ConocoPhillips (COP) – A short strangle employed in the May contract on ConocoPhillips this afternoon suggests one investor expects shares of the underlying stock to remain range-bound through expiration. COP’s shares are down 1.25% to $49.29 with approximately thirty minutes remaining in the trading session. The trader ‘copped’ a strangle play by selling 3,000 puts at the May $46 strike for a premium of $1.77 apiece in combination with the sale of 3,000 calls at the May $52.5 strike for an average premium of $1.13 each. The investor responsible for the transaction pockets a gross premium of $2.90 per contract, and keeps the full amount of premium if ConocoPhillips’ shares trade within the confines of the strike prices described through expiration in May. The short position undertaken in both calls and puts leaves the trader vulnerable to potentially devastating losses should COP-shares swing dramatically in the next few months. Losses accumulate for the investor if shares rally above the upper breakeven price of $55.40, or if the price of the stock plummets through the lower breakeven point at $43.10, ahead of expiration day.
Potash Corp. of Saskatchewan, Inc. (POT) – Fertilizer and feed products manufacturer, Potash Corp., attracted bullish options traders this afternoon. POT-shares are up 0.75% today to $114.01 just ahead of the closing bell, which contributes to the more than 14.50% rally in the price of the underlying stock since February 5, 2010, when shares stood at $99.36. Optimistic trading patterns appeared in the March contract where one investor established a ratio call spread. The transaction involved the purchase of roughly 4,500 calls at the March $125 strike for a premium of $1.77 apiece, marked against the sale of about 9,000 calls at the higher March $135 strike for an average premium of $0.52 each. The net cost of the ratio spread amounts to $0.73 per contract. Maximum potential profits of $9.27 per contract pad the investor’s wallet if Potash’s shares rally sharply by 18.50% over the current day’s price to reach $135.00 by March expiration. Shares must increase at least 10.25% before the investor breaks even on the spread at a share price of $125.73.
Bank of America Corp. (BAC) – B of A investors have enjoyed an 8.75% rebound in the financial firm’s share price to $15.66 today, up from $14.40 per share back on February 12, 2010. Bank of America’s shares are currently up 3.10% to $15.63 with twenty minutes remaining in today’s trading session. The recent recovery inspired some protective put transactions today by options traders securing gains in case shares reverse direction. One investor initiated a ratio put spread in the March contract. The trader purchased 10,000 puts at the March $15 strike for a premium of $0.49 apiece and sold 20,000 puts at the lower March $13 strike for $0.10 each. The net cost of the transaction amounts to $0.29 per contract and protects the investor should shares of the underlying stock fall beneath the breakeven price of $14.71 ahead of expiration day.
Hewlett-Packard Co. (HPQ) – HP-options traders are busy bees today ahead of the tech-giant’s first-quarter earnings report scheduled for release after the closing bell tolls. Hewett-Packard’s shares are up 1.25% to $50.05 as of 12:30 pm (EDT). Analysts are expecting the personal computer maker to earn an average of $1.06 per share on revenue of $30.01 billion. Investors are coveting both calls and puts to position for either earnings-elation or earnings-disappointment tonight. Traders anticipating strong earnings and a boost in the price of the underlying stock ahead of February expiration on Friday picked up approximately 3,200 in-the-money calls at the February $50 strike for an average premium of $0.72 apiece. Call-buyers stand ready to accrue profits if HP’s shares rally above the breakeven price of $50.72 by Friday expiration. On the flip side, traders with more cautious intentions purchased puts in both the February and March contracts. Roughly 4,000 puts were picked up at the February $49 strike for a premium of $0.41 apiece, providing downside protection beneath a breakeven share price of $48.59. Meanwhile, the March $50 strike had 10,000 puts purchased at an average premium of $1.59 per contract. Investors holding these contracts are perhaps anticipating HPQ earnings will miss estimates. Put-buyers amass profits to the downside if shares of the underlying stock decline beneath the effective breakeven price at $48.51 ahead of March expiration day.
