Monday Options Update: GLD, AMR, ANF, CEPH & ESV

SPDR Gold Trust (GLD) – Not 100% sure on this trade, but we’re throwing it out there anyway on a best-efforts basis. It appears that an investor has built an iron-condor using the June contract in the gold exchange traded fund today. Gold has taken advantage of further weakness in the value of the dollar after weekend commentary from the IMF and G20 ministers (see our IB FX View) and broke convincingly through $1,100 per ounce and is heading for a ninth consecutive annual gain. Currently the yellow metal is up 1% at $1,10.90 per ounce. The gold ETF is up a similar amount (its price is supposed to track the value of one tenth of an ounce of the bullion) and stands at $108.62. We can see a 5,000 lot call spread using the 145 and 160 strikes. That would be equivalent to $1,400 and $1,600 per ounce on gold. The trade went through at a net 68 cent premium. On the put side the investor used the 94 and 80 strikes to pull off a put spread for 1.77 premium. The full premium on the two spreads is therefore 2.45 per contract. So far we can see same size call and put spreads and while the timing wasn’t identical on both spreads, it would make sense to us that the investor initiated credit spreads on both, which means he wants prices to remain below the lower call strike ($1,400) yet above the higher put strike ($940) throughout the life of the trade. If that happens, he retains the credit from both legs of the trade. Note that the put strike is closer and would require the price of gold to fall 15% from current in order to upset the investor. The call side of the trade would require a larger 26% rally in gold and confirms that the investor probably believes the dollar drubbing and gold rally each have further to run.

AMR Corp. (AMR) – The operator of American Airlines attracted bullish option traders today as shares of the firm rallied approximately 1.5% to $5.74. Investors expecting shares to appreciate by expiration in December purchased call options. Approximately 7,000 calls were picked up at the December 6.0 strike for an average premium of 60 cents apiece. Traders also purchased about 4,000 calls at the higher December 7.0 strike for 30 cents premium each. Call-buyers at the higher strike may accumulate profits by expiration if shares of AMR increase at least 27% to surpass the breakeven price of $7.30.

Abercrombie & Fitch Co. (ANF) – Multiple analyst upgrades today boosted shares of ANF 7.5% to $37.63 and inspired a flurry of bullish options activity in the November contract. Abercrombie’s shares surged the most in five months in intraday trading after the clothing retailer was added to the “conviction buy” list at Goldman Sachs. The firm was also raised to ‘outperform’ from ‘neutral’ and given a target share price of $49.00 at Credit Suisse. Plain-vanilla call buying took place at the now in-the-money November 37.5 strike where investors picked up 3,200 calls for an average premium of 1.52 each. Optimism spread to the November 39 strike where it looks like some 2,000 calls were coveted for about 74 cents premium. Finally, the uber-bulls bought 2,000 call options at the November 40 strike by shelling out 59 cents per contract. Another bullish sign was the short sale of 3,000 puts at the November 35 strike for 60 cents each. Put-sellers retain the full 60 cents premium as long as shares of ANF remain higher than $35.00 through expiration day.

Cephalon, Inc. (CEPH) – Shares of the biopharmaceutical company edged slightly higher by less than 0.5% today to $58.48. It appears one bullish investor banked profits on a previously established call position. The trader likely purchased approximately 15,000 calls at the December 60 strike for 1.17 each back on October 22, 2009. Today, the investor sold the contracts for 2.07 apiece. Net profits enjoyed on the sale amount to 90 cents per contract for a total of $1.35 million. Next, it looks like the trader extended bullish sentiment on CEPH to the February 2010 contract. The investor purchased 7,100 calls at the February 60 strike for 4.00 apiece and bought 6,900 calls at the higher February 65 strike for 2.20 each. Profits on the lower strike call options accrue if shares of Cephalon rally 9.5% to the breakeven price of $64.00 by expiration. The higher strike call options tote a breakeven point at $67.20.

ENSCO International, Inc. (ESV) – The provider of offshore contract drilling services experienced a 1% decline in shares during the trading session to $47.53. One investor employed the use of a ratio put spread in the January 2010 contract, perhaps to protect against further declines through expiration next year. The trader purchased about 2,000 puts at the January 45 strike for a premium of 2.55 apiece, market against the sale of some 4,000 puts at the lower January 40 strike for 1.06 each. The net cost of the bearish play amounts to 43 cents per contract and yields downside protection beneath the breakeven price of $44.57. ESV announced plans to move its headquarters to London and register as a U.K. corporation in order to improve access to customers and investors. The firm will implore shareholders to approve such a move in late December.

Comments

[Nextel Acce...:]

I have GLD, doesn't seem to track actual gold that well. Either way, getting nervous that it has peaked...

Nov 09 02:53 PM