Tuesday Options Update: UAUA, NBR, PTEN & FIG

Includes: FIG, NBR, PTEN, UAUA
by: Interactive Brokers

UAL Corporation (UAUA) – Healthier passenger loads in December sparked a break to a 52-week high above $13 for united Airlines parent, UAL Corp. The news inspired an interesting option play that we’re still trying to discern using the January 2011 contract. The play involved 2,500 contracts in each of the $10 strike puts and the $20 strike call options. The trade is marked by the exchange as a spread indicating one was bought and one was sold, although data also suggested options were bought at both strikes. What we believe makes the most sense on today’s price move is that an investor has most likely written the $10 strike puts and bought the $20 strike calls. Shares were last seen trading 8.4% higher at $13.87. Post recovery bullishness is possibly making its shares look more appealing especially as they test higher ground not seen since October 2008. Option implied volatility at around 80% helps keep the premiums swollen, which is possibly why the investor is reaching almost unreasonably high for a bullish play while writing off any prospects to the downside. The combined premium of $4.60 to us looks unreasonably high on a breakeven basis to make this combination a long strangle, although such a play would benefit from a surge in implied volatility. Many analysts argue that the VIX is ridiculously cheap at present. But a net premium of zero in the event of a reversal play makes us believe that this trade is a bullish play on the airline.

Nabors Industries Ltd. (NYSE:NBR) - Land drilling contractor, Nabors Industries, attracted options-optimists to the February contract today with shares of the company trading up nearly 8% to a new 52-week high of $25.00. Plain-vanilla call buying activity took place at the February 25 strike with 1,500 calls purchased at the strike for about 95 cents premium apiece. Another 1,500 calls were probably bought at the higher February 26 strike for an average premium of 80 cents each. Higher-strike call buyers stand ready to profit if NBR’s shares increase 7% to surpass the breakeven point at $26.80 by expiration next month. A more conservative bullish trader initiated a covered call spread by buying shares of the underlying stock and writing call options. It looks like the investor sold 6,000 calls at the February 26 strike for an average premium of 73 cents per contract. The sale of the calls reduces the price paid per share of the stock by the amount of premium received. Additionally, the short call position establishes an effective exit strategy for the investor if the calls land in-the-money by expiration.

Patterson-UTI Energy, Inc. (NASDAQ:PTEN) – Shares of the provider of contract services to the North American oil and natural gas industry jumped nearly 7.5% during the trading session to $17.40. Option-bulls dominated the February contract on PTEN today, suggesting perhaps that shares will continue higher by expiration next month. Approximately 6,200 calls were picked up at the February 17.5 strike for an average premium of one dollar per contract. Call-buyers amass profits if PTEN’s shares appreciate 6% from the current price to $18.50 – the breakeven price on the calls – by expiration.

Fortress Investment Group LLC (NYSE:FIG) – Asset management firm, Fortress Investment Group, realized a nearly 8% increase in the price of its shares today to $5.07. The rally in shares spurred a bullish feeding frenzy in January 2011 contract call options. Investors purchased approximately 6,000 calls at the now in-the-money January 2011 5.0 strike for an average premium of 1.19 per contract. Call-buying option traders break even on the transaction if FIG’s shares surge 22% to $6.19 in the next twelve months to expiration.