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Eastman Kodak (EK) – Shares opened lower only to rise sharply in renowned photographic paper-maker, Kodak before they caught a curious bid leaving them more than 4% better at $4.57. We see fresh news as a catalyst today but note that earnings are due on January 28. It would appear that an investor is gearing up for a sharp shift in its fortunes after several quarters of restructuring and layoffs announced a year ago. An option investor paid about 28 cents to acquire buying rights over 2.1 million shares of Eastman Kodak at a fixed price of $5.00 ahead of expiration on February 19. The option volume today dwarves the present number of speculative positions at that strike by tenfold. Despite a slow uptrend since late October when shares rallied off a low point at $3.39 the reading of options implied volatility has also been on the uptick since late December. Today it stands at 75%.

Aetna, Inc. (NYSE:AET) – Option traders displayed near-term bearish sentiment on the health care company today as shares edged 0.50% lower to $30.48. It looks like one pessimistic investor initiated a risk reversal in the February contract to position for continued bearish movement in the price of the underlying through expiration. The trader sold 5,000 calls at the February $31 strike for a premium of $1.27 each in order to buy the same number of puts at the lower February $28 strike for $0.80 apiece. The investor pockets a net credit of $0.47 per contract on the transaction, which he keeps if Aetna’s shares remain below $31.00 through expiration. Shares must decline more than 8% from the current price for the trader to amass additional profits beneath the breakeven point to the downside at $28.00.

Pfizer, Inc. (NYSE:PFE) – Bullish players bombarded the global pharmaceutical company with optimistic option strategies today as shares of the firm rallied more than 1.5% to a new 52-week high of $19.08. Near-term optimism appeared in the form of a ratio call spread in the February contract. The spread involved the purchase of roughly 2,500 calls at the February $19 strike for a premium of $0.56 apiece, marked against the sale of 5,000 calls at the higher February $20 strike for $0.22 each. The net cost of the transaction amounts to $0.12 per contract and positions the investor to accrue maximum potential profits of $0.88 each if Pfizer’s shares rise to $20.00 by expiration. Another bullish option trader initiated a risk reversal play in the June contract. The investor sold 10,835 puts at the June $19 strike for a premium of $1.41 apiece in order to offset the cost of purchasing 10,835 now in-the-money calls at the same strike for $1.15 each. The reversal results in a net credit of $0.26 per contract to the investor who may realize potentially unlimited profits to the upside above a share price of $19.00.

iShares MSCI Taiwan Index ETF (NYSEARCA:EWT) – Shares of the EWT are off slightly today by 0.25% to $13.15. Ignoring present share price weakness, one medium-term bullish trader sold put options on the fund in order to finance the purchase of calls. The risk reversal play took place in the June contract where 9,000 puts at the June $13 strike were sold for $0.85 each, marked against the purchase of 9,000 in-the-money calls at the same strike for a premium of $0.95 apiece. The investor paid a net $0.10 per contract to position for a rally in shares of the ETF by expiration in June.

Baidu Inc. (NASDAQ:BIDU) – If you remember the months following Google’s IPO when shares surged from $200 to $750, you’ll recall how the company continued surprise pulling revenues out of the hat quarter after quarter. The news that it’s very likely to bail out of China in a blaze of glory surrounding censorship leaves the door wide open for a search engine monopoly at mainland provider, Baidu Inc. Its shares have surged from $100 to almost $450 in the past year. With the overnight news morphing into a human rights concern, shares in Baidu have leapt from $386 to $450 while U.S. markets were sleeping. That’s potentially dangerous for any option trader who sold higher strike January calls in the past few weeks as they head to an uncomfortable expiration weekend. For example, calls with just three days life left at the $420 strike or 8.8% out-of-the-money closed at a dime last evening. Anyone wagering a bet that Baidu’s shares might rally an out-of-the-blue event by that amount is this morning staring at an option worth about $20. Option sellers like to step up to write premium as expiration closes in because they see it as a low-risk income generator. During the last five days open interest at the $420 strike has increased by around 800 contracts to 5,701. Time and sales indicates that around twice the number of contracts traded to the bid during that time compared to those seen buying what they thought was an unlikely outcome. At the market open this morning around 1,000 contracts traded in this strike with its price ramping all the way to $25 per contract.

Zions Bancorp (NASDAQ:ZION) – Long-dated married put options were purchased on Zions Bancorp this morning by an investor who likely opted to get long the stock and downside protection on a down day in shares of the firm. ZION’s shares are trading 5.00% lower to stand at $15.25 as of 10:30 am (EDT). It looks like the long-term bullish trader purchased roughly 6,300 puts at the January 2011 $5.0 strike for a premium of $0.31 per contract in combination with the purchase of an equivalent number of shares of the underlying stock. The put options serve as relatively cheap downside protection on the long stock position should the price of the underlying plummet in the next 12 months. The purchase of ZION shares suggests that the trader expects shares to rebound rather than collapse by expiration in January 2011.

Smith International, Inc. (SII) – Shares of the provider of equipment and services to the oil and natural gas industries are trading 2.5% lower to $29.29 in morning trading. Bearish traders gobbled up in-the-money put options on the stock, perhaps to accrue profits on further downward movement in the value of the underlying shares. Investors picked up 4,000 puts at the in-the-money January $30 strike for an average premium of $0.67 per contract. Profits amass for these put-buyers if shares fall beneath the breakeven point at $29.33 by expiration on Friday. Additional buying interest appeared at the in-the-money February $30 strike where approximately 2,100 puts were purchased for $1.65 each. Investors long the February contract puts are positioned to accrue profits if Smith’s shares trade under $28.35 by expiration next month.

Source: Wednesday Options Update: EK, AET, PFE, EWT, BIDU, ZION, & SII