Thursday Options Update: AA, ESLR, UNH, HOT & DE

Alcoa, Inc. (AA) – Shares of the world’s leading producer of primary aluminum have climbed higher by about 2% today to $11.72. The stock has made a significant recovery over the past three months, rising approximately 57% since touching down to a 52-week low of $4.97 back on March 6, 2009. Some option traders are hoping for continued bullish movement in the price of the underlying and were seen getting long of call options in the July contract. More than 5,000 calls were purchased at the July 14 strike price for an average premium of 28 cents apiece. Shares of Alcoa would need to increase about 22% from the current price in order for call-buying investors to begin to profit at the breakeven price of $14.28 by expiration.

Evergreen Solar, Inc. (ESLR) – The maker of solar power products is benefiting from continued optimism surrounding solar companies this week as its share price has rallied more than 12% to a whopping $2.82. Bullish call buying was seen at the July 5.0 strike price where 2,000 lots were bought for a premium of 15 cents each. An additional 2,600 calls were picked up at the medium-term September 5.0 strike price for an average premium of 25 cents per contract. While ESLR shares have managed to breach the lowest available strike price of 2.5, the stock would need to explode in order for the 5.0 strike prices to land in-the-money by expiration in either July or September. Investors long of July 5.0 strike calls would only begin to profit if shares manage a rally of 45% to $5.15 by expiration next month. ESLR appeared on our ‘top option implied volatility % gainers’ market scanner as the volatility reading burst as high as 147% today from about 122% yesterday.

UnitedHealth Group, Inc. (UNH) – Shares of the Minnetonka, MN-based health and well-being company have declined nearly 8% today to $23.70 after an analyst at Oppenheimer & Co. slashed the price target for the shares to $24 from $32. Over the past four weeks UNH’s stock has fallen approximately $5.20 or 22% from a three-month high of $28.90 attained on May 8, 2009. Option trades on the stock suggest mixed expectations by investors regarding near- and medium-term price movements. Some traders are hoping we have seen the bottom of UNH’s fall from grace and were observed selling puts in the nearer-term July contract. Approximately 2,800 puts look to have been sold at the just out-of-the-money July 23 strike price for a premium of 1.36 each. Put-writers may have the underlying shares put to them at an effective price of $21.64 if the puts land in-the-money by expiration and are exercised. Similar indications of a potential bottom appeared in the form of 3,500 calls purchased at the in-the-money June 23 strike price for 1.21 each. Investors were able to shave about 1.65 off yesterday’s call premium of 2.85 by getting long the calls during today’s significant share price erosion. Elsewhere, bearish traders sought to get long of protective put options as low as the September 19 strike price where 2,100 puts were picked up for an average premium of 95 cents. The price of UNH would need to decline another 24% from the current price before the September 19 strike puts yield profits beneath the breakeven point at $18.05.

Starwood Hotels & Resorts (HOT) – We’re trying to figure out why the plethora of orders in the August options at HOT today – the activity would appear to have bears’ paw-prints all over it as 27 strike calls have been sold in favor of 24 strike puts. Shares at Starwood are marginally down today at $25.25 but things could come undone on a 13% rally over the rest of the summer months. The many, many orders that are trading electronically in small amounts has us believe this is a widely followed newsletter. Curiously slightly more calls have been sold (18,000 contracts) than puts bought (16,000 lots). Typically many retail traders tend to shy away from option selling either because they don’t understand it or they are not allowed by their broker. That’s not the case today. Retail spending is currently under pressure despite today’s 0.5% rise from the Commerce Department and is widely expected to fall by 0.7% for the year as consumers save more faced with rising gasoline costs and rising jobless figures. We’re guessing that the basis of this trade is that Starwood will see lousy room occupancy this year.

Deere & Co. (DE) – The agricultural equipment producer has experienced a slight decline in shares of less than 1% to stand at $45.33 today. DE appeared on our ‘most active by options volume’ market scanner after one individual purchased 20,000 put options at the September 40 strike price for an average premium of 2.85 per contract. The transaction is indicated to have traded as a spread and so is likely tied to stock in some way. Perhaps the investor bought the stock today and simultaneously purchased protective put options. This strategy would serve to offset any potential erosion in the value of the underlying shares beneath the breakeven point at $37.15. DE would need to decline approximately 18% from the current price before put-profits begin to amass to the downside.

Comments

[Ellito:]

Solar companies are at the mercy of the OIL PRICE.
They go up hand-in-hand !!
Remember last summer ? same thing happened.

Jun 11 06:09 PM

[gebby:]

i dont see the value in this information.

Jun 12 08:53 AM

[WPSPIKER:]

I was going to sell out of my ELSR today luckly I got the info on the the 5.0 call price so now I think I'll hold it for a while longer.

while solar stocks are tied to the OIL stocks I'm looking for a similar thing to happen that has been happening in Europe. when the government has imposed a higher price to the owner for any electricity they put into the grid. I dont have any solar panels but the investment that ESLR has done with 1 new factory in north east and the new shares it sold to fund more equipment they are actively growing the business. The cost is lower and the raw materials are much less than traditional silicon cell mfgs. FLSR if i'm not mistaken make metal based cells with a much higher cost per watt which will keep them out of the average home users ability to buy and install roof mounted solar system to gain a nice grid electricity off set in costs if the government actually does something good to help the electrical situation and makes the cost of buys the cells/system profitable in a mid to shorter span.

SPIKER

Jun 12 09:28 AM

[Ellito:]

SOPW, base in California, well run and well managed co.
Check it out.
Real American company.

Jun 14 02:49 AM

[Ellito:]

Most likely the stimulus package is for American companies only.
So, be careful which company you pick.
Should know the details around September.

Jun 14 03:08 AM