iShares Nasdaq Biotechnology Index Fund (IBB) – A three-legged bearish options combination play on the IBB, an exchange-traded fund that mirrors the price and yield performance of the NASDAQ Biotechnology Index, suggests one investor expects shares of the underlying fund to erode ahead of May expiration. Shares are currently down 0.15% on the day to stand at $91.90. The pessimistic options player sold 3,500 call options at the May $95 strike for a premium of $0.60 per contract in order to partially offset the cost of buying a debit put spread. The trader purchased 3,500 puts at the May $90 strike for an average premium of $1.49 each, spread against the sale of 3,500 puts at the lower May $85 strike for $0.50 apiece. Net premium paid for the bearish stance amounts to $0.39 per contract. Thus, the investor is prepared to accrue maximum potential profits of $4.61 per contract if the fund’s share price slides 7.5% lower to trade at or beneath $85.00 at expiration day. The short position in call options, while beneficial as a financing tool, poses significant risk of potentially devastating losses to the trader should the IBB’s shares suddenly rally above $95.00 in the next month to expiration.
Las Vegas Sands Corp. (LVS) – Shares of the owner and operator of the Venetian Resort Hotel and Casino, as well as other resort casino locations, are trading 0.60% lower as of 12:20 pm (ET) to stand at $24.08. Despite the slightly lower share price, investors initiated bullish stances on the stock to prepare for continued share price appreciation going forward. Las Vegas Sands’ shares have experienced a terrific run up recently, rallying a whopping 65% from an intraday low of $14.88 on February 5, 2010, up to yesterday’s new 52-week high of $24.66. The casino operator’s shares are up 490% since touching down to a 52-week low of $4.18 back on April 21, 2009. Bullish players hoping to see shares continue higher picked up 4,100 calls at the May $30 strike for an average premium of $0.40 apiece today. Investors holding the call options make money only if LVS shares surge another 23% from the stock’s 52-week high of $24.66 to exceed the average breakeven point to the upside at $30.40 by May expiration day. We note that shares of Las Vegas Sands Corp. last traded above $30.40 back on October 1, 2008, when shares traded up to an intraday high of $37.00.
iShares Dow Jones U.S. Real Estate Index ETF (IYR) – A short strangle enacted on the IYR, an exchange-traded fund that tracks the price and yield performance of the Dow Jones U.S. Real Estate Index, indicates one options player expects shares of the underlying fund to trade within a specified range through expiration in May. Shares of the ETF are up 1.3% to $51.65 as of 12:05 pm (ET). The strangle-player sold 5,000 puts at the May $51 strike for a premium of $1.57 apiece in combination with the sale of 5,000 calls at the higher May $52 strike for a premium of $1.25 each. Gross premium pocketed by the investor amounts to $2.82 per contract. The options trader keeps the full premium received on the strangle as long as shares traded within the boundaries of the strike prices described through expiration day. The short position in both calls and puts exposes the investor to losses should shares of the underlying fund rally above the upper breakeven point at $54.82, or if shares slip beneath the lower breakeven price of $48.18, before expiration.
Emulex Corp. (ELX) – Shares of the provider of network convergence solutions are down 1.40% to $12.72 today following a downgrade to ‘hold’ from ‘buy’ at Canaccord Adams yesterday, where analysts have a 12-month target share price of $14.00 for the telecommunications equipment firm. Bearish investor anticipating continued share price erosion ahead of expiration day next month purchased approximately 3,800 puts at the May $12.5 strike for an average premium of $0.70 apiece. Pessimistic players long the put contracts make money if Emulex’s shares slip another 7.25% from the current price to breach the effective breakeven point on the put at $11.80 ahead of expiration day in May. Options implied volatility is slightly up by 3.5% on the stock to 45.81% as of 12:00 pm (ET).
iShares MSCI Brazil Index Fund (EWZ) – A massive bearish put butterfly spread utilizing 80,000 option contracts was established in the first hour of the trading session this morning on the EWZ, an exchange-traded fund that tracks the price and yield performance of publicly traded securities in aggregate in the Brazilian market, as measured by the MSCI Brazil Index. Shares of the underlying fund commenced the trading session slightly higher, but parsed gains during the morning to trade flat at $75.31 as of 10:45 am (ET). The bearish investor enacted the butterfly spread by purchasing 20,000 puts at the June $73 strike for a premium of $2.99 each [wing 1], and by picking up another 20,000 put contracts at the lower June $53 strike for $0.24 apiece [wing 2]. The body of the butterfly was constructed through the sale of 40,000 puts at the central June $63 strike for a premium of $0.84 a pop. The net cost of the pessimistic play amounts to $1.55 per contract. Therefore, the trader responsible for the transaction starts to make money if EWZ shares decline beneath the upper breakeven price of $71.45 ahead of June expiration. Maximum potential profits of $8.45 per contract accumulate for the investor should shares of the underlying fund plummet 16.33% from the current price to settle at $63.00 at expiration. The trader only ever risks losing $1.55 per contract, or the net premium paid for the spread, but stands ready to make more than five times that amount if shares erode down to $63.00.
Jacobs Engineering Group Inc. (JEC) – Shares of the provider of technical, professional and construction services to industrial, commercial and governmental clients around the globe rallied as much as 9% in morning trading to $48.28 perhaps on optimism regarding the $5.4 million two-year contract the firm secured from the Force Protection Products Division of the Air Force Cryptologic Systems Group yesterday. The surge in Jacobs’ share price inspired bullish options trading activity on the stock in the near-term April contract. Investors picked up at least 2,200 in-the-money calls at the April $46 strike for an average premium of $0.55 apiece in early trading. Premium on the same April $46 strike call contracts, as of 11:10 am (ET), is up 900% since this morning and the call options now tote a substantially higher asking price of $1.90 apiece. Buying interest continued at the higher April $47 strike where a minimum of 1,000 calls were purchased for an average premium of $0.27 each. Premium on these calls has skyrocketed 2,000% during early trading, and now cost investors $1.10 apiece as of 11:15 am (ET). Jacobs’ overall reading of options implied volatility is up sharply on the increase in demand for option contracts, and currently stands 18.7% higher to 35.61%.
Harley-Davidson, Inc. (HOG) – One Harley-Davidson optimist celebrated the 3.05% rally in the price of the motorcycle maker’s shares to a new 52-week high of $32.80 this morning by banking gains on a previously established long call position. Additionally, the same investor is perhaps expecting continued bullish movement in the price of the underlying shares through May expiration because he initiated a new bullish stance on the stock at a higher strike price. It looks like the trader originally purchased approximately 6,000 calls at the now in-the-money May $31 strike for an average premium of $1.61 apiece back on April 5, 2010, when shares traded at an intraday high of $31.66. The investor sold the contracts today for an average premium of $2.42 each, thus enjoying net profits of $0.81 per contract. Finally, the HOG-bull extended bullish sentiment on the stock by purchased 6,000 fresh calls at the higher May $33 strike for an average premium of $1.41 per contract. The new call position prepares the investor to make money should HOG’s shares rally another 4.9% from the current price to surpass the effective breakeven point at $34.41 by May expiration day.