Monday Options Update: TER, POT, IOC, QLGC, CAT, IBB

Teradyne, Inc. (TER) – The more than 2% rally in shares of the semiconductor company to $10.08 today facilitated profit-taking by one trader responsible for an existing bullish call position on the stock. It appears the investor originally purchased at least 16,000 calls at the January 10 strike for approximately 1.00 per contract. Today, the trader banked net gains of 10 cents per contract by selling 16,000 calls for 1.10 apiece. Total rewards enjoyed by this individual amount to $160,000. Shares of Teradyne are a scant 59 cents beneath the 52-week high of $10.67 attained on October 14, 2009.

Potash Corp. of Saskatchewan, Inc. (POT) – Shares of Canada-based Potash Corp. surged more than 5.5% to $102.90 today on speculation that BHP Billiton Ltd. – the world’s largest mining company – may be interested in acquiring the fertilizer producer. Option traders exchanged more than 85,000 contracts on POT by lunchtime. Bullish investors purchased 3,000 calls at the November 105 strike for 3.75 apiece. Shares must rally another 6% to the breakeven price of $108.75 in order for these call-buyers to begin to profit by expiration next month. Other bullish traders shed 1,600 puts at the November 100 strike for an average premium of 4.38 each. Put-sellers apparently do not expect shares to retreat beneath the lower breakeven point of $95.62 by expiration. The full 4.38 premium received on the sale of the put options may be retained by investors as long as shares of POT remain above $100.00 through expiration. The higher November 110 strike attracted traders to pick up 2,200 calls for about 2.26 per contract, while the higher November 115 strike had 1,000 calls bought for 1.30 apiece. Finally, longer-term optimists targeted the January 120 strike where approximately 11,100 calls were coveted for an average premium of 2.64 each. Investors holding these contracts will profit if shares of POT climb 19% to $122.64 by expiration in January 2010.

InterOil Corp. (IOC) – A variety of option strategies were employed on the oil and gas exploration and production company this morning. Some investors banked gains on bullish positions while others initiated bearish plays. Shares of IOC are currently trading 4% higher to $52.38. One trader put on a bearish risk reversal in the near-term November contract. The reversal involved the sale of 2,000 calls at the November 65 strike for 95 cents apiece, spread against the purchase of 2,000 puts at the November 45 strike for 2.25 each. The net cost of the trade amounts to 1.30 per contract and establishes downside protection for the investor in case shares fall beneath the breakeven price of $43.70 by expiration day. Another trader banked hefty profits by closing out in-the-money call options in the January 2010 contract. It appears he originally purchased about 2,500 calls at the January 35 strike for an average premium of 9.23 apiece back on September 21, 2009. Today, he was able to sell the calls for 18.23 each to bank profits of 9.00 per contract. It looks like the investor may have extended bullish sentiment on IOC by purchasing 1,500 calls at the higher January 50 strike for 8.95 each, and another 1,000 calls at the January 55 strike for 7.00 per contract.

QLogic Corp. (QLGC) – The designer and supplier of telecommunications equipment experienced a 1.5% rise in shares during the session to $18.77. It appears some investors are expecting further upward movement in the stock because more than 3,000 call options were purchased at the November 20 strike for an average premium of 42 cents per contract. Call-buyers may accumulate profits ahead of expiration if shares of QLGC increase another 9% from the current price to surpass the breakeven point at $20.42.

Caterpillar Inc. (CAT) – Some 4,700 puts were sold in Caterpillar early this morning as the maker of industrial machinery jumped 4.3% to stand at $56.93. The November expiration puts fetched an 85 cent premium at the 49 strike, which would require shares to decline 14% in the meantime. The 49 strike has been one of the most trafficked bearish play on the stock for some time and it could well be the case today that an investor has decided to call it quits on a long-standing bearish play. Implied option volatility rose modestly today to 45%.

iShares NASDAQ Biotechnology Index Fund (IBB) – Shares of the biotechnology exchange-traded fund are up 0.3% to $80.80. IBB edged onto our ‘hot by options volume’ market scanner after one investor took a bullish stance in the January contract. It appears the trader partially financed the purchase of a call spread by selling out-of-the-money put options. The three-legged transaction involved the sale of 5,000 puts at the January 70 strike for 70 cents apiece. The puts were spread against the purchase of 5,000 calls at the January 85 strike for 1.35 apiece, marked against the sale of 5,000 calls at the higher January 90 strike for 30 pennies each. The net cost of the bullish play amounts to 35 cents per contract. Maximum potential profits of 4.65 – or a total of $2,325,000 – is attainable if shares of IBB rally 11% to $90.00 by expiration in January.