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Bank of America Corp. (BAC) – Activity in out-of-the-money call options on Bank of America in the first half of the trading session appears to be the work of an investor taking profits on the closing purchase of a previously established bearish short call position. BAC’s shares surrendered 1.85% today to stand at $15.88 as of 2:45 pm ET. It looks like the investor originally sold 20,500 calls at the November $24 strike for an average premium of $0.37 per contract back on April 28, 2010, when shares of the underlying stock were trading at a volume-weighted average price of $17.73 each. In the past four weeks since the initial sale of the calls, Bank of America’s shares declined 12.12% down to the current price of $15.88. The call seller was properly positioned to benefit from share price erosion, and today was able to buy back the same call options for just $0.10 apiece. Thus, the closing purchase of the calls yields net profits of $0.27 per contract to the responsible party.

CurrencyShares Japanese Yen Index Fund (FXY) – A sizeable debit call spread enacted on the FXY, an exchange-traded fund designed to reflect the price of the Japanese Yen, indicates one options strategist is expecting shares of the underlying fund to rally sharply by expiration in January 2011. Shares of the fund are currently up 0.18% at $109.14 as of 1:52 pm ET. The investor purchased 8,709 calls at the January 2011 $110 strike for a premium of $4.40 apiece, and sold the same number of calls at the higher January 2011 $125 strike for $1.00 in premium each. The net cost of the transaction amounts to $3.40 per contract, thus dictating a breakeven price – above which profits start to accumulate – of $113.40. Shares of the FXY must rally at least 3.90% from the current value of $109.14 before the responsible party starts to make money. Maximum potential profits of $11.60 per contract are available to the spread trader if shares jump 14.53% from the current value of the fund to $125.00 in the next eight months to expiration. It does not appear the fund’s share price has ever exceeded the current 52-week high of $115.40, attained back on November 30, 2009.

Vale S.A. (VALE) – Shares of the world’s largest iron-ore producer are lower by 1.80% to $27.05 in late-afternoon trading, but optimistic options traders expecting rosier circumstances by next year looked ahead to the January 2011 contract to establish bullish stances on the stock. Perhaps optimism on Vale was inspired by Banco BTG Pactual SA’s upgrade of the firm to ‘buy’ from ‘neutral’ on sentiment iron-ore prices could double in the second quarter versus the fourth quarter. It looks like investors purchased roughly 7,000 calls at the January 2011 $40 strike for an average premium of $0.47 per contract. Call buyers make money if, by expiration, shares of the iron-ore producer are up 49.6% to exceed the average breakeven price of $40.47. Investors may also turn a profit even if shares do not exceed $40.47 because lesser rallies in Vale’s value per share may boost premium on the January 2011 $40 strike calls to a facilitate a profitable closing sale of the contracts ahead of expiration.

ATP Oil & Gas Corp. (ATPG) – Bearish trading in ATPG options is no surprise given the 9.05% decline in the price of the underlying shares to $10.96 this afternoon. Pessimistic players are out-and-about, targeting stocks engaged in the acquisition, development and production of oil and natural gas in the Gulf of Mexico, as President Obama’s six month moratorium on new offshore drilling and promises of tighter restrictions on the industry weigh heavily on the sector. Bears bracing for continued share price erosion for ATPG purchased at least 2,900 put options at the June $9.0 strike for an average premium of $0.36 apiece. Put buyers at this strike price make money if shares decline another 21.15% to breach the average breakeven price of $8.64 by expiration day next month. Long-term pessimists purchased a minimum of 8,000 puts at the January 2011 $5.0 strike for an average premium of $0.63 per contract. Investors long the puts are prepared to profit if shares of the oil and gas exploration company more than halve by expiration. ATPG’s shares must plummet 60.1% from the current value of $10.96 to break through the average breakeven point to the downside at $4.37 by expiration in January 2011. Investors also utilized call options to get bearish on ATPG. It looks like some traders shed roughly 4,000 calls at the June $12.5 strike to receive an average premium of $0.50 per contract. Call-sellers keep the full premium pocketed on the trade as long as shares do not exceed $12.50 ahead of June expiration. Options implied volatility on the stock is up 13.5% to 104.05% just before 12:40 pm ET.

