Friday Options Brief: AIG, MU, F, POT, CLF, PAYX, ERIC, SVU, LFC, CA

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 |  Includes: AIG, CA, CLF, ERIC, F, LFC, MU, PAYX, POT, SVU
by: Interactive Brokers

American International Group, Inc. (NYSE:AIG) – The insurer’s shares experienced a fantastic 56.7% run up from its low point in the current month of $24.54 on March 3, 2010, up to yesterday’s intraday high of $38.45. During the current session, AIG surrendered a small portion of its recent share price gains, slipping slightly lower by 1.40% to stand at $34.62 in afternoon trading. Extreme-bullish positioning in long-dated options caught our attention today as one investor established a call spread in the January 2011 contract. The optimistic trader purchased 5,500 calls at the January 2011 $50 strike for a premium of $3.65 apiece, and sold the same number of calls at the higher January 2011 $75 strike for $1.30 each. The net cost of the transaction, and maximum loss potential faced by the investor, amounts to $2.35 per contract. American International Group’s shares must surge 51.2% from the current price of $34.62 in order for the trader to break even on the spread at $52.35 per share. Perhaps the individual responsible for the trade expects AIG’s shares to rebound up to the current 52-week high on the stock of $55.90 (attained back on August 28, 2009), or above within the next ten months to expiration. Maximum available profits of $22.65 per contract – total gains of $12.4575 million – accumulate for the bullish player if AIG’s shares jump 116.6% from today’s price to $75.00 by January expiration day. Shares last traded above $75.00 back in October of 2008.

Micron Technology, Inc. (NASDAQ:MU) – A large-volume long-term bullish transaction on the manufacturer of semiconductor devices indicates one big options player anticipates continued upward movement in the price of Micron’s shares by expiration in January 2011. Shares rallied 2.55% to $10.05 this afternoon, but earlier increased more than 4% to reach an intraday high of $10.25. The optimistic investor purchased a debit call spread in by picking up 20,000 in-the-money call options at the January 2011 $10 strike for a premium of $2.07 apiece, marked against the sale of 20,000 calls at the higher January 2011 $15 strike for $0.58 each. The net cost of the spread amounts to $1.49 per contract, positioning the investor to amass profits if Micron’s shares exceed the breakeven price of $11.49 by expiration next year. Maximum potential profits of $3.51 per contract – total gains of $7.02 million – are available to the trader should shares of the underlying stock surge 49.25% from the current price to $15.00 by expiration day.

Ford Motor Co. (NYSE:F) – The automaker’s shares are trading 2.90% higher this afternoon to arrive at a new 52-week high of $13.28. Options investors expecting continued bullish momentum in the price of the underlying shares through expiration in April bought call options on the stock. Optimistic individuals purchased approximately 6,200 calls at the April $14 strike for an average premium of $0.23 apiece. Call-buyers at this strike stand ready to accrue profits if Ford’s shares rally another 7.15% from the current value of the stock to breach the effective breakeven point of $14.23 by expiration next month. Uber-bullish investors coveted 8,500 calls at the higher April $15 strike by shelling out an average premium of $0.08 per contract. These traders profit only if shares increase 13.55% to surpass the breakeven price on the calls at $15.08 by expiration day.

Potash Corp. of Saskatchewan, Inc. (NYSE:POT) – Shares of the fertilizer and feed products producer rallied to a new 52-week high of $126.98 in morning trading after the firm raised its first-quarter profit forecast. Shares are trading slightly below the intraday and 52-week high of $126.98, but are still up 7.45% to $125.68 as of 12:35 pm (NYSE:ET). The Canada-based company revealed it expects first-quarter earnings to be between $1.30 and $1.50 per share, which is significantly higher than its previous estimate of $0.70 to $1.00 a share. Options players populated the stock with numerous trading strategies, and exchanged more than 115,000 contracts on POT by lunchtime. One bullish individual initiated a ratio call spread in the March contract. The trader purchased 1,500 in-the-money calls at the March $125 strike for a premium of $2.93 apiece, and sold 3,000 calls at the higher March $135 strike for $0.59 each. The net cost of the spread amounts to $1.75 per contract. Thus, the bullish player stands ready to accrue maximum potential profits of $8.25 apiece if POT’s shares rally up to $135.00 by expiration day next Friday.

