DRYS – DryShips, Inc. – Shares of the drybulk carrier have jumped 35% to $3.79 due to increasing rates for Panamax-class ships coupled with a rise in chartering demand. Panamax-class ships are the largest that can still pass through the Panama Canal, and rates for the 75,000 ton haulers have risen by 11% today. The increase in share price for DRYS comes as no surprise given the influx of demand amid a gain of 50 points for the Baltic Dry Index to 2,084. The BDI measures the cost to transport commodities across various shipping routes and vessel classes. Option trades today reflect the growth spurt for DRYS as call buying was observed across multiple contracts. At the March 5.0 strike price, 6,000 calls were purchased for 27 cents apiece, while at the March 7.5 strike about 1,000 calls were picked up for 10 cents each. Shares would need to breach breakeven points located at $5.27 for the 5.0 strike, and at $7.60 for the 7.5 strike price beyond which profits would amass. At the April 5.0 strike, 2,600 calls were scooped up for 51 cents each, yielding a breakeven share price of $5.51. DRYS has not surpassed $5.00 per share since early in February, when it experienced a slight rebound to $7.13 following its ‘death-spiral’ from $16.88 at the start of 2009.

APOL – Apollo Group Inc. – One of the largest jumps in options implied volatility across our scanning tools occurred at private education provider, Apollo Group, where volatility rose 12% to 77%. The company joined a band of rebels whose share prices fell at the time of the inaugural Obama budget, which proposed saving tax payers $4billion a year by ending entitlements for financial institutions who currently lend to students. Shares dropped 6.7% to $67.35 while one option investor expects an acceleration of the decline over the next 44 days by a minimum of 21%. The investor combined the purchase of 5,000 put options expiring in April at the 55 strike with the sale of the same amount of puts at the 45 strike for a net premium of 1.88 per contract. Before this education bear starts to make money, the share price would have to decline beneath the strike at which the investor secured rights to sell the shares by the net cost of the trade. So beneath a share price of $53.12 the investor starts to see the benefit. Profits are limited by the sale of puts at the lower strike, which also reduces the cost of the trade and so minimizes losses. The biggest gain to the investor is the distance between the two strikes less the premium paid, which in this trade is 8.12 per contract.

FXI – iShares FTSE/Xinhua China 25 – Shares have risen 8% today to $25.18 amid positive news regarding the Chinese stimulus package. Despite the scent of optimism wafting into the marketplace today, some investors remain cautiously pessimistic. In the May contract sold strangles were apparent at high volumes. At the May 20 strike price 17,500 puts were sold for a premium of 85 cents, while further up at the May 30 strike, 17,500 calls were sold for an additional 85 cents premium. The gross premium amounts to 1.70 for the trade, and will be retained in full by investors if shares remain between the two strike prices by expiration in May. This strategy implies that some traders do not think there is any way that China – or more specifically Chinese spending on infrastructure – can lift the US out of recession. It seems to be a logical argument given that China has typically been a satellite in providing for American consumption, and spending on Chinese infrastructure does not matter to American consumers. The parameters of the strangle indicate the accrual of losses starting at $18.30 on the downside, and at $31.70 on the upside. This trade is well positioned because shares would need to fall below the current 52-week low at $19.14 in order to erode today’s premium. Further, shares would need to make a 26% gain from today in order to incur losses beyond the breakeven point above the upper strike price. Option implied volatility on FXI has come off this week from 69% on Monday to the current reading of 62%.

GE – General Electric –It can’t have escaped your attention that today’s broad market pick-up doesn’t extend to shares of General Electric, which is underperforming with a fresh 10% slide to $6.30. Options on the stock yesterday captivated investors’ attention with volume at the June 2.50 put grabbing the headlines. Today options volume during the morning is easily beyond that of the SPDR Trust Series on the S&P 500 index at 780,000 lots. Activity is desperately bearish with scant signs of optimism. Volatility in options is once again on the rise at 161% from 140% on Tuesday. Volume of 71,000 lots at the March 2.5 strike suggests that put buyers expect further downside pressure on the share price although we’d note that the prevailing 6 cent premium makes this a cheap play. The volume represents twice the number of established positions at the strike. Similar volume was seen at the April 5.0 and June 2.5 strikes. Of note today is the fact that despite the breach of Tuesday’s $6.60 low the premium commanded by those June puts, which traded so heavily yesterday still leaves that buyer at a current mark-to-market loss of around four cents per contract. On a more optimistic note, sizeable call purchases summing to around 21,000 lots was seen at the September 12 strike where the premium suggests a rebound for shares to $12.50 ahead of the onset of Autumn.

JPM – JPMorgan Chase & Co. –A buyer of upside risk emerged today in the January expiration call options at JPM, one day after the company noted just how swell revenues are in the first quarter. With shares down 2.3% at $20.52 the investor set his sights on the 27.5 strike where at least 34,000 lots were bought at a premium of 3.70. The current odds of these calls landing in the money stand at 46% according to delta, a measure of the options sensitivity to a change in the price of the underlying. That could change, however, given the current reading of 104% implied volatility, which is boosting option premium. Shares would need to rise to $31.20 using an expiration-based outlook, but that’s not necessarily as long as this investor might expect to hold calls for if the stock can rebound sharply.

CAT – Caterpillar, Inc. – Thanks to a rally that is likely inspired by optimism surrounding the infrastructure led stimulus package from China, shares have jumped 16% to $26.24,. Contrary to the tone reflected by today’s rising tide, one option trader established a bearish play in the August contract. The investor implemented a put spread by purchasing 4,000 puts at the August 17.5 strike price for 1.51 each, and selling 4,000 puts at the August 12.5 strike for 47 cents per contract. The net cost of the trade amounts to 1.04, and yields a maximum profit of 3.96 should shares decline all the way to $12.50 by expiration. Profits will begin to amass for this investor if shares of CAT fall below the breakeven point of $16.46. This view played out using options reminds us of the ‘once bitten, twice shy’ expression. In this case the investor appears tired of continued short-lived gains inspired by stimulus plans that tend to be outweighed by a broken heart to the financial system and a feeling that we have not yet seen the worst of this recession.

FCX – Freeport-McMoran Copper & Gold, Inc. – Similar to other mining companies today, FCX has seen its shares rise 14% to stand at $32.39. In contrast to the contrarian option plays observed in CAT, investors established bullish positions in Freeport-McMoran. At the March 35 strike price, 4,000 calls were purchased for 1.14 each, while at the April 35 strike price, nearly 6,000 calls were scooped up for 2.32 per contract. If shares can continue to climb higher this month the March calls will breakeven at a share price of $36.14, an increase of 11% from today’s price. As for the April calls, the breakeven is a bit higher at $37.32 and would require a 15% increase from the current price. Maybe investors see optimism in FCX as more realistic because of its greater involvement in commodities markets. FCX is literally closer to the ground than companies like CAT who provide machinery to get break ground.