Friday Options Update: MSFT, FCX, VLO, BRCM, XLP

Microsoft Corp. (MSFT) – Investors are piling into call options on the world’s largest software maker following first-quarter earnings. The firm exceeded average analyst expectations of 32 per share by posting profits of 40 cents per share for the quarter. Shares of MSFT surged to a new 52-week of $29.20 – a 9.8% increase over the stock’s closing price – at the start of the trading day. Currently shares are slightly lower, though still up 7% to $28.44. Option traders wasted no time taking action on MSFT right out of the gate this morning. Call options are the clear favorite with approximately 45,000 calls purchased at the November 30 strike for an average premium of 35 cents per contract. Approximately 84,400 call options traded hands at that strike on paltry existing open interest of just 11,542 lots. Investors buying these options expect the stock to rise another 10% by expiration next month – a bullish sign for the tech-sector bellwether. Traders may also be looking to bank a little intra-day buck before heading into the weekend. Early-bird call-buyers – at the November 30 strike for example – can easily take profits before the closing bell given the 280% increase in option premium at that strike. Other investors may be taking advantage of the shrinkage in implied volatility on the stock – down 20.47% to 23.08%.

Freeport-McMoran Copper & Gold, Inc. (FCX) – One investor banked profits on a bullish position in the January 2010 contract today, although shares of the mining company have slipped slightly by less than 1% to $82.26. It appears the trader originally purchased 10,000 calls at the January 90 strike for a premium of 2.75 apiece on October 8, 2009. Today, the investor sold the calls for 4.35 each, taking in net profits of 1.60 per contract for total gains of $1,600,000. The trader apparently plans to add to today’s profits at some point in the future. Thus, he purchased 10,000 calls at the higher January 100 strike for an average premium of 1.82 apiece. Interestingly, FCX was upgraded to ‘buy’ at Deutsche Bank yesterday where analysts Jorge M. Beristain suggests a target price of $100.00 for the stock.

Valero Energy Corp. (VLO) – Shares of the owner and operator of refineries in North America are currently up 4% to $20.92, down from an intraday high of $21.37 this morning. VLO received an upgrade to ‘overweight/negative’ from ‘equal-weight/negative’ and a target price of $24.00 at Barclays Capital today. Bullish investors took to the November contract to purchase call options on the stock. It appears some 6,000 calls were picked up at the November 22 strike for an average premium for 65 cents apiece. More optimistic traders looked to the higher November 24 strike to get long of 1,400 calls at 20 cents per contract. Higher-strike call-buyers may accumulate profits if shares of VLO rally 16% from the current price to breach the breakeven point at $24.20 by expiration next month.

Broadcom Corp. (BRCM) – Semiconductor company, Broadcom Corp, suffered a 10% decline in shares to $27.80 despite the fact that third-quarter earnings of 16 cents per share exceeded analyst expectations by about one nickel. Investors are likely disappointed by the firm’s guidance for the fourth-quarter as BRCM expects revenue to remain flat. Bearish sentiment took the form of a put spread in the December contract. It appears traders purchased 2,000 puts at the now in-the-money December 28 strike for 1.61 apiece, and simultaneously sold 2,000 puts at the lower December 26 strike for 93 cents premium each. The net cost of the transaction amounts to 68 cents per contract. Perhaps traders using this bearish strategy expect shares of BRCM to continue down to $26.00 by expiration. If this occurs, investors will reel in maximum potential profits of 1.32 per contract.

Consumer Staples Select Sector SPDR (XLP) – The consumer staples exchange-traded fund jumped onto our ‘most active by options volume’ market scanner following a massive call transaction in the December contract. Shares of the XLP are currently off slightly by 1% to $26.08. It appears one investor purchased 50,000 calls at the December 27 strike for approximately 20 pennies per contract. The trader will begin to amass profits on the bullish position if shares of the fund rally 4% to surpass the breakeven price of $27.20 by expiration.

Comments

[Dav Mix:]

Hi A.W.,
I

Oct 26 10:54 AM