Tuesday Options Update: BIIB, USO, MAC & NLY

Includes: BIIB, MAC, NLY, USO
by: Interactive Brokers

Biogen IDEC, Inc. (NASDAQ:BIIB) – The world’s largest producer of medication used in the treatment of multiple sclerosis posted a 48% increase in fourth-quarter profits today, sending its shares up 2.75% to $54.26. Profit growth, fueled by greater sales of its drug Tysabri, resulted in earnings of $1.06 per share in the fourth quarter, which beat average street estimates by $0.16 per share. One Biogen options trader established an iron condor in the March contract, indicating shares of the underlying may remain relatively neutral through expiration next month. The investor essentially enacted two credit spreads, which can also be thought of as two strangles, in order to pocket the resulting premium. On the put side, the trader sold 4,000 contracts at the March $50 strike for a premium of $0.70 each, marked against the purchase of 4,000 puts at the lower March $45 strike for $0.25 apiece. As for the calls, the investor sold 4,000 lots at the March $55 strike for a premium of $1.50 each, spread against the purchase of the same number of call options at the higher March $60 strike for a premium of $0.45 apiece. The net credit received on the iron condor play amounts to $1.50 per contract. Biogen’s shares must trade between $50.00 and $55.00 through expiration in order for the trader to keep the full $1.50 per contract, or total profits of $600,000. Risks involved in the transaction outweigh total benefits. The parameters of the transaction expose the trader to maximum potential losses of $3.50 per contract, which start to accumulate if shares trade above the upper breakeven point at $56.50, or if the stock trades below the lower breakeven price of $48.50, ahead of expiration.

United States Oil Fund LP (NYSEARCA:USO) – U.S. Oil Fund bulls are positioning for a rally in the price of the underlying stock by the time our nation’s roadways are bumper-to-bumper with summer traffic. Shares of the oil fund are currently up 3.25% to $36.23. Plain-vanilla call buying took place at the July $37 strike where investors paid an average premium of $2.67 per contract for 5,000 call options. Traders holding the calls stand ready to amass profits if the price per USO share rallies 9.50% over the current value to surpass the breakeven point at $39.67 ahead of July expiration.

The Macerich Company (NYSE:MAC) – The real estate investment trust, which owns and leases regional and community shopping centers in the United States, edged onto our ‘hot by options volume’ market scanner today due to put activity in the September contract. Shares were trading lower in the first half of the session, but have recovered to rally 1% higher to $30.91 as of 12:20 pm (EDT). The earlier dip in share price inspired plain-vanilla put buying. It looks like nervous investors purchased approximately 4,000 puts at the September $25 strike for an average premium of $2.50 apiece to secure downside protection. Put-buyers are protected in case MAC’s share price plummets 27.20% from the current day’s value to breach the lower breakeven point at $22.50 by September expiration.

Annaly Capital Management, Inc. (NYSE:NLY) – Bearish investors pawed at put options on mortgage-backed securities investment firm, Annaly Capital Management, today as shares of the underlying stock slipped 2.40% to $17.45. Pessimistic traders bracing for continued share price erosion over the next six months purchased 1,300 puts at the July $12.5 strike for an average premium of $0.21 per contract. These put contracts yield profits to the downside should NLY shares fall another 29.50% from the current price to breach the effective breakeven point at $12.29 by July expiration. Investors who are perhaps expecting an all out collapse in the value of the stock looked to the January 2012 $7.5 strike where 3,000 put options were picked up for an average premium of $0.59 apiece. Long-term bearish put-buyers accrue profits if shares of the underlying stock pare 60% of the current day’s value to fall beneath the breakeven point of $6.91 by January 2012 expiration. We note that shares of Annaly Capital Management have not traded under $10.95 in the past five years.