Tyco International Limited (TYC) – The world’s largest provider of security systems (through its ADT unit) appeared at the top of our ‘hot by options volume’ market scanner at the start of the trading day. One investor selected the October contract to enact a bullish reversal on the stock amid a slight share price rally of less than 1% to $27.00. The option trader observed today is not alone in his bullish sentiment as Tyco received an upgrade to ‘outperform’ from ‘market-perform’ on Wednesday by analysts at Sanford C. Bernstein & Co. due to its substantial cash reserves. The reversal play involved the sale of 6,524 puts at the October 26 strike price for a premium of 2.05 apiece against the purchase of 6,524 calls at the higher October 27.5 strike for 2.00 each. The investor receives a net credit of one nickel per contract on the trade. Additional profits will begin to flow if shares of TYC can rally approximately 3% higher to push the October 27.5 strike calls in-the-money by expiration.
Financial Select Sector SPDR (XLF) – Shares of the financials ETF have remained relatively flat today at $11.91. Our attention was drawn to the December contract where a large-volume bearish trade indicates that at least one investor anticipates downward movement in the fund. The transaction involved the purchase of 20,000 puts at the in-the-money December 12 strike price for a premium of 1.62 apiece spread against the sale of 40,000 puts at the lower December 8.0 strike for 34 cents per contract. The net cost of the ratio spread amounts to 94 cents. Maximum potential profits of 3.06 or $6,120,000 would be realized by the trader if shares of the XLF were to decline to $8.00 by expiration.
Yahoo Inc. (YHOO) – The internet company’s shares are up 3% to $15.78 today, recovering some of the losses experienced throughout the week. Notable activity occurred in the October contract where one investor sold a strangle to pad his pockets with premium. The investor sold 8,400 puts at the October 12 strike price for a premium of 42 cents apiece and simultaneously shed 8,400 calls at the higher October 19 strike for 62 cents each. The trader will retain the gross premium of 1.04 on the transaction if shares of the underlying remain strangled within the strike prices described. We doubt this individual will be shouting “yahoo!!” around town if shares rise higher than the breakeven point to the upside at $20.04, or fall below the breakeven point to the downside at $10.96, as his short position in both calls and puts leaves him vulnerable to losses in either direction.
Capital One Financial Corporation (COF) – The “what’s in your wallet?” banking company has experienced a share price decline of nearly 3% to $21.64 today following yesterday’s sale of $1.5 billion of 10-year subordinated notes. The COF ticker symbol jumped higher on our ‘most active by options volume’ market scanner after one investor initiated a large-volume put spread in the September contract. The trader could be looking to protect a long position in the underlying or may just be bearish on COF in the medium-term. The spread involved the purchase of 40,000 puts at the September 20 strike price for an average premium of 2.32 apiece against the sale of 40,000 puts at the September 15 strike for 75 cents each. The net cost of the transaction amounts to 1.57 to the investor who stands to collect maximum potential profits of 3.43 or $13,720,000 if shares of COF decline to $15.00 by expiration. Option implied volatility on the stock has come off throughout the past few days from 78% on Wednesday to the current reading of 71%.
Semiconductor HOLDRS (SHM) – Shares of the semiconductors ETF have climbed higher today by about 1.5% to $21.36. The fund caught our attention after one investor established a large bullish position in the November contract. It appears that this individual is hoping for moderate gains in the price of the underlying as he was seen purchasing 60,400 calls at the November 22 strike price for an average premium of 1.60 apiece. Shares need to rally higher by approximately 10% from the current price in order for the investor to breakeven at $23.60 by expiration in five months time.
Medtronic Inc. (MDT) – The provider of a range of products and therapies for alleviating pain and restoring health has experienced a 2% rally in shares to $34.07 today after receiving European regulatory approval to sell its second-generation pacemaker. Bullish movement in the price of the underlying may also be due to MDT’s announcement of a 9.33% increase in its quarterly dividend to 20.5 cents per share. Interestingly, option traders were seen buying both calls and puts on the stock today, although the call-to-put ratio of more than 2-to-1 indicates a preference for call options. The nearer-term July contract had approximately 3,000 puts picked up at both the July 33 and July 34 strike prices for premiums of 80 cents and 1.20, respectively. Higher July 35 and July 36 strike prices attracted investors who purchased 2,000 calls at each strike for premiums of 84 cents apiece and 49 cents each. Finally, traders who are bullish on MDT through expiration in August purchased 5,000 calls at the August 36 strike for an average premium of 1.25 per contract. Those individuals long of the calls will amass profits if shares can rally 9% from the current price and breach the breakeven point at $27.25 by expiration.