Cliffs Natural Resources, Inc. (NYSE:CLF) – Citing the potential for higher iron ore and coal prices, analysts at JPMorgan Chase & Co., increased their target share-price estimate on Cliffs Natural Resources to $83.00 from $60.00 today. Cliffs’ shares burst higher following the upgrade, rallying 5.35% to a new 52-week high of $63.53. North America’s largest producer of iron-ore enticed bullish options players to the March $65 strike where more than 2,300 calls were scooped up for an average premium of $1.14 apiece. Call-coveters are prepared to profit should CLF’s share price increase 4.10% from the current value to exceed the breakeven point on the calls at $66.14 by expiration day next Friday.

Paychex, Inc. (NASDAQ:PAYX) – Shares of the provider of payroll and integrated human resource and employee benefits outsourcing solutions rallied 0.70% to $32.11 during the session. The increase in the price of the underlying shares inspired demand for out-of-the-money call options in the March and April contracts. Bullish players purchased approximately 11,800 call contracts at the March $32.5 strike for an average premium of $0.19 per contract. Investors long the calls stand ready to amass profits if PAYX shares trade above the breakeven price of $32.69 by expiration day next Friday. Optimism spread to the April $32.5 strike where 1,400 calls were picked up for an average premium of $0.66 each. The surge in options trading activity on PAYX lifted its reading of overall options implied volatility 12.6% to 22.13% today.

LM Ericsson Telephone Co. (NASDAQ:ERIC) – The maker of mobile communications infrastructure equipment attracted bullish investors today amid a 3.25% rally in its share price to a new 52-week high of $11.20. Options traders honed in on call options in the July contract to position for a sharp rally in ERIC’s underlying share price by expiration. Investors purchased approximately 5,000 call options at the July $12.5 strike for an average premium of $0.30 per contract. Call-buyers profit if shares increase at least 14.25% from the current value of the stock to surpass the average breakeven point at $12.80 by July expiration. Investors exchanged 6,950 options on ERIC by 12:20 pm (ET), which represent 16% of the total existing open interest on the stock of 43,376 contracts.

SuperValu Inc. (NYSE:SVU) – Call options on grocery retailer, Supervalu, are flying off the shelves this morning as unconfirmed leveraged buyout rumors sparked an 11.45% rally in SVU-shares to an intraday high of $17.89. Options players exchanged more than 10 call options on the stock for each single put option traded thus far in the session. The surge in investor demand for options on Supervalu bumped up the reading of overall options implied volatility 58.7% to 45.24% as of 10:40 am (ET). Traders purchased more than 4,400 calls at the March $17.5 strike for an average premium of $0.36 per contract, while investors targeting the higher March $20 strike picked up about 1,000 calls for $0.19 each. Call volume is greatest at the April $17.5 strike where more than 15,700 contracts changed hands in the first seventy minutes of the trading day. Approximately 9,700 of the calls were purchased for an average premium of $0.50 apiece. Investors long the April $17.5 strike calls profit if shares trade above the effective breakeven price of $18.00 ahead of expiration day in April.

China Life Insurance Ltd. (NYSE:LFC) – Short straddles enacted on China’s largest insurer indicates shares of the underlying stock my remain range-bound through expiration day in October. China Life Insurance’s share price surrendered 0.20% this morning to trade at $70.40. One investor initiated the straddle strategy by selling 1,500 call options at the October $70 strike for an average premium of $6.43 apiece, in combination with the sale of 1,500 puts at the same strike for $6.60 each. Gross premium pocketed on the transaction amounts to $13.03 per contract. The straddle-player keeps the full premium received today if LFC’s shares settle at $70.00 at expiration. The hefty premium on the trade provides protection against losses should the insurer’s shares shift in either direction about the central strike price. However, the investor will accrue losses if China Life’s shares trade above the upper breakeven price of $83.03, or if shares slip beneath the lower breakeven point at $56.97, ahead of October expiration.

CA, Inc. (NASDAQ:CA) – Near-term bullish options activity was initiated on the independent information technology management software company this morning despite a slight 0.30% decline in the value of its shares to $22.59. Investors sold 6,800 puts short at the March $22.5 strike to take in a premium of $0.15 per contract. Put-sellers keep the full premium if CA’s shares trade above $22.50 through March expiration next Friday. However, traders selling the contracts are apparently happy to have shares of the underlying stock put to them at an effective price of $22.35 each should the put options land in-the-money at expiration.