Monday Options Brief: TEVA, HAL, CTAS, WAG & CVS

|
Includes: CTAS, CVS, HAL, TEVA, WBA
by: Interactive Brokers

Teva Pharmaceutical Industries Ltd. (NASDAQ:TEVA)Long-term bearish options activity ensued as shares of Israel-based generic drug company, Teva Pharmaceutical Industries Ltd., slipped 1.95% lower to $52.27 in the first half of the trading day. One pessimistic options strategist purchased a bearish put butterfly spread in the January 2011 contract to brace for continued erosion in the price of the underlying stock. Perhaps expecting Teva’s shares to fall down around the current 52-week low of $45.46, the investor purchased 2,000 puts at the January 2011 $50 strike for an average premium of $3.83 apiece [wing 1] and picked up 2,000 puts at the lower January 2011 $40 strike for an average premium of $1.18 each [wing 2]. The trader sold 4,000 puts at the central January 2011 $45 strike to receive an average premium of $2.13 a-pop to establish the body of the butterfly spread. The net cost of the transaction amounts to an average premium of just $0.75 per contract. The trade positions the investor to accrue maximum potential profits of $4.25 per contract should TEVA’s shares plummet 13.90% from the current price of $52.27 to settle at $45.00 at expiration in January. The trader starts to make money as long as shares decline 5.77% to breach the upper breakeven point at $49.25. The investor is well positioned to profit from bearish movement in the price of Teva’s shares, but may only ever lose the $0.75 per contract in premium paid to establish the spread.

Halliburton Co. (NYSE:HAL)Optimistic options investors established long-term bullish stances on Halliburton today to position for a significant recovery in the price of the oil services firm’s shares by next January. Halliburton’s shares rallied 2.35% to stand at $23.65 as of 12:35 pm (NYSE:ET). One strategist purchased a plain-vanilla debit call spread to prepare for continued bullish movement in the price of the underlying stock. The trader picked up 3,600 calls at the January 2011 $27 strike for a premium of $2.15 each and sold the same number of calls at the higher January 2011 $32 strike for $0.87 in premium apiece. Net premium paid for the call spread amounts to $1.28 per contract. The investor loses the full amount of premium paid to purchase the trade if Halliburton’s shares fail to rally above $27.00 by expiration. Shares must surge nearly 19.6% over the current price of $23.65 in order for the trader to breakeven on the transaction at $28.28. The investor long the spread is prepared to amass maximum potential profits of $3.72 per contract if shares of the oil services provider soar 35.3% higher to surpass $32.00 by expiration day in January 2011.

Cintas Corp. (NASDAQ:CTAS) The provider of specialized support services for businesses throughout North America appeared on our ‘hot by options volume’ market scanner in the first half of the trading session after one investor initiated a bullish stance on the stock. Cintas’ shares are currently trading slightly lower by 0.08% to $24.99 as of 12:30 pm (ET). The optimistic options player sold short at least 12,000 puts at the July $22.5 strike to pocket an average premium of $0.20 per contract. The full premium is safe in the investor’s wallet as long as Cintas’ share price remains greater than $22.50 through July expiration day. The trader is apparently willing to have shares of the underlying stock put to him at an effective price of $22.30 each should the puts land in-the-money at expiration. But, Cintas’ shares would need to fall more than 10.75% from the current price of $24.99 before the put seller starts to incur losses beneath a share price of $22.30.

Walgreen Co. (WAG) The largest drugstore chain in the U.S. enticed bullish options strategists to the arena today, despite the 1.6% decline in the value of its shares to $30.35 as of 12:22 pm (ET), after the firm said it will no longer participate in new prescription-drug plans awarded to CVS Caremark Corp.’s pharmacy-benefit manager. Investors touting the view that Walgreen’s shares are not likely to decline much further ahead of July expiration sold 8,400 puts short at the July $29 strike to take in an average premium of $0.72 per contract today. Put sellers keep the full premium received on the transaction as long as Walgreen’s share price exceeds $29.00 through July expiration. Investors short the puts are apparently happy to have shares of the underlying stock put to them at an effective price of $28.28 each in the event that the puts land in-the-money at expiration.

CVS Caremark Corp. (NYSE:CVS)Shares of the pharmacy services company plummeted 12.35% to touch an intraday low of $29.62 on news Walgreen Co., the largest drugstore chain in the U.S., will no longer participate in new prescription-drug plans awarded to CVS’s pharmacy-benefit manager. CVS Caremark Corp.’s shares recovered significantly by midday but are still trading 5.5% lower on the day at $31.90 just before 12:15 pm (ET). Bearish options investors reacted to the news by selling near-term call options on the stock. Pessimistic players not expecting CVS Caremark’s shares to recover anytime soon shed 1,300 calls at the June $33 strike to take in an average premium of $0.26 apiece. Call selling continued at the lower June $32 strike where 1,500 contracts were sold at an average premium of $0.41 each. Investors keep the full premium received on the sale of the call options at both strikes so long as the price of the underlying stock fails to exceed $32/$33 through June expiration day. The overall reading of options implied volatility on CVS Caremark Corp. is up 20% to 34.81% as of 12:20 pm (ET).