Today’s tickers: QCOM, EWZ, FRX, CSX, RIMM & BIIB
QCOM – Qualcomm, Inc. – The wireless communications company has experienced a 3% increase in shares to $40.93. QCOM appeared on our ‘most active by options volume’ market scanner as more than 75,000 contracts traded hands throughout the day. Put options traded twice for each call in action yielding a put-to-call ratio of 2.0. The May contract in particular caught our eye as one investor appears to have initiated a ratio put spread. At the May 40 strike price 7,000 puts were purchased for an average premium of 2.37 while the May 35 strike had about 14,000 puts sell for 86 cents apiece. By selling twice as many put options at the 35 strike the investor has reduced the net cost of the put spread to just 65 cents (2.37 – [2* 0.86] = 0.65 cents). This strategy implies that the trader is looking for shares to decline through the breakeven point at $39.35 at which point profits begin to amass. The maximum profit he can possibly take in is 3.35 and would be achieved if shares fell to $35.00 by expiration. Shares would need to decline by about 14% from the current price in order for the investor to pocket the maximum amount of profits. Losses would only accrue beneath a share price of $31.65 but are potentially sizeable courtesy of the ratio nature of the trade.
EWZ – iShares MSCI Brazil Index Fund – Shares of the ETF have rallied by 7% to $42.02 amid gains enjoyed by the broader market today. One investor targeted the June contract and established a sold strangle. The sale of 18,000 puts at the June 34 strike price for a premium of 1.60 and the sale of 18,000 calls at the June 45 strike for 2.80 per contract yields this trader a gross premium of 4.40. The full premium will be retained if shares remain within the strike prices described by expiration. This investor faces the risk of amassing losses should the share price swing in either direction outside of the breakeven points located at $39.60 on the downside and at $49.40 on the upside. The sold strangle indicates that this trader does not see today’s rally continuing to push shares upwards by more than 18% from the current price because he faces potentially unlimited losses to the upside.
FRX – Forest Laboratories, Inc. – Shares have rallied by more than 3.5% to $22.80 for the manufacturer and seller of branded and generic forms of prescription and non-prescription drug and pharmaceutical products. Option investors actively traded call options and all but shunned puts for the time being, perhaps due to renewed takeover rumors reported by one news source. The call-to-put ratio was pushed up to 19.73, representing the movement of 19 call options to each put in play. Investors targeted the April 25 strike price and purchased more than 6,600 calls for 32 cents apiece. The May 25 strike was also selected by call-buyers who picked up more than 1,600 for a 74 cent premium. The most bullish traders chose to buy about 1,000 calls at the May 30 strike at an average price of 10 cents each. Shares need to continue to rally by an additional 9% in order for the call options at the 25 strike in April to land in-the-money by expiration. Option implied volatility has soared upwards from 48% to the current value of 61%.
CSX – CSX Corporation – Shares of the rail-based transportation supplier have rallied 8% to $28.70 amid share price increases in a number of the top railroads companies. Today BMO Capital Markets started coverage on CSX and initiated the company with a rating of ‘market perform.’ Option investors were seen buying calls in April and drove up the call-to-put ratio to 3.4, which indicates that call options traded more than three times to every put option. At the in-the-money April 27 strike price more than 2,700 calls were bought for a hefty premium of 2.60. Perhaps some traders want to ensure that they can exercise the calls at expiration and take delivery of the underlying shares. The April 29 strike was also frequented by call buyers who picked up about 3,000 contracts for a premium of 1.41 apiece. The most optimistic investors targeted the April 30 strike and bought 2,300 calls at a price of 1.15 each. In order for these bulls to profit from the 30 strike calls, shares will need to rally by another 9% to the breakeven point at $31.15 by expiration.
RIMM – Research In Motion Limited – Shares have rallied by more than 7.5% to $49.16 before the company releases its February quarter results this afternoon. Analysts believe that RIMM is likely to report that its February-quarter profits climbed 15%. Option traders were perhaps banking gains on today’s share price rise by selling calls in the April contract, although there were some individuals looking to get long of calls. Investors also exhibited cautious put-buying activity in case the current rally should give way to downward movement in the underlying. Put protection was sought at the April 35 strike price where 6,500 puts were purchased for a premium of 26 cents apiece. Investors paid a steeper premium of 2.17 to get long of put options at the nearer to-the-money April 45 strike price. Call activity was much heavier than put activity, which would generally indicate bullishness. But, it seems that investors were more pessimistic as the April 55 strike price had at least 22,900 calls sell for 1.05 each, while the April 60 strike has another 22,900 calls shed for 37 cents. Given that the April 60 strike price has open interest of just 9,500, the calls sold today must be leaving investors with a short position. Perhaps they are selling volatility and are hoping to buy back the short calls at a lower premium when volatility comes off. In contrast to the bearish plays scattered about the April contract, some traders looked to the April 50 strike and purchased 7,700 calls for 2.49 each. Shares would need to continue to climb by another 7% in order for traders to begin to amass profits at the breakeven point of $52.49 by expiration.
BIIB – Biogen IDEC, Inc. – The global biotechnology company has experienced a slight increase in its share price by less than 1% to stand at $52.23. BIIB edged onto our ‘hot by options volume’ market scanner after one investor initiated a calendar spread. At the April 50 strike price 10,000 puts appear to have been sold for 1.12 apiece and spread against the purchase of 10,000 puts at the July 50 strike price for a premium of 4.40. This trader paints a bearish picture of Biogen as we head into the summer. The sale of the near-term puts indicates that shares will likely remain high enough as to keep the April 50 puts out-of-the-money until expiration. But, this investor has reestablished a protective position by extending the time horizon to the July contract. This investor maybe rolling a bear position forward given the established open interest of more than 16,000 lots at the April 50 strike. Shares of BIIB have remained above $42.50 since March 3, 2009, but have found the going tough at above $50.00 for more than six months. It would appear that this trader is irritated by the presence of a broad rally for stocks and is having to extend his duration through July.