Caterpillar, Inc. (CAT) – The machinery manufacturer’s shares are down 1.25% to $61.28 as of 12:15 pm ET, but one hopeful options trader opted to initiate a contrarian bullish strategy on the stock. The investor enacted a credit put spread in the July contract, which yields maximum benefits as long as Caterpillar’s shares trade above $57.50 through expiration. The trader sold 2,600 puts at the July $57.5 strike for a premium of $1.98 each, and purchased 2,600 puts at the lower July $50 strike for $0.72 apiece. The net credit received on the spread amounts to $1.26 per contract. The investor pockets the net credit in exchange for bearing the risk that shares decline sharply in the next couple of months. Losses start to accumulate on the trade if CAT’s shares fall 8.22% to breach the effective breakeven price of $56.24. The width of the spread, and the amount of premium received, dictate maximum potential losses of $6.24 per contract should shares of the underlying stock plummet 18.40% from the current price of $61.28 to break through the $50.00-level by July expiration. Risk assumed by the investor responsible for the trade outweighs potential benefits by a factor of 4.95-to-1.

eBay, Inc. (EBAY) – Shares of the provider of online marketplaces are lower by 2.20% today to stand at $21.43. News reports reveal the firm signed an agreement with China Post Group and the U.S. Postal Service to nurture e-commerce between the two nations. One optimistic options trader initiated a bullish risk reversal on EBAY in the October contract. It looks like the investor sold 6,500 put options at the October $19 strike for a premium of $1.01 apiece in order to purchase the same number of calls at the higher October $26 strike for a premium of $0.55 each. The risk reversal player pockets a net credit of $0.46 per contract, and keeps the full credit received if shares of the underlying stock exceed $19.00 through October expiration. Additional profits are available to the investor if EBAY’s shares surge more than 21.3% over the current price to exceed $26.00 ahead of expiration day. Shares last traded above $26.00 back on April 21, 2010, when the stock touched an intraday high of $26.58.

Cisco Systems, Inc. (CSCO) – The implementation of a plain vanilla debit put spread on the maker of switches and routers today suggests one options strategist is bracing for continued erosion in the price of the underlying stock through July expiration. Cisco’s shares dipped 1.90% to $23.22 just ahead of 12:00 pm ET. The pessimistic player appears to have purchased 11,000 puts at the July $23 strike for a premium of $0.88 apiece, and sold the same number of puts at the lower July $20 strike for a premium of $0.25 each. Net premium paid for the transaction amounts to $0.63 per contract. The bearish investor makes money if Cisco’s shares decline another 3.66% to breach the effective breakeven point on the spread at $22.37 by expiration. Maximum potential profits of $2.37 per contract are available to the trader should shares fall 13.9% from the current price of $23.22 to break through the lower strike price of $20.00 by expiration day in July.

King Pharmaceuticals, Inc. (KG)Investors are hungry for call options this morning with shares of the pharmaceutical company engaged in the development and sale of prescription pharmaceutical and animal health products trading 3.30% higher at $8.75 as of 10:40 am (ET). Bullish options players expecting King Pharmaceuticals’ shares to continue to rally purchased at least 2,900 calls at the June $10 strike for an average premium of $0.19 per contract. Investors long the calls make money if shares of the underlying stock surge 16.45% to exceed the average breakeven price of $10.19 by June expiration. The jump in investor demand for option contracts on KG boosted the overall reading of options implied volatility on the stock a whopping 65.2% to 66.98% as of 10:42 am (ET). Options traders exchanged 8,597 contracts on the pharmaceuticals firm within the first 90 minutes of the trading day versus total existing open interest on the stock of 18,824 contracts.

Noble Corp. (NE) Options investors established bullish positions on the provider of offshore contract drilling services this morning despite the 6.35% decline in the price of the underlying shares to $28.16. Noble’s shares fell sharply following President Barack Obama’s announcement on Thursday there is to be a six month moratorium on new offshore drilling. Contrarian players took advantage of richer put premium available today by selling short roughly 2,700 put options at the December $22.5 strike to take in an average premium of $1.475 per contract. Put sellers keep the full premium received as long as Noble’s shares exceed $22.50 through expiration day in December. Investors short the puts are apparently happy to have shares of the underlying stock put to them at an average price of $21.025 apiece should the put options land in-the-money at expiration. Shares must plummet 20% from the current price of $28.16 to dip beneath the $22.50 strike price, and must decline roughly 25.33% from the current price before put sellers face losses beneath the breakeven price of $21.025.

Allergan, Inc. (AGN)Shares of the health care company engaged in developing and commercializing pharmaceuticals, biologics and medical devices increased 1.80% in morning trading to stand at $60.71 just ahead of 11:00 am (ET). Bullish investors positioning for additional share price appreciation by expiration next month picked up at least 1,200 calls at the June $65 strike for an average premium of $0.41 per contract. Call buyers are prepared to profit should Allergan’s shares jump 7.75% over the current value of $60.71 to surpass the average breakeven price of $65.41 by June expiration.

Source: Friday Options Update: BAC, FXY, VALE, ATPG, CAT, EBAY, CSCO, KG, NE, AGN