Thursday Options Brief: EK, IYR, CMC, SYNA, RF, BP & IGT

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 |  Includes: BP, CMC, IGT, IYR, KODK, RF, SYNA
by: Interactive Brokers

Eastman Kodak Co. (EK) – The digital still and video camera maker’s shares surged nearly 4% in the first half of the session to a new 52-week high of $7.05, adding to share price gains experienced during the previous trading day. Options investors on the stock appear cautiously optimistic that Kodak’s shares may rally higher by July expiration. Bullish players purchased approximately 5,100 calls at the July $8.0 strike for an average premium of $0.50 apiece. Call-buyers make money if Kodak’s shares jump 20.5% over the current price to surpass the breakeven point at $8.50 by expiration day. But, options traders also initiated protective plays by scooping up 6,400 puts at the July $7.0 strike for a premium of $1.05 each. The put contracts were perhaps purchased by investors holding long underlying stock positions. If this is the case, the puts yield downside protection should EK’s shares fall 15.6% to breach the breakeven price on the puts at $5.95 by expiration in July.

iShares Dow Jones U.S. Real Estate Index ETF (NYSEARCA:IYR) – Shares of the IYR, an exchange-traded fund that tracks the price and yield performance of an index (the Dow Jones U.S. Real Estate Index) that measures the performance of the real estate sector of the U.S. equity market, jumped more than 1.90% to reach a new 52-week high of $52.02. But, options trading tactics employed on the fund today seem to suggest investors are bracing for a nearer-term pullback in the price of the underlying shares. One investor opted to take profits off the table today by closing out a previously established long call position in the April contract. It looks like the trader originally purchased 6,000 calls at the April $52 strike for a premium of $0.29 apiece back on March 16, 2010, when shares of the IYR were at $50.05. Today the investor sold the call contracts for a premium of $0.31 apiece, thus banking net profits of $0.02 per contract. The profit-taking activity could indicate the trader is taking whatever profits are available today because he does not expect the price per share of the IYR to appreciate further. Fresh bearish trading activity appeared in the May contract where it appears one trader enacted a reversal strategy. The investor shed 8,000 call options at the May $54 strike for a premium of $0.46 apiece in order to offset the cost of buying the same number of puts at the lower May $46 strike for $0.41 each. The trader pockets a net credit of $0.05 per contract on the transaction, which he keeps if shares of the underlying fund trade under $54.00 through expiration. Additional profits accumulate should shares plummet 11.6% from the current price through $46.00 ahead of May expiration day.

Commercial Metals Co. (NYSE:CMC) – The recycler and manufacturer of steel and metal products enticed bullish options traders to the field today amid a more than 3% rally in the price of CMC shares to $16.16. Investors purchased approximately 4,400 calls at the April $17.5 strike for an average premium of $0.29 each. Call-buyers are prepared to profit should Commercial Metals’ shares increase 10% to exceed the effective breakeven point at $17.79 by expiration day in April. Other bullish players paid an average premium of $0.13 per contract to get long 1,200 calls at the higher April $20 strike. Higher-strike call coveters make money only if CMC’s shares surge 24.5% from the current price to surpass the breakeven point on the calls at $20.13 by April expiration day. Finally, optimism spread to the May $17.5 strike where traders purchased 1,700 fresh calls for an average premium of $0.78 apiece. The sharp increase in investor demand for options on the metal company lifted its overall reading of options implied volatility 13.7% to 60.18% as of 12:20 pm (NYSE:ET).

Synaptics, Inc. (NASDAQ:SYNA) – Shares of the worldwide developer and supplier of custom-designed user interface solutions for mobile computing, communications, entertainment and other electronic devices rallied higher in early trading, but slipped 0.30% to $28.97 by 11:45 am (ET). Synaptics’ shares initially rose after receiving a new rating of ‘market outperform’ with a 12-month target share price of $32.00 at Rodman & Renshaw. Bullish options traders initiated plain-vanilla call buying in the near-term April contract. Approximately 2,500 calls were picked up at the April $29 strike for an average premium of $0.90 per contract, while the higher April $31 strike had 2,000 calls purchased for an average premium of $0.35 each. Investors holding call options at the April $31 strike make money if SYNA’s shares surge 8.2% from the current price to exceed the effective breakeven point at $31.35 by April expiration.

Regions Financial Corp. (NYSE:RF) – Shares of the provider of banking and bank-related services are up more than 6% in morning trading at a new 52-week high of $8.74 after receiving a plethora of analyst upgrades. Yesterday, Regions Financial was raised to ‘buy’ from ‘hold’ and given a 12-month target share price of $10.00 at Collins Stewart. Regions’ target share price was also raised to $8.00 from $7.00 at Credit Suisse this morning. Bullish options traders feasted on fresh call options at the April $9.0 strike where approximately 3,600 contracts were purchased for an average premium of $0.09 each. Optimism spread to the May $9.0 strike where 4,000 calls were picked up for $0.28 apiece. Nearly 1,000 call options were coveted at the higher May $11 strike for just four pennies per contract. Contrarian options activity was also apparent as pessimistic players purchased debit put spreads in the May contract. Cautious investors bought 2,000 puts at the May $8.0 strike for an average premium of $0.36 each, and sold the same number of puts at the lower May $7.0 strike for about $0.11 apiece. Net premium paid for the bearish spread amounts to $0.25 per contract, thus yielding maximum potential profits of $0.75 per contract should Regions’ shares slip to $7.00 ahead of May expiration day. Options implied volatility on RF is up 10.2% to 47.5% as of 10:50 am (ET).

BP PLC (NYSE:BP) – Bullish options activity on the oil and gas company this morning indicates one investor is anticipating continued upward movement in the price of the underlying shares through May expiration. BP’s shares edged up 0.60% to $58.85 during the first half of the trading session. The optimistic options trader sold roughly 3,800 in-the-money puts at the May $60 strike for an average premium of $2.98 per contract in order to finance the purchase of 3,800 calls at the same strike for $0.89 each. The investor pockets a net credit of $2.09 per contract, which he keeps if BP’s shares trade above $60.00 through expiration. Additional profits are available to the reversal player if shares rally at least 1.95% from the current price to surpass the $60.00-level by expiration day in May.

International Game Technology (NYSE:IGT) – Debit call spreads enacted on International Game Technology this morning indicate some investors expect shares of the underlying stock to appreciate significantly ahead of July expiration. IGT’s share price increased 0.70% in the first half of the trading day to stand at $19.60. Bullish players purchased roughly 2,000 calls at the July $21 strike for an average premium of $0.77 each, and sold about the same number of call contracts at the higher July $23 strike for $0.26 apiece. The net cost of the call spread amounts to $0.51 per contract, and yields maximum potential profits of $1.49 per contract if IGT’s shares rally through $23.00 by expiration day in July. Investors start to make money on the options play if shares rise at least 9.75% from the current price to surpass the breakeven point at $21.51. Options implied volatility on the stock is up 5% to 40.42% as of 11:00 am (ET).