Wednesday Options Brief: WFR, DISCA & HIG

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Includes: DISCA, HIG, SUNEQ
by: Interactive Brokers

MEMC Electronic Materials Inc. (WFR)Investors piled into near-term in- and out-of-the-money call options on the maker of solar wafers in the first hours of the trading session as shares rallied 4.7% to touch an intraday high of $11.08. Shares tapered off slightly in morning trading to stand 3.5% higher on the day at $10.95 just before 10:45 am (NYSE:ET). Call coveters picked up 1,200 deep in-the-money contracts at the June $9.0 strike for an average premium of $1.88 each, thus establishing an average breakeven price of $10.88. Buying interest spread to the higher June $11 strike where at least 2,700 calls were purchased at an average premium of $0.58 apiece. Investors long the June $11 strike calls make money as long as WFR’s shares rally another 5.75% over the current price of $10.95 to exceed the average breakeven point to the upside at $11.58 by June expiration day. Finally, bulls bought approximately 3,800 call options at the June $12 strike by shelling out an average premium of $0.27 per contract. MEMC Electronic Materials’ shares must add 12.05% ahead of June expiration in order for higher-strike call purchasers to make money above the average breakeven price of $12.27. The demand for call options on the stock lifted WFR’s overall reading of options implied volatility 6.7% to 68.83% as of 10:50 am (ET).

Discovery Communications, Inc. (NASDAQ:DISCA)The global media and entertainment company popped onto our ‘most active by options volume’ market scanner in morning trading after one investor appears to have closed out a substantial long put position in the July contract. Perhaps the 1.80% increase in the price of DISCA’s shares to $37.75 today inspired the trader to close out the large bearish stance. It looks like the investor originally purchased at least 21,000 puts at the July $35 strike for an average premium of $1.25 apiece back on April 23, 2010, when shares of the stock were trading at a volume-weighted average price of $37.01. Today it seems the options player sold 21,000 puts at the July $35 strike for an approximate premium of $1.07 apiece. We do not at this time know whether the original put transaction was tied to stock. But, the closing out of the put position does hint at a bullish change-of-heart for the responsible party. In isolation, the net loss incurred on the sale of the puts roughly amounts to $0.18 per contract.

Hartford Financial Services Group, Inc. (NYSE:HIG)Bullish options investors picked up out-of-the-money call options on the insurance and financial services firm this morning with shares of the underlying stock trading 1.65% higher to stand at $24.83 as of 10:35 am (ET). It looks like HIG-optimists anticipating continued share price appreciation through expiration this month purchased 1,900 calls at the June $26 strike for an average premium of $0.66 apiece. Investors long the calls make money if HIG’s share price rises 7.4% to surpass the average breakeven price of $26.66 by expiration day. Bulls also populated the higher June $27 strike to purchase 1,400 calls for average premium of $0.39 per contract. Shares of the underlying stock must surge 10.3% over the current share price and exceed the average breakeven point on the calls at $27.39 before higher-strike call buyers start to accrue profits. We note current call open interest levels at both strikes exceed current trading volume. This could mean investors are closing out short call stances rather than establishing fresh bullish positions.