Today’s tickers: HNT, AIG, KEY, WMB&CSX
HNT – Health Net, Inc. – Shares of the managed care organization have jumped by more than 5% to $13.96 amid rumors reported by one news source regarding a potential takeover of the company by UnitedHealth Group, Inc. We observed traders taking bullish stances on the stock by purchasing 3,200 calls at the May 15 strike price for an average premium of 71 cents apiece while the higher May 17.5 strike price had 1,000 calls picked up for 32 cents per contract. One investor established a ratio bull call spread in the June contract by purchasing 2,000 calls at the in-the-money 12.5 strike price for 2.50 each spread against the sale of 4,000 calls at the June 17.5 strike for 55 cents apiece. The net cost of the spread amounts to 1.40 and yields a maximum potential profit of 3.60 to the trader if shares can rally by about 25% to $17.50 by expiration. This bullish investor will amass profits at any share price above the breakeven point at $13.90. Option implied volatility on the stock rose as high as 87% up from yesterday’s reading of 80%, but has since tapered off to the current value of 79%.
AIG – American International Group, Inc. – AIG has rallied by nearly 3.5% to $1.50 and has attracted bullish investors to purchase boat-loads of call options in multiple contracts. The bullishness likely stems from today’s market turnaround and strengthening in financial stocks. It appears that approximately 15,000 calls were bought at the May 2.0 strike price for an average premium of 11 cents each. We note that given the open interest of more than 30,000 at the May 2.0 strike, this trade could represent the work of an investor closing a short position, although we don’t recall a build of recent short sales at that strike. Further along at the June 2.0 strike price another 15,000 calls were purchased for about 25 cents apiece on existing open interest of just 2,500 lots. The January 2010 2.5 strike had some 3,000 calls bought for 51 cents while one year further at the January 2011 2.5 strike had about 3,700 calls picked up for 85 cents.
KEY – KeyCorp – Shares of Ohio’s second-largest bank continue to decline, slipping 8.5% today to $6.45, which is a scant 1.67 off the 52-week low on the stock of $4.78. The news of KEY’s dividend slash yesterday, compounded with a downgrade to ‘market perform’ from ‘outperform’ by BMO Capital Markets today, have weighed heavily on the stock, which was the biggest decliner in the S&P 500 index this morning. Investors expecting further gloom from KEY purchased more than 5,300 puts at the May 6.0 strike price for an average premium of 84 cents per contract. The bearish position will begin to yield profits to the downside beginning at a breakeven share price of $5.16, a mere 38 cents above the 52-week low attained in February of 2009.
WMB – The Williams Companies, Inc. – Option traders appear to be setting the stage for a rally in shares at natural gas company, Williams Companies, where shares have risen slightly by less than 1% to $13.41. In looking at the chart, shares appeared to have bottomed out at around $9.50 in early March and traders seem hell-bent on expecting more from a near-term recovery. Investors looking for a rally concentrated their activity at the May 15 strike price where more than 5,700 calls were purchased for an average premium of 32 cents apiece. More optimistic individuals selected the May 17.5 strike and bought 1,600 calls for about 10 cents each and even looked to the June 17.5 strike to pick up 1,700 calls for 20 cents per contract. Bullish traders drove up the call-to-put ratio to more than 8-to-1, indicating that 8 calls exchanged hands for every single put option in play. The more than 20,000 lots traded thus far today represent about 20% of the total open interest on the stock of 102,000 contracts.
CSX – CSX Corporation – The rail-based transportation services company has experienced a share price decline of more than 4% to $28.01 despite having received a revised outlook to ‘stable’ from ‘negative’ by Standard Poor’s. The option market disputes the share price decline as investors position for a rebound in its fortunes. Perhaps the bullish options activity we observed on the stock was partially inspired by the more positive outlook awarded by S&P today. The May 29 strike price attracted optimistic investors who purchased 4,000 calls for an average premium of 1.65 apiece. Traders who were looking for even further upward price movement targeted the May 30 strike price where some 5,500 calls were bought for about 1.22 per contract. In order for the May 30 strike calls to land in-the-money by expiration, shares would need to rally by about 7% from the current depressed price.