – JPMorgan Chase & Co. – With shares rallying 14% to $26.45, one might expect that a call-to-put ratio of 1.67 would indicate bullishness. However, the larger picture on JPM today appears to be more guarded optimism by option investors. The now in-the-money April 26 strike price saw optimistic investors picking up more than 6,000 calls for 2.49, which would now cost you 2.86 per contract. The 26 strike price seems to represent a cap for many traders because at upper strikes there was more call-selling observed than call-buying. At the April 27.5 strike price traders shed 9,000 calls for a premium of 1.77 each. Further along, the April 30 strike had more than 19,000 calls sell for approximately 91 cents apiece. Perhaps investors have the ‘what goes up must come down’ mentality on financials given the volatile nature of banking stocks as of late, and are therefore remaining cautiously optimistic with today’s rally.

C – Citigroup, Inc. – Despite the 16% rise in shares to $3.06, option plays today painted more of a bearish picture. Heavy volume was observed across multiple contracts which could represent a continuation of the conversion trading we reported last week. In the June contract we were able to isolate a sold straddle at the 5.0 strike price. This investor looks to have sold 7,100 calls at the June 5.0 strike for a premium of 22 cents each while also selling 7,100 puts for 2.75 apiece. The gross premium enjoyed on the trade amounts to 2.97 and provides a nice buffer against upward or downward movement in the share price over the next 25 days. This investor is hoping that shares will settle at $5 by expiration so that he can keep the full 2.97 premium, although for this to occur shares would need to rally by an additional 63%. Option implied volatility has come off since Friday’s reading of 200% to the current volatility at 180%.

AGN – Allergan Inc – Shares in Botox-maker, Allergan have jumped throughout this morning with options buyers getting in ahead of the game through purchases of call options expiring in April that have tripled in value within the session. We don’t see the fundamental news driving the stock on our screens but can see a slew of calls bought earlier at the 45.0 strike for around 40 to 45 cents. Some 5,750 calls out of around 9,700 appear to have been bought today as the stock has jumped 6.7% to $42.10. Since that time calls have risen in value to a current premium of 1.50 offering early-birds a handsome, wrinkle-free payoff. At the 50.0 strike investors also swooped earlier to secure buying rights on the stock and scooped up around 5,900 calls of which 3,255 were bought at the lower end of today’s 15-55 cent range.

RHT – Red Hat Inc. – April call options have been the focus today at software-services provider and maker of the Red Hat Linux operating system. It appears that, with shares up 9.3% at $16.29, investors are looking for further upside potential as they buy 17.5 and 20.0 strike calls. We saw a decent 2,500 bull call spread trading for around 40 cents, which would leave a buyer breaking positive ground at an expiration-based share price of $17.90 with maximum upside potential of 2.10 per contract. At the 17.5 strike within today’s overall 16,000 volume, some 11,000 changed hands within a premium range of 40-70 cents, which contrasts to the rally up to as high as 1.60 earlier offering buyers instant gains. Buyers were also happy to take on calls at the April 20 strike also for premiums ranging between 15-70 cents.

SU – Suncor Energy Inc. – Shares are up by less than 1% to $25.45 after the Canadian company agreed to purchase rival Petro-Canada for $15.5 billion (USD). The all-share deal reported this morning will create the largest energy producer in Canada. SU edged onto our ‘most active my options volume’ market scanner after one investor focused in on the January 2010 contract. We believe that this trader enacted a call spread, although we note that the lots traded to the middle of the market. At the January 30 strike price, 9,000 calls were purchased for 4.75 each while the January 35 strike had 9,000 calls sold for 3.23 apiece. Additionally, the trader sold 6,000 calls at the January 40 strike price for 2.30 per contract as a vehicle to further fund the bull call spread. The net cost of the trade amounts to 1.52 before factoring in the sale of the 6,000 puts. After the premium on the January 40 calls is priced in it is evident that this trader put on all three legs of the trade at no cost to himself. In less than one year, this trader will be looking for upside movement to $35 in order to gain the maximum profit available on the trade of 5.00.

SWY – Safeway, Inc. – The food and drug retailer has seen its shares rally by more than 4% to $20.38. SWY popped onto our ‘hot by options volume’ market scanner after investors took bullish stances. At the now in-the-money April 20 strike price traders picked up 2,500 calls for a premium of 95 cents apiece that has now been driven up to 1.25 per contract. At the April 22.5 strike 6,000 calls were picked up for 25 cents each as investors seem to be keeping their fingers crossed for continued share price rallies by expiration. In order to profit from the out-of-the-money calls, shares will need to climb by 11% to breach the breakeven point on the trade at $22.75. Option implied volatility has risen today from 40% to the current value of 50%.