Financial Select Sector SPDR (XLF) – A massive put spread comprised of approximately 200,000 put options on the XLF, an exchange-traded fund that corresponds to the price and yield performance of the Financial Select Sector of the S&P 500 Index, indicates investor pessimism is alive and well despite positive first-quarter earnings announcements from a number of large financial firms this week. Bearish plays also dominated activity on the XLF earlier in the week. Shares of the underlying fund are currently down 1.2% to $16.54 as of 3:10 pm (ET). The pessimistic options player appears to have purchased roughly 100,000 put options at the June $16 strike for an average premium of $0.39 each, marked against the sale of about the same number of puts at the lower June $15 strike for $0.16 apiece. Net premium paid for the spread amounts to $0.23 per contract. The massive size of the transaction suggests the trade was initiated by an investor seeking downside protection on sizable underlying stock positions in either the XLF itself, related holdings of the fund, or perhaps both, through June expiration. Suppose the investor is building up insurance on a large position in the underlying shares of the XLF. In this scenario, downside protection kicks in should shares of the XLF breach the effective breakeven point on the spread at $15.77 ahead of June expiration. Options players exchanged more than 415,000 option contracts on the XLF as of 3:10 pm ET, with put options trading more than 3.5 times to each single call option in play today.
Career Education Corp. (CECO) – Shares of the provider of private, for-profit, postsecondary education in the United States jumped 4.8% during the session to a new 52-week high of $35.41 after the firm received an upgrade to ‘overweight’ from ‘equal weight’ at Barclays Capital today. Options movement on the stock suggests one investor was prepared for the breakout in CECO’s shares. It looks like the investor first banked profits today by selling a previously established long call position in the July contract, and next extended and augmented bullish sentiment on the stock by purchasing fresh calls at a higher strike price. The trader likely purchased 1,900 calls at the July $35 strike f or an average premium of $1.70 each back on March 17, 2010, when shares of CECO were trading at $31.70. The rally in CECO’s shares in the past few weeks boosted premium on the calls. Thus, the investor was able to sell the now in-the-money contracts today for about $2.80 apiece. Net profits on the position amount to $1.10 per contract. Finally, the investor initiated a new bullish stance on the stock by picking up 3,800 calls at the higher July $40 strike for $1.00 per contract. Profits on the new position accumulate if Career Education’s shares surge 15.8% over the current value of the stock to surpass the breakeven point on the calls at $41.00 by expiration day in July.
Schlumberger Limited (SLB) – A three-legged bullish options strategy enacted on the oil equipment and services firm today indicates one investor anticipates significant appreciation in the price of Schlumberger’s shares by November expiration. Shares of the underlying stock commenced the current trading session higher, but slipped 0.10% to $67.80 as of 12:25 pm ET. The optimistic options strategist essentially sold put options in order to partially offset the cost of purchasing a ratio call spread. The investor sold 5,000 puts at the November $55 strike for a premium of $2.16 apiece, and purchased the same number of call options at the higher November $70 strike for $5.05 each. The third-leg of the transaction was the sale of 10,000 calls at the November $80 strike for $1.90 premium per contract. The sale of the put options and the sale of twice as many November $80 strike calls more than offset the premium required to purchase the November $70 strike calls. Therefore, the investor pockets a net credit of $0.91 per contract, which he keeps as long as Schlumberger’s shares trade above $55.00 through expiration day. Additional profits accumulate for the trader if shares rally 3.25% to exceed $70.00 each. The options investor walks away with maximum potential profits of $10.91 per contract – including the net credit of $0.91 each received today – if the oil equipment company’s shares surge 18% over the current price to settle at $80.00 by November expiration.
Cooper Tire & Rubber Co. (CTB) – Optimistic options trading activity took place on Cooper Tire & Rubber Co. in the first half of the trading session with shares of the tire manufacturer gaining 3% to stand at $21.01. It looks like one particularly bullish individual sold put options in the June contract in order to partially finance the purchase of twice as many call options. The investor sold 3,500 puts at the June $20 strike for a premium of $1.05 apiece, and purchased 7,000 calls at the higher June $22.5 strike for $0.65 per contract. Net premium paid to take ownership of the calls is reduced to $0.25 per contract. Therefore, the bullish player is positioned to make money should Cooper’s shares rally 8.3% from the current price of $21.01, to breach the breakeven point on the calls at $22.75 by expiration day in June.
