Daily Options Intelligence Report
RIO – Companhia Vale do Rio Doce ADS – The metals and mining company's shares are down 6% today to $16.61. RIO appeared on our 'most active by options volume' market scanner with notable activity in the March contract as well as put buying in the February contract. One investor purchased 20,500 puts at the March 16 strike price for 1.20 per contract. Thus, this trader is bearish on the stock despite news today that iron ore is experiencing a resurgence of 33% from its 3-year low in October 2008. Shares would need to decline to $14.80 in order for the March 16 puts to yield profits on the down-side for this investor. Other RIO bears snapped up protection by buying puts in February. At the February 16 strike price, 3,600 puts were purchased for 49 cents apiece, while at the February 17 strike, over 2,600 puts were bought for 79 cents per share.
NTAP – Network Appliance, Inc . – As a supplier of enterprise storage and data management software and hardware products and services, NTAP is the number two provider in the industry. Shares are up slightly today by 1% to $16.30. One bullish investor sold 15,200 puts at the February 12.5 strike price for a premium of 10 cents per contract in order to fund call buying at the higher 15 strike. 5,000 calls were purchased for 1.90 per share at the February 15 strike. This trader has effectively reduced the cost of the calls by about 30 cents, yielding a net cost of 1.60. Therefore, this investor's hoof is pawing at the ground, hoping for a rally in shares to a breakeven of $16.60, an increase of 1.8% by expiration. Delta on the calls currently infers there is a 72% chance that this investor's calls will land in-the-money and generate profits in the next couple of weeks.
MOT – Motorola Inc. – Executives at America's second-largest maker of cell phones bought $2.75 million worth of stock last week, which seems to have spurred somewhat of a buying spree by investors comforted by the vote of confidence in the company by insiders. The stock has fallen from around $20 to under $3.00 since late 2007 as management failed to address challenges posed by demand for ever-greater consumer needs from cell phone technology. Meanwhile, Barron's speculated this weekend that Motorola could actually benefit from an exit from that business. Shares gained 6% to stand at $4.15 this morning while investors seemed to compound executives' confidence by selling put options in the July contract at both the 4.0 and 5.0 strikes achieving premiums of 36 cents and 1.02 accordingly. This ought to give investors enough leeway to hopefully benefit from an eventual recovery in the stock market should spring allow consumer demand to turn around. In the March contract there were more puts bought at the 4.0 strike indicating that any stock buyers on today's rally might be a little apprehensive about doing so without the protection afforded by puts costing 17 cents today. The put sales today caused implied volatility to decline to its lowest point in four months at 61%.
XLF – Financial Select Sector SPDR – Within 5 minutes of the opening bell, one investor initiated a 31,000 lot credit spread in the February contract. Purchasing 31,000 calls at the February 12 strike price for 16 cents and selling 31,000 calls at the 10 strike for 68 cents, resulted in a net premium of 52 cents on the spread. Shares are currently up by one percent at $9.91 for the financials fund. This early-bird investor appears less than optimistic about the SPDR as he hopes that shares will remain below breakeven at $10.52. Given the large open interest at these strikes, it is possible that this trader is closing an existing position; however, we believe he is taking in the 52 cent credit and taking a bearish stance on the banking index ahead of Treasury Secretary Geithner's announcement Tuesday of his bad bank proposal. In the March contract, 20,000 puts were purchased for 16 cents each at the 6.0 strike price, as another trader appears to be buying protection and looking bearish. At the March 10 strike price, 17,000 calls were sold for an average premium of 1.08, and allowing traders to breathe easy as long as shares remain below $11.08 by expiration in March.
GE – General Electric – Despite all of the bashing that GE has come in for in the last month or so in terms of whether the dividend or AAA-credit rating might need to be sacrificed, a press release today delivered a breath of fresh air in the form of a sizeable order, although the financial terms were undisclosed. Italy's Eni S.p.A has ordered from GE Oil & Gas, some 2,000 ton reactors used in refining heavy crude oil or tar sands. These reactors will be the largest ever manufactured and this order could be partially behind today's 13% rally in shares at GE to $12.58 today. The February 12 strike calls are heavily-trafficked today with volume of around 44,000. We just watched around half of that volume trade to the bid at an 85-cent premium in a single trade, indicating that investors are not necessarily buying into the rally in the share price today, while option traders might be seizing the moment to write premium in hopes that the rally will be short-lived. In the March contract we also saw some selling at the 14 strike calls so despite today's edge-lower in implied volatility on its options to 76% it doesn't seem as though investors are giving their all in backing today's share price gains.
PFE – Pfizer Inc. – Pharmaceutical giants Pfizer and Wyeth were upgraded this morning to 'buy' from 'neutral' by analysts at UBS because it is proposed that shares currently stand at a worst case scenario level for the soon-to-be merged companies. Pfizer pill-popped its way onto our 'most active by options volume' market scanner, and a 12,000 lot straddle initiated by one investor was of noted interest. Though straddles are normally positioned at-the-money, this particular straddle was likely sold at the January 2010 contract at the 20 strike price. Shares currently stand at $14.83, and thus, we were curious as to this investor's mentality regarding this far-term trade. Perhaps the upgrade today coupled with confidence that the merger with Wyeth is a sure thing, spurred this investor to take a position on the drug company in hopes that its shares will drift towards the central strike price at $20.00. Some 12,000 calls traded to the middle of the market for 53 cents at the January 20 strike, while 12,000 puts traded to the middle of the market for 5.96 apiece. If the straddle was sold, this trader received 6.49 in total, and hopes shares will remain below $26.49 and above $13.51 by expiration in order to make a profit. The closer to $20.00 at expiration the more of the overall option premium the investor gets to hold onto. Today's broker-upgrade forecasts shares will rise to $18.00 each.