Thursday Options Update: GMCR, NWL, PFE & UBS

Green Mountain Coffee Roasters, Inc. (GMCR) – Shares of the specialty coffee company and provider of the Keurig gourmet single-cup brewing system have exploded upwards by 42% to $75.00, discarding the old 52-week high of $56.77 for the stock with the used grinds. The company reported a 117% rise in earnings for the second-quarter to arrive at 50 cents per share amid a 60% increase in sales due to the expansion of its Keurig products. The bullish bonanza for GMCR is heightened by the relationship it has forged with Wal-Mart (WMT) stores which will carry the Keurig brewers and K-cups in more than 3,000 of its stores. Option traders looking to get bullish on the stock had little to work with as the highest strike price offered for GMCR is $70.00. However, there was fresh interest built up at the June 70 strike price where more than 2,000 call options traded hands for about $9.10 apiece. The near-term May contract attracted put buyers and sellers at the May 65 strike price where more than 4,000 puts were exchanged for an average premium of 2.00. GMCR expects business to continue booming and has increased its earnings estimate for fiscal year 2009 to $1.47 from $1.25 per share.

Newell Rubbermaid Inc. (NWL) – The consumer and commercial products company has experienced a huge rise in shares of more than 24.5% to $10.80 after it reported first-quarter profits that exceeded analyst expectations. NWL earned 20 cents per share, trumping average estimates for the firm of about 8 cents. Option traders were seen banking gains on the share price rally by selling 2,000 in-the-money calls at the June 7.5 strike price for 3.24 apiece as well as 6,400 in-the-money calls at the June 10 strike for an average premium of 1.32 each. Investors looking to get bullish on the stock selected the June 12.5 strike price where more than 6,700 calls were purchased for 39 cents per contract. Shares would need to continue to rise by 19% to the breakeven point at $12.89 in order for traders to profit by expiration. Option implied volatility has come way off since earnings were announced from 76% yesterday to the current value of 61%.

Pfizer, Inc. (PFE) – The pharmaceutical company’s shares have edged up by about 1% to stand at $13.60 amid gains observed across a number of its competitors today. PFE jumped higher on our ‘most active by options volume’ market scanner after a few large volume transactions in the January 2010 and 2011 contracts. It appears that a couple of investors are looking for longer-term bullish moves on the stock as traders bought 10,000 calls at the January 2010 17.5 strike price for about 45 cents per contract. Bullishness spread to the following year’s January 2011 contract where it appears that the another optimistic trader initiated the sale of 25,000 puts at the January 7.5 strike price for 47 cents each which appears to have partially funded a bull call spread in the same month. The spread was established by purchasing 25,000 calls at the January 15 strike for 1.83 each against the sale of 25,000 puts at the higher January 20 strike price for a premium of 70 cents. The net cost of the spread was reduced to 66 cents and yields a maximum potential profit of 4.34 if shares can rally up to $20.00 by expiration in two years time.

UBS AG (UBS) – The global financial services firm has experienced a more than 5.5% increase in shares to $13.85. In the midst of the rally, option investors acted cautiously on the stock by delving into protective put positions in the June and September contracts. At the nearer-term June 14 strike price 2,500 puts were purchased for 1.40 apiece and spread against the sale of 2,500 puts at the June 12.5 strike for a premium of 80 cents each. The net cost of the spread amounts to 60 cents and yields a maximum profit of 1.90 if shares were to decline to $12.50 by expiration. Further along in the September contract, another investor selected the same strike prices to initiate a larger-volume put spread. The September 14 strike saw 10,000 puts purchased for 2.25 each spread against the sale of 10,000 puts at the September 12.5 strike for 1.60 per contract. The net cost of the bearish position amounts to 65 cents and yields a maximum gain of 1.85 to the investor if shares decline to $12.50 by expiration in September. Yesterday there was a similar build in bearish put volume of around 10,000 lots at the September 12.5 strike. Today an investor has chosen to use spread combinations more efficiently in getting bearish.