Wednesday Options Update: FITB, VALE, SLM & EXPE

Fifth Third Bancorp (FITB) – Shares of the bank holding company managed to rise 1% during the trading session to $10.69 despite the ‘sell’ recommendation assigned the firm at EVA Dimensions. One savvy option trader took profits by closing out a short put position in the January 2010 contract. It appears the investor originally sold 10,000 puts at the January 7.5 strike for approximately 1.20 per contract on July 23, 2009. Today, the trader paid just 20 cents apiece to close out the position at a net profit of 1.00 per contract. The investor may have reeled in profits of $1,000,000 on the transaction. Further along, in the January 2011 contract, the same trader is at it again. It seems he sold 10,000 puts short at the January 7.5 strike for a premium of 1.10 each. Perhaps the investor will neutralize the position ahead of expiration in a manner similar to the profitable trade previously described.

Vale S.A. (VALE) – Analysts at Barclays Plc significantly increased their forecast for iron-ore prices in 2010. In a note to clients, Barclays estimates that prices may rise 20% next year versus a previous estimate of 5%. Shares of the iron-ore producer edged 3% higher to $27.22 on speculation they may benefit the most from price upgrades. In line with the bullish news, one investor rolled a long call position to a higher strike. The trader originally purchased 8,000 calls at the November 25 strike for 71 cents apiece on October 5, 2009. Today, he sold the calls for 2.65 apiece, enjoying net profits of 1.94 per contract. Total profits pocketed on the sale amount to approximately $1,552,000. The investor reestablished a bullish stance on the stock by buying 8,000 calls at the higher December 29 strike for 1.03 apiece. Additional profits will accumulate if shares of VALE rally at least 10% to surpass the breakeven price of $30.03 by expiration in December.

SLM Corporation (SLM) – Shares in the student loan provider surged after predicting a return to profitability for next year on decreased uncertainty and lower loan loss provision. Shares took out the July high and at $11.30 are up 27% today and fast approaching the 52-week peak towards $12.50 established at the start of 2009. Around 7,000 call options expiring in April were sold at 95 cents and appear to be coupled with a long position in the underlying shares. A successful covered call trade here within six months would produce total gains of 23% should shares reach the upper strike. Elsewhere bullish activity was evident in call purchases in the November contract at the 10 and 12 strikes, while puts options at the 9 and 10 strike were sold in the possible expectation that Sallie Mae won’t be revisiting those prices anytime soon. Demand for options created a post-earnings increase in implied volatility to around 65%. Options volume of 66,000 was heavily biased towards call activity today.

Expedia, Inc. (EXPE) – The online travel company received new coverage yesterday with a rating of ‘outperform’ and a 12-month target price of $32.00 at RBC Capital Markets. Today, shares rallied 3% to $26.33. Option traders took to the November contract to place bullish bets on Expedia. It appears nearly 20,000 call options were purchased at the November 30 strike for an average premium of 40 cents apiece. Shares of EXPE must rise 15% from the current price in order to breach the breakeven point on the trade at $30.40 by expiration. Finally, bullish sentiment spread to the December contract where 1,100 call options were picked up for 54 cents per contract.