Wells Fargo & Co. (WFC) – Shares of the largest U.S. home lender slipped 1.35% to $33.24 today, however investors are initiating long-term bullish stances on the stock to position for a rebound in the price of the underlying stock by October expiration. Wells Fargo’s shares declined during the first half of the trading day even though the firm posted its fifth-straight quarterly profit this morning for the first-quarter of 2010. WFC revealed first-quarter net income of $0.45 a share, which exceeded average analyst forecasts of $0.43 per share, but came in 16% lower than the $0.56 per share earned by the company in the same period last year. Despite the current share price erosion, optimistic traders sold 3,000 put options at the October $35 strike to take in an average premium of $3.38 per contract. Put-sellers keep the full premium pocketed today if shares of the underlying stock rally above $35.00 ahead of October expiration day. Bullish sentiment spread to the call side of the field, as investors picked up 2,800 contracts at the October $38 strike for an average premium of $0.71 each. Investors long these contracts profit if WFC’s shares surge 16.45% to surpass the average breakeven price of $38.71 by expiration. Buying interest continued at the higher October $40 strike where 7,500 call options were picked up for $0.40 premium per contract. Higher-strike call buyers make money if Wells Fargo’s shares exceed $40.40 by expiration day in six months time. Options implied volatility on WFC is down 15.8% to 24.28% as of 12:55 pm ET, following earnings.
CACI International, Inc. (CACI) – The provider of professional services and information technology solutions received a long-term vote of confidence by one investor expecting CACI’s shares to blow the roof off the current 52-week high on the stock by expiration in December. CACI International’s shares are currently up 1% to $50.00 as of 1:00 pm ET. The bullish player purchased approximately 7,000 call options at the December $57.5 strike for an average premium of $1.55 per contract. Profits accumulate for the call-buyer if CACI’s shares jump 18.1% over the current price to surpass the average breakeven point on the calls at $59.05 ahead of expiration day in December. We note that shares of the underlying stock last traded above $59.05 on December 15, 2006, when the stock reached an intraday low of $59.11 each. The current 52-week high of $52.92 on CACI was attained back on March 17, 2010.
Williams-Sonoma, Inc. (WSM) – Unconfirmed takeover rumors swirling about the specialty retailer of home goods fanned the fire under Williams-Sonoma’s shares this morning, sending the stock up as much as 8.2% in early morning trading to a new 52-week high of $31.20. Options players looking to benefit from near-term share price appreciation piled into call options in the May contract. Investors picked up 3,600 now in-the-money calls at the May $30 strike for an average premium of $1.25 apiece. Early-morning movers make money if shares of the underlying stock rally above the average breakeven point on the calls at $31.25 ahead of May expiration day. Call-buyers could decide to bank intraday gains by selling the contracts because of the more than 160% increase in premium on the May $30 strike calls, which now tote an asking price of $1.85 each. Buying interest spread to the higher May $35 strike where bullish players purchased more than 4,200 call options for an average premium of $0.19 apiece. Premium on the higher strike call contracts has risen 500% during the session, and late-comers to the feeding frenzy must now shell out $0.34 in premium to purchase the May $35 strike calls. Takeover chatter and increased demand for options on Williams-Sonoma boosted the stock’s overall reading of options implied volatility 12.6% to 39.40% as of 11:00 am ET.
Citrix Systems, Inc. (CTXS) – Near-term put options are in demand this morning as investors await Citrix Systems’ first-quarter earnings report scheduled for release after the closing bell this afternoon. Shares of the provider of virtualization, networking and cloud computing solutions are currently trading 0.15% higher on the day at $49.52, which is a scant $0.06 below the current 52-week high on the stock of $49.58, attained during Tuesday’s trading session. Investors hedging against an earnings disappointment picked up 3,800 put options at the May $45 strike for an average premium of $0.60 apiece. Put buyers are perhaps building up relatively cheap downside protection on long underlying stock positions in case Citrix Systems’ first-quarter report fails to impress. Alternatively, buying interest in the put options may be outright bearish bets that Citrix shares will decline following earnings. In this scenario, investors long the put options make money if shares plummet more than 10.33% to breach the average breakeven price of $44.40 by May expiration.
Fifth Third Bancorp. (FITB) – Shares of the bank holding company rallied 2.5% to a new 52-week high of $15.17 this morning after the firm’s CEO and chairman, Kevin Kabat, told shareholders at FITB’s annual meeting that the company is “positioned to emerge as one of the best-performing regional banks.” Options investors reacted to the positive statement by picking up call options on the stock. More than 3,100 calls were scooped up at the May $16 strike for an average premium of $0.57 per contract. Investors long the calls make money if Fifth Third’s shares increase 9.2% over the current price to surpass the effective breakeven point to the upside at $16.57 by May expiration. Options implied volatility on Fifth Third Bancorp is up 11.7% to 46.16% as of 11:25 am ET.