Amazon.com, Inc. (AMZN) – Bullish investors dabbled in Amazon.com option contracts today despite a nearly 1.50% decline in the price of the underlying shares to $115.91. One trader utilized put options to initiate a bullish position on the e-tailer. The investor established a put credit spread in the April contract. The spread involved the sale of 4,750 puts at the April $95 strike for a premium of $1.21 apiece, marked against the purchase of 4,750 puts at the lower April $85 strike for $0.56 each. The trader pockets a net credit of $0.65 per contract, which he keeps as long as Amazon’s share price remains above $95.00 through April expiration. The credit-spreader apparently does not expect the value of AMZN shares to plummet roughly 17% from the current day’s price to $95.00 in the next couple of months. However, the transaction does expose the investor to maximum potential losses of $9.35 per contract should shares decline 26% from about $115.00 apiece to $85.00 by expiration day.
iShares Silver Trust ETF (SLV) – Shares of the silver exchange-traded fund, which generally reflects the price of silver owned by the trust, are down 0.15% this afternoon to $15.80. Options trading patterns in the January 2011 contract, however, indicate shares of the underlying stock may erode significantly by expiration next year. It looks like one bearish individual initiated a risk reversal, selling calls to buy put options. The investor sold 5,000 calls at the January 2011 $17 strike for a premium of $1.85 apiece in order to offset the cost of purchasing 5,000 puts at the lower January 2011 $13 strike for an average premium of $0.82 each. The trader receives a net credit of $1.03 per contract on the reversal play, which he keeps if SLV-shares trade below $17.00 through expiration. Additional profits are available to the downside if shares trade below $13.00 ahead of expiration day. Other bearish signals on the silver ETF appeared at the March $16 strike where investors shed 7,500 calls for a premium of $0.57 apiece. Call selling at that strike may be the work of options traders throwing in the towel on the SLV – taking in what premium is available on the calls today – in case shares of the underlying fund continue to decline in value by March expiration.
SunPower Corp. (SPWRA) – The manufacturer of high-efficiency solar power products enticed a bullish investor to purchase a debit call spread in the March contract in morning trading when shares were up roughly 1% to $20.50. SunPower’s share price slipped slightly lower by noon-time on the East Coast, falling 0.25% to $20.22. The near-term optimistic individual bought 5,000 calls at the March $21 strike for a premium of $1.35 apiece, and sold the same number of calls at the higher March $24 strike for an average premium of $0.40 each. The investor paid a net $0.95 per contract for the spread, but stands to accumulate maximum potential profits of $2.05 per contract if SunPower-shares rally to $24.00 by expiration in March. Shares of the underlying stock must increase at least 8% from the current value per share in order for the trader to break even on the transaction at a price of $21.95.
Cimarex Energy, Inc. (XEC) – Shares of the oil and gas exploration and production company are up more than 3.75% to attain a new 52-week high of $59.00 this morning after the firm posted earnings of $1.23 per share, which blew right past average analyst profit expectations of $0.99 a share. Cimarex upped its first-quarter and 2010 production forecast as well, which perhaps inspired the bullish options activity observed in the March contract. It looks like one investor scooped up 5,000 calls at the March $60 strike for a premium of $2.45 apiece. The bullish trader stands ready to accumulate profits should XEC shares rally above the effective breakeven price of $62.45 ahead of March expiration.
Whole Foods Market, Inc. (WFMI) – Options traders feasted on call options at Whole Foods this morning with shares of the organic and natural foods retailer up more than 10.50% to $33.73. Whole Foods’ shares surged after the firm revealed better-than-expected first-quarter earnings of $0.32 per share. The luxury grocer raised its earnings guidance for the year and received an upgrade to ‘overweight’ from ‘neutral’ at JPMorgan. Investors picked up approximately 3,300 call options at the March $35 strike to position for continued upward movement in the price of the underlying stock by expiration. Investors paying an average premium of $0.65 per contract are positioned to accrue profits should WFMI shares trade above the breakeven price of $35.65 ahead of March expiration.
Citigroup, Inc. (C) – Shares of Citigroup are up 2.75% to $3.40 in early trading. Option traders are displaying a clear preference for call options on Citi this morning as nearly 5 call options changed hands for each single put option in play on the stock. Investors exchanged roughly 240,000 option contracts on Citigroup as of 10:50 am (EDT). Options implied volatility is up 4.2% to 43.65% thus far in the session.