Wednesday Options Update: JPM, IOC, CYB & AMSC

 |  Includes: AMSC, CYB, IOC, JPM
by: Interactive Brokers

JPMorgan Chase & Co. (NYSE:JPM) – Option trading on JPMorgan was very active in the early hours of the session. Shares of the financial holding company slipped 0.5% lower to $41.04 as of 12:30 pm (EDT). A ratio call spread in the January 2011 contract suggests one investor expects JPM to recover significantly in the next 13 months. The trader purchased 6,000 calls at the January 2011 50 strike for 2.72 apiece, and sold 12,000 calls at the higher January 2011 65 strike for 65 cents premium each. The net cost of the ratio play amounts to 1.42 per contract. JPM’s shares must surge 25% before the investor breaks even at $51.42. Maximum potential profits of 13.58 per contract accrue if the stock leaps 58% from the current price to $65.00 by expiration in January 2011. We note that shares last traded above $51.50 on June 4, 2007, and have never traded above $60.00.

InterOil Corp. (NYSE:IOC) – The oil and gas exploration and development company attracted bullish players to the option field today. Shares rallied 2% to a new 52-week high of $65.33. Investor activity on the stock implies shares are likely to appreciate in the next several months. Near-term optimism appeared in the January 2010 contract where one trader initiated a call spread. The investor purchased 1,000 calls at the January 70 strike for a premium of 4.30 apiece, marked against the sale of the same number of calls at the higher January 85 strike for 1.10 each. The net cost of the spread amounts to 3.20 per contract. Profits accumulate for the trader if shares breach the breakeven price of $73.20 by expiration. Maximum potential profits of 11.80 per contract are available if IOC’s shares surge 30% to $85.00. Another investor extended a previously established bullish position by initiating a calendar roll. The investor appears to have sold 8,000 calls at the in-the-money January 60 strike for 9.00 per contract in order to buy the same number of calls at the March 75 strike for 8.10 each. It is unclear when the original call position was created. However, viewing the transaction in isolation, the investor banks a 90 cent credit per contract on the trade.

Widomtree China Yuan Fund (NYSEARCA:CYB) – The yuan currency fund has had a narrow trading range for the longest time on account of the fact that it’s pegged to the dollar. However, one option investor appears to be rolling up a calendar spread using options aimed at benefitting should the Chinese allow the yuan to rise in value. The fund is actually a shade lower in price today at $25.25 and this investor appears to have sold around 14,000 calls at the April expiration in exchange for those expiring in July at the higher 26 strike. The April position looks like it has been in place for some time, which means that today’s sale is likely a closing transaction. The investor was credited with seven cents to initiate the call exposure at the higher strike price. A thawing in the Chinese attitude to allowing its currency to compete on free terms would help this investor.

American Superconductor Corp. (NASDAQ:AMSC) – Near-term bulls targeted December contract call options on the electrical components and equipment maker today. Shares jumped more than 4.5% to $37.22 by midday (EDT). Investors positioning for a new 52-week high in shares of American Superconductor purchased 1,800 calls at the December 40 strike for an average premium of 34 cents per contract. Traders holding the calls are hoping shares rise 8.5% to breach the breakeven point at $40.34 before the contracts expire next Friday. The demand for options on AMSC lifted option implied volatility to 50.8% from the previous day’s closing reading of 49.4%.