MGM MGM Mirage, Inc. – The owner and operator of casino resorts is hoping to reel in gross proceeds of approximately $1 billion from its public offering of 81 million shares. The offering has dampened investor confidence in the company and shares have slumped more than 16% to $10.37 today. We observed a few interesting option plays on the stock in the December and January 2011 contracts. The December 9.0 strike price had some 1,100 puts sold for a premium of 3.52 apiece indicating perhaps that some investors are willing to take delivery of the stock at an effective price of $5.48 should shares get put to them at the strike price at expiration. Further along, the January 2011 2.5 strike price was a popular destination for uber-bearish individuals who appear to have sold 20,000 puts for an average premium of 98 cents each. The trades could be covered puts in which case investors have sold short the stock at today’s price and sold the puts for some extra premium. Should MGM’s share price plunge through $2.50 over the next year and half, the investors will likely have the underlying shares put to them. This scenario would require a 76% drop in the price of the stock.
UNH UnitedHealth Group Inc. – Bucking the trend inspired by weakness in retail sales today, shares in UNH are 2.5% higher at $27.98, while one option trader staked his claim that shares will continue to rise – and certainly not fall – before June’s expiration. The trade involved the sale of 20,000 puts at the June 24 strike for 65 cents in order to ease the premium of two lumps of 10,000 calls at the June 28 and 29 strike calls for 1.60 and 1.20 premiums. While the puts remain offered at the same price, the calls have accelerated on the back of the triple-play, rising by around 30% after the trade. The health care insurance sector is higher after Cigna’s CFO said the price tag on the recent disposition by Wellpoint of its prescriptions benefit unit grabbed the industry’s attention. The unit was sold to Express Scripts Inc. for $4.68 billion and the comment today has turned attention to company’s who also carry those units. Option implied volatility at UNH rose by around 7% to 58% this morning.
AMD Advanced Micro Devices, Inc. – Shares of the global semiconductor company have climbed nearly 4% to $4.53 today amid the sounds of celebration and popping champagne bottles as its rival Intel Corp. is slammed with a $1.45 billion antitrust fine. Option trading on the stock took a bullish tone as some 17,300 calls were purchased at the June 5.0 strike price for an average premium of 53 cents apiece. Optimism spread to the July 5.0 strike where an additional 2,400 calls were coveted for about 67 cents each. Bullishness was confirmed by the sale of 3,500 puts at the June 4.0 strike for 40 cents each and by the sale of 3,900 in-the-money puts at the higher June 5.0 strike price for 94 cents per contract. Option implied volatility on the stock climbed as high as 127% today up from yesterday’s reading of 85%, although volatility has since come off a bit to stand at 122%.
XLI Industrial Select Sector SPDR – Shares of the industrials ETF have slipped by more than 3.5% to $21.76 amid broad declines seen in the market today. As with many of the ETFs we have covered recently in this report, the XLI has attracted investors looking for downside protection. The June 18 strike price witnessed the purchase of 40,500 put options for a premium of 20 cents per contract. The position indicates a breakeven share price of $17.80 below which profits will increase as the stock declines. The fund would need to fall by 18% from the current price in order to breach the breakeven point by expiration.
XLY Consumer Discretionary Select Sector SPDR – The Consumer Discretionary ETF is off by more than 2.5% to $22.40 today following the release of a worse-than-expected report on retail sales. One investor targeted the June 19 strike price where he got long of more than 37,000 put options for about 33 cents per contract. Such a trade implies that he feels the need for downside protection in case shares fall below the breakeven point to the downside at $18.67 by expiration next month. The stock would need to experience a decline of 18% from the current price for the trader to begin to amass profits. Further along, the January 2010 contract attracted a straddle seller looking for shares of the fund to remain relatively flat by next year. The January 22 strike price saw the sale of 2,500 puts for 2.60 each matched with the sale of 2,500 calls for about 2.80 apiece. The gross premium enjoyed on the trade amounts to 5.40 to the investor and is fully retained if shares settle at $22.00 by expiration. Otherwise, the investor is exposed to losses beginning at either of the breakeven points located at $27.40 to the upside or at $16.60 to the downside. Implied volatility recently slipped beneath 40% on the ETF and at 41% today stands marginally higher on the session.