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Ezchip Semiconductor Limited (NASDAQ:EZCH) – The Israeli semiconductor company’s shares fell 9% to $11.50 today after the chip maker announced an offering comprised of roughly 3.9 million shares. Option trading by one investor implies EZCH’s share price is likely to remain range-bound through expiration in April 2010. The trader established a short strangle by selling 1,500 puts at the April 10 strike for 78 cents apiece, and by shedding 1,500 calls at the higher April 12.5 strike for a premium of 1.17 each. The gross premium pocketed by the investor amounts to 1.95 per contract. The strangler retains the full 1.95 premium on the trade if shares remain ‘strangled’ within the confines of the strike prices described through expiration. The nature of the transaction also suggests option implied volatility on EZCH will fall going forward. Short positions in both calls and puts leave the investor vulnerable to losses in the event that shares swing outside of either the upper breakeven point at $14.45, or beneath the lower breakeven price of $8.05.

First Bancorp Puerto Rico (NYSE:FBP) – Shares of the Puerto Rican financial services firm surged 33% from Tuesday’s closing price of $2.10 up to an intraday high of $2.79. One investor appears to have purchased a large chunk of married put options in the June 2010 contract. Perhaps the trader expects shares to continue improving over the next six months to expiration. The intraday high of $2.79 marks a 90% rally in FBP shares over the current 52-week low on the stock of $1.47, attained back on November 2, 2009. However, shares are light years away from rebounding to the current 52-week high on FBP, attained back on December 19, 2008, when shares closed at $11.28. The investor populating the June 2010 contract is perhaps taking a cautiously optimistic stance that shares will continue to rally. It looks like the trader purchased 15,000 puts at the June 2.5 strike for a premium of 65 cents per contract, in conjunction with the purchase of an equivalent number of shares of the underlying stock. The puts serve as downside protection in case shares fail to rally. The put contracts protect the underlying stock position if FBP’s shares decline beneath the breakeven price of $1.85 within the next six months to expiration.

SPDR S&P Oil & Gas Exploration & Production ETF (NYSEARCA:XOP) – The oil and gas exploration and production exchange-traded fund popped up on our ‘most active by options volume’ market scanner this afternoon due to put trading in the January 2010 contract. Shares of the XOP increased 1% during the trading day to $40.35. It appears one investor initiated a ratio put spread by purchasing 9,000 puts at the January 40 strike for an average premium of 1.22 apiece, marked against the sale of 20,000 puts at the lower January 38 strike for 65 cents premium each. The protective play was most likely established by an investor who holds a long position in the underlying stock. The puts serve as downside protection in case shares of the ETF decline within the next month to expiration.

Ford Motor Co. (NYSE:F) – Shares of the only major U.S. automaker to stave off bankruptcy rose to a new 52-week high of $9.48 today. Bullish option traders implemented two different strategies on the stock. Nearer-term optimists purchased 3,000 calls at the June 11 strike for an average premium of 61 cents apiece. Investors long the calls accrue profits if shares surge 22.5% to $11.61 by expiration day in June. Long-term Ford-bulls employed a more conservative strategy by selling straddles in the January 2012 contract. Investors sold roughly 5,000 calls for an average premium of 2.50 apiece, and about 5,000 puts for 2.94 each, at the January 2012 10 strike price. The straddle play suggests shares are likely to gravitate to $10.00 by expiration in two years. Straddle-sellers are also anticipating lower volatility on the stock over the life of the option contracts. The gross premium on the transaction amounts to an average of 5.44 per contract. Investors benefit if shares settle at $10.00 by expiration and if volatility declines. Lower volatility weighs down put and call premium and allows straddle-sellers to buy back short positions for less than the premium received today. Option implied volatility declined 5.2% from yesterday’s closing value of 39.63% to an intraday low of 37.55%.

Bristol Myers Squibb (NYSE:BMY) – Shares are hardly changed today at $25.77 as one option trader placed an interesting combination trade in the March contract. Since both put and call traded to mid-market prices, we’re left guessing at the action but we reckon the investor is looking at upside potential. Some 3,250 call options traded at a 44 cent premium at the higher 28 strike price, which we think were largely funded by the sale of 6,500 put options at the 21 strike at a 28 cent premium. BMY’s share price has accelerated away from an early November low at $21.67, which is why we believe the action to be that of a bull. Apart from taking a credit on today’s combination, shares would need to slide all the way to $19.84 during the next three months before losses occur. The trade is not, however, without its risks. The ratio nature of the put sale means an acceleration of losses in the event the trade goes sour.

Kraft Foods Inc. (KFT) – Investors who are likely anticipating the failure of any hostile takeover of Cadbury (CBY) by Kraft implemented bullish option strategies on the food and grocery products manufacturer today. Kraft’s shares jumped nearly 1.5% to $27.21 by noon ET. Plain-vanilla call buying in the March 2010 contract indicates traders are positioning for continued upward momentum in KFT’s shares over the next several months. Investors purchased 10,250 calls at the March 28 strike for an average premium of 70 cents apiece. Profits accumulate for call-buyers if the stock appreciates above the breakeven price of $28.70 by expiration. Shares are likely to rally if and when Kraft abandons efforts to acquire the Birmingham, England-based chocolate maker. Apparently Britons would rather eat scorpions than eat foreign chocolate, according to one recent comment we read.

Unit Corp. (NYSE:UNT) – Contract drilling company Unit Corp. attracted a covered call seller to the January 2010 contract. Shares rallied 2.25% during the trading session to $42.95. It appears one trader sold 5,000 calls at the January 45 strike for a premium of 95 cents apiece. The sale was likely tied to the purchase of an equivalent number of underlying shares. The premium received on the sale of the call options reduces the price paid per UNT share from $42.66 to $41.71 each. The short call position provides an effective exit strategy for the investor if the calls land in-the-money by expiration next month. If shares trade above $45.00 by expiration day, the investor’s underlying shares will be taken from him at the strike price. In this scenario, the trader neutralizes the position and walks away with gains of 7.88% on the transaction.

Source: Wednesday Options Update: EZCH, FBP, XOP, F, BMY, KFT, UNT