Wednesday Options Update: BYD, AMD, VALE & ITU

 |  Includes: AMD, BYD, ITU, VALE
by: Interactive Brokers

Boyd Gaming Corporation (NYSE:BYD) – Option bulls are looking to score coveted call options on the multi-jurisdictional gaming company amid a share price rally of more than 5.5% to $10.78. Investors bracing for further upside movement in the stock purchased more than 3,900 calls at the June 12.5 strike price for an average premium of 37 cents per contract. Shares of the casino operator must gain an additional 19% by expiration to breach the breakeven point at $12.87 before traders long of calls begin to amass profits. Option implied volatility spiked higher to 91% on this morning’s rally but has since tapered off slightly to the current reading of 86%. Moody’s recently reduced the company’s ratings outlook to negative, which took some shine off its share price, although earlier this month shares did trade above the $12.50 strike price for several days.

Advanced Micro Devices, Inc. (NASDAQ:AMD) – The global semiconductor company appeared on our ‘most active by options volume’ market scanner after a slightly bullish trader initiated a call spread in the near-term June contract. Shares are currently higher by nearly 4% to stand at $4.71. The investor established his position by purchasing 10,000 calls at the June 4.0 strike price for a premium of 70 cents apiece spread against the sale of 10,000 calls at the June 5.0 strike for 18 cents each. The net cost of the spread amounts to 52 cents and yields a maximum potential profit of 48 cents if shares were to rally up to $5.00 by expiration. Given the current share price of AMD the investor has already begun to amass profits to the upside today as the breakeven point of $4.52 has already been surpassed. If the June 5.0 call options fail to land in-the-money by expiration, the trader will be able to take delivery of the underlying shares. But, the short call position currently held by the investor at the June 5.0 strike would require him to deliver shares to someone else in the event that shares rise above $5.00 effectively limiting his gains to just 48 cents.

Companhia Vale do Rio Doce ADS (NYSE:VALE) – The world’s largest iron-ore producer’s shares have lifted approximately 1% to $19.45 despite the downgrade to ‘neutral’ from ‘buy’ the mining company received from Goldman Sachs this morning. The downgrade was paired with a reduction in earnings forecasts for VALE for 2009 and 2010 due to lower metal prices and a stronger Brazilian currency. Option trading was put-heavy as investors exchanged more than eight puts to every call in action on the stock. The near-term June 15 strike price appears to have had some 18,000 puts purchased for a premium of 10 cents per contract. Such a trade could be the work of an investor long the stock looking for relatively cheap downside protection. If this is the case the protection would kick in if shares declined by about 23% from the current price through the breakeven point at $14.90 by expiration. Otherwise, the puts could have been scooped up by a bearish investor hoping to profit from a sharp decline in the stock over the next few weeks. We note that an additional 6,300 put options have traded at the higher June 18 strike price and could signal additional bearish sentiment for VALE following Goldman’s downgrade.

Itau Unibanco Banco Multiplo SA (ITU) – Shares of Brazil’s largest bank have climbed nearly 3% to $16.15 amid an upgrade to ‘buy’ from ‘neutral’ by one analyst at Bank of America. The upgrade this morning comes on the heels of gains enjoyed by Brazilian stocks for the fourth day in a row led by oil’s six-month high and April’s reported increase in the country’s bank lending. ITUB jumped onto our ‘hot by options volume’ market scanner amid a frenzy of call transactions observed in the near-term June contract. Investors looking for continued bullish movement in the stock purchased a minimum of 5,500 calls at the June 17.5 strike price for an average premium of 32 cents each. More than 15,700 calls changed hands at the June 17.5 strike although 7,600 of the lots traded to the middle of the market. Those bracing for further upside will breakeven at a price of $17.82 and reel in profits if shares rally higher by 10% by expiration. Option implied volatility soared as high as 60% during the trading day up from this morning’s opening value of 45%.