Friday Options Update: BIDU, PFE, FXE, AA

Includes: AA, BIDU, FXE, PFE
by: Interactive Brokers

Baidu, Inc. (NASDAQ:BIDU) – Bullish investors continue to trade January contract calls and puts on the Chinese language internet search provider today even with expiration close at hand. News reports today indicate some at Credit Suisse anticipate Google (NASDAQ:GOOG) may exit the Chinese market as soon as February. Disbanding Google operations in China could allow Baidu to swoop in and procure one third of the U.S. company’s market share there. Shares are trading 0.75% higher to $467.86. Baidu-bulls bought roughly 3,200 calls at the January $470 strike for an average premium of $2.08 apiece. These contracts will expire out-of-the-money and worthless unless shares rally above the $470-level. Investors long the calls breakeven if the stock rallies up to $472.08 before the contracts expire. Additional buying interest appeared as high as the January $480 strike where 2,000 calls were picked up for an average premium of $0.48 per contract. Perhaps traders buying these out-of-the-money contracts hope to enjoy short-swing profits by selling the lots by the end of the day for more than the average premium paid. Optimism is apparent on the put side, as well. Investors sold 3,400 puts at the January $460 strike to take in premium of $2.35 each. Another 1,900 puts were shed at the in-the-money January $470 strike for an average premium of $5.85 per contract. In-the-money put sellers are happy to have shares of the underlying stock put to them at an effective price of $464.15 each if BIDU’s share price trades below the $470 strike price through expiration.

Pfizer, Inc. (NYSE:PFE) – It looks like one investor rolled a large chunk of now in-the-money call options in the January contract on the global pharmaceutical company forward to a higher strike price in the February contract today. Shares slipped slightly lower during the session, falling 0.25% to $19.31. The January $19 strike had approximately 62,000 calls sell for an average premium of $0.43 per contract, spread against the apparent purchase of about the same number of calls at the higher February $20 strike for a premium of $0.28 each. The calendar roll results in a net credit to the investor of about $0.15 per contract. It is unclear how much the trader initially paid for the January contract calls, but looking at the trade in isolation, this individual pockets $0.15 per contract on the transaction. Elsewhere, traders attempted to lock in recent share price gains on the stock by buying 7,700 in-the-money puts at the February $20 strike for a premium of $1.06 apiece. The put contracts provide protection to traders in case Pfizer’s shares slip beneath the breakeven point at $18.94 by expiration next month.

CurrencyShares Euro Trust (NYSEARCA:FXE) – With the euro under pressure today as Greek bond yields rise indicative of rising Eurozone tensions, it appears that one investor sold February call options at the $1.50 strike to reduce the outlay for the same strike put options. By doing so the investor bearish on the euro reduced the cost of downside exposure for the euro by 2.2%. Elsewhere another investor appeared to buy a substantial amount of 5,000 put options expiring in June at the $1.10 strike. If such a decline in the euro was to play out, since it’s currently trading at $1.4380, would be indicative of a huge slide of confidence in the Eurozone.

Alcoa Inc. (NYSE:AA) – Medium-term optimism on the largest producer of aluminum took root in the July contract today despite the 1.5% decline in the value of the underlying shares to $15.58. It looks like one investor purchased 20,000 calls on the stock at the July $20 strike for a premium of $0.51 per contract. The large bullish stance positions the trader to amass profits if Alcoa’s shares surge more than 31.5% over the current price to surpass the breakeven point at $20.51 by expiration in six months. Option implied volatility is down 7.17% on the day to stand at 38.05%.