Seeking Alpha
Profile| Send Message| ()  

Tenet Healthcare Corp. (THC)Shares of the provider of health care services surged 9.39% today to $6.29 following the passage of health-care reform legislation through the U.S. House of Representatives. Intriguing bullish options trading transpired on Tenet Healthcare during the current session as investors secured positions that yield profits if the firm’s shares continue to appreciate through expiration in January 2011. One optimistic player enacted a three-leg options combination play by selling short put options to partially finance the purchase of a debit call spread. The investor picked up 10,000 calls at the January 2011 $7.5 strike for a premium of $0.65 apiece, and sold 10,000 calls at the higher January 2011 $10 strike for $0.10 each. Next, the trader shed 10,000 puts at the January 2011 $5.0 strike for $0.55 premium apiece. The investor’s combination play was essentially enacted at zero cost because of the financing provided by the sale of higher-strike calls and out-of-the-money put options. Maximum potential profits of $2.50 per contract are available to the Tenet-bull if shares of the underlying stock jump 59% from the current price to $10.00 by expiration next year. The short position in put options implies the trader is willing to have Tenet’s shares put to him at $5.00 each should the put contracts land in-the-money ahead of expiration day in January. Options implied volatility on the stock slumped 20.9% this afternoon to 46.67% following the passage of the health care bill in the House.

Ford Motor Co. (F) Bullish options activity on the automobile manufacturer picked up as the trading day progressed amid a 4.5% rally in the price of the underlying stock to $13.90. One optimistic individual initiated a bullish risk reversal transaction in the June contract to position for continued upward momentum in the price of Ford’s shares through expiration. The investor sold 5,000 puts at the June $10 strike for a premium of $0.23 per contract in order to partially offset the cost of buying the same number of call options at the higher June $16 strike for $0.44 apiece. The net cost of the reversal play amounts to $0.21 per contract. Thus, the investor responsible for the trade stands ready to accrue profits if Ford’s shares surge 16.60% over the current price to surpass the breakeven point at $16.21 by expiration day in June.

TiVo, Inc. (TIVO)Digital video recording technology and services provider, TiVo, Inc., enticed bullish options investors to exchange call options on the stock this afternoon. The 5% rally in TiVo’s share price to $16.75 inspired fresh call buying interest in the near-term April contract, as well as in the January 2011 contract. Investors purchased nearly 2,000 calls at the April $18 strike for an average premium of $0.41 apiece. The higher April $19 strike attracted buying interest of at least 1,400 calls for a premium of $0.26 each. Investors holding April $19 strike call contracts profit only if TiVo’s shares increase another 15% from the current value of the stock to exceed the breakeven price of $19.26 by expiration in April. Longer-term bullish sentiment appeared at the January 2011 $17.5 strike where it looks like one bullish individual purchased 5,000 call options for an average premium of $2.35 per contract. The trader is therefore prepared to profit should TiVo’s shares trade above the effective breakeven price of $19.85 by expiration day next year.

Hartford Financial Services Group, Inc. (HIG)Shares of the insurance and financial services firm increased 1.80% during the trading day to stand at $27.75 with just under one hour remaining in the session. Bullish investors anticipating continued appreciation in the value of Hartford’s shares purchased call options in the May contract. It looks like optimistic traders picked up about 11,000 calls at the May $30 strike for an average premium of $0.70 apiece. Call-buyers profit only if HIG’s share price jumps 10.6% over the current value of the stock to surpass the breakeven point on the calls at $30.70 ahead of May expiration day.

Las Vegas Sands Corp. (LVS) – Options players are trading in their gambling chips for call options on the owner and operator of hotel casinos and resorts today as shares of the underlying stock surged 7.25% to a new 52-week high of $20.91. Although the catalyst for Las Vegas Sands’ super-rally is unclear, the firm’s target share price was increased to $24.00 from $22.00 by an analyst at Bernstein this morning. Bullish investors picked up more than 12,200 calls at the April $21 strike by paying an average premium of $0.82 per contract. Traders holding these contracts stand ready to amass profits if shares of the underlying stock rally above the average breakeven price of $21.82 ahead of expiration day. Bullish sentiment spread to the higher April $22.5 strike where another 6,900 calls were coveted for an average premium of $0.39 each. Finally, super-bulls bought 2,300 call contracts at the April $24 strike for a premium of $0.24 per contract. Uber-optimists profit if LVS shares surge another 16% from the current value of the stock to surpass the effective breakeven price of $24.24 ahead of April expiration. The sharp rally in shares of the casino operator and the increase in options activity on the stock lifted LVS’s overall reading of options implied volatility 17% to 56.36% as of 12:50 pm (ET).

SPDR S&P Metals and Mining ETF (XME) – A bearish put butterfly spread employed in the April contract on the SPDR S&P Metals and Mining ETF today suggests one investor is expecting a sharp pullback in the fund’s underlying share price ahead of expiration. Shares of the XME are trading 0.30% lower as of the middle of the trading session to stand at $55.21. The pessimistic options player enacted the butterfly spread by purchasing 5,000 puts at the April $52 strike for a premium of $1.15 apiece [wing 1], and by picking another 5,000 put options at the lower April $44 strike for $0.15 each [wing 2]. The trader sold 10,000 puts at the central April $48 strike for a premium of $0.40 per contract to establish the body of the butterfly. The net cost and maximum loss potential incurred by the investor on the bearish transaction amounts to $0.50 per contract. If shares of the XME trade above $52.00 through expiration day the investor loses the premium paid for the butterfly spread. However, the trader is prepared to accumulate maximum available profits of $3.50 per contract should shares of the underlying fund plummet 13% from the current price to settle at $48.00 at expiration. Shares of the ETF must decline at least 6.70% before the bearish trader breaks even on the spread at a price of $51.50 per share.

Aetna, Inc. (AET) – Shares of health benefits company, Aetna, are up 0.55% to $34.65 on the first trading day following House passage of health-care overhaul legislation. Near-term options activity on the stock indicates volatility players are hard at work today. Investors initiated short strangles on Aetna in the April contract, which is beneficial for options traders if shares of the underlying stock remain range-bound through expiration day. Investors shed approximately 6,200 puts at the April $34 strike for an average premium of $1.16 apiece in combination with the sale of about the same number of calls at the higher April $38 strike for $0.17 each. The short strangle yields gross premium of $1.33 per contract, which investors keep if Aetna’s share price trades within the range of $34.00 to $38.00 through expiration day. Short-strangle players are exposed to losses should shares rally above the upper breakeven price of $39.33, or if shares slip beneath the lower breakeven point at $32.67, ahead of expiration day in April. Options implied volatility on Aetna is down 8% to 34.63% as passage of the health care bill allowed the market to breathe a slight sigh of relief.

Sherwin-Williams Co. (SHW) – Paint producer, Sherwin-Williams Company, attracted bullish options players during the trading day as shares of the underlying stock improved 0.66% to $65.73. Optimistic individuals scooped up more than 7,100 call options at the April $70 strike for an average premium of $0.27 per contract. Call-buyers at this strike stand ready to amass profits should Sherwin-Williams’ share price increase 6.90% from the current price to exceed the effective breakeven point at $70.27 by April expiration. Sherwin-Williams’ shares must break through the current 52-week high of $66.17 attained on March 17, 2010, and continue to rally through price levels not experienced by SHW since August 27, 2007, when the stock traded up to $70.95, in order for call-buyers to realize profits by expiration in a few weeks time. The jump in demand for options on SHW lifted the stock’s overall reading of options implied volatility 22.2% to 24.01% as of 12:35 pm (ET).

Source: Monday Options Brief: THC, F, TIVO, HIG, LVS, XME, AET & SHW