BP PLC (BP) – Contrarian options investors itching for a rebound in bruised and battered BP shares initiated three-legged bullish options combination plays today with shares of the underlying stock falling more than 6.15% to $26.97 with less than one hour remaining before the closing bell. BP’s shares touched down at an intraday and 14-year low of $26.92 during the current session. Optimistic traders expecting shares to increase by August expiration sold out-of-the-money put options to partially finance the purchase of debit call spreads. One such bullish individual opted to sell 5,000 puts at the August $20 strike for a premium of $1.41 apiece, buy 5,000 calls at the higher August $30 strike for a premium of $2.37 each, and finally sell 5,000 calls at the August $35 strike for a premium of $0.79 a pop. The net cost of the combo-play amounts to just $0.17 per contract. Thus, the BP-bull is poised to profit if shares of the oil company rally 11.9% over the current price of $26.97 to surpass the effective breakeven point to the upside at $30.17 by August expiration. The trader walks away with maximum potential profits of $4.83 per contract, or total gains of $2.415 million, if shares of the underlying stock surge 29.8% to trade at or above $35.00 by expiration day. The transaction is a very efficient way to take a bullish stance on BP, but it is not without its risks. If shares remain above $20.00 but fail to rally through $30.00 by expiration the investor merely loses the $0.17 per contract paid to enact the spread. However, if shares plunge 25.85% from the current price to breach the $20.00-level, the investor is obliged to have shares of the underlying stock put to him at $20.00 apiece. This could potentially result in devastating losses depending on how low BP shares could go ahead of expiration day in August.
Research in Motion, Ltd. (RIMM) – The Blackberry maker’s shares fell as much as 11.15% today, shattering its now defunct 52-week low of $54.30, to attain an intraday- and new 52-week low of $52.05. Blood-letting in RIMM shares accelerated today adding to dismal overall performance in the past several months. Shares of the underlying stock are down 31.5% since March 29 when the stock touched an intraday high of $76.78. RIMM’s shares took a severe beating today following the release of weaker-than-anticipated first-quarter sales on Thursday. Analysts expecting RIMM to report – on average – sales of $4.4 billion were dismayed to see first-quarter sales of $4.2 billion. Options traders stormed Research in Motion Ltd., exchanging more than 262,000 contracts on the stock by 3:50 pm ET. One bearish investor expecting the price of the underlying stock to continue to decline ahead of August expiration purchased a debit put spread, buying approximately 5,000 now in-the-money puts at the August $52.5 strike at an average premium of $2.99 each, and selling the same number of puts at the lower August $42.5 strike for approximately $0.59 in premium apiece. The net cost of the pessimistic play amounts to $2.40 per contract and prepares the responsible party to profit if shares fall 3.75% from today’s low of $52.05 to breach the average breakeven point on the spread at $50.10 by expiration day. The put spreader stands ready to amass maximum potential profits of $7.60 per contract if Research in Motion’s shares drop another 18.35% to trade at or below $42.50 by August expiration. Options implied volatility on the Blackberry manufacturer collapsed following earnings and currently stands 26.4% lower at 40.62% as of 3:55 pm ET.
Accenture PLC (ACN) – Shares of the global management consulting, technology services and outsourcing firm jumped 8.65% to reach an intraday high of $40.80 in the first half of the trading session and inspired many options investors to shed bearish put contracts and purchase calls on the stock. The second-largest technology consulting company posted third-quarter net income of $0.73 a share after the closing bell on Thursday, which blew right past average analyst estimates of $0.69 per share. Better-than-expected earnings for the third-quarter took the wind out of bears’ sails and prompted traders to sell 2,800 puts at the July $35 strike for a premium of $0.05 per contract. It looks like the July $35 strike puts may have been purchased yesterday for an average premium of $0.40 apiece by investors bracing for Accenture’s shares to fall following third-quarter earnings. But, premium on the puts collapsed with today’s sharp rally in ACN’s shares, and traders ditched the contracts to take in the meager premium left on the table. Optimism spread to the higher July $37.5 strike where roughly 1,400 puts were sold for an average premium of $0.29 apiece. Investors are perhaps selling short puts at the July $37.5 strike, in which case they keep the full $0.29 premium per contract received today as long as Accenture’s shares exceed $37.50 through expiration day. Outright bullish bets that shares will continue to rally ahead of July expiration were initiated at the July $40 strike where some 2,000 now in-the-money calls options were purchased at an average premium of $1.06 a-pop. Investors long the call options are positioned to profit should Accenture’s share price exceed the average breakeven point at $41.06 by expiration day next month. Finally, optimistic players sold short 2,500 puts at the August $35 strike to pocket an average premium of $0.22 per contract. Put sellers at this strike price keep the full premium received on the transaction as long as shares of the underlying stock trade above $35.00 through expiration in August.
Noble Corp. (NE) – Frenzied call buying activity on the offshore drilling contractor this morning suggests some investors are expecting Noble Corp.’s shares to rally ahead of July expiration. Shares are currently up 1.55% to $28.90 as of 11:15 am ET, but earlier increased as much as 4.4% to secure an intraday high of $29.72. Investors are initiating bullish stances on the stock today although Noble was downgraded to ‘underperform’ from ‘outperform’ with a 12-month target share price of $32.00 at Credit Agricole Securities this morning, and yesterday was cut to ‘equal-weight’ from ‘overweight’ with a 12-month target price of $41.00 at Stephens & Co. Optimistic individuals picked up at least 10,100 calls at the July $30 strike for an average premium of $0.97 apiece in order to prepare for continued appreciation in the price of the underlying stock. Investors long the calls are positioned to make money if Noble’s shares rally 7.15% over the current price of $28.90 to trade above the average breakeven point at $30.97 by July expiration. The surge in demand for options on the offshore drilling contractor lifted the overall reading of options implied volatility 11.4% to 50.49% by 11:20 am (ET).
Netgear, Inc. (NTGR) – The maker of networking products for home users and small businesses popped up on our ‘hot by options volume’ market scanner this morning after one bearish player took action in July contract put options. Netgear’s shares fell 0.60% today to stand at $18.89 as of 11:25 am ET, but the price of the underlying is down 34.7% overall since reaching an intraday high of $28.96 on April 26. One options strategist was prepared to benefit from Netgear’s pain, having purchased 1,250 puts at the July $22.5 strike for a premium of $1.85 each back on June 17, he today sold the puts for a richer premium of $3.70 per contract. Net profits enjoyed by the investor amount to $1.85 per contract. The same investor also extended bearish sentiment on Netgear today by purchasing 1,250 fresh in-the-money puts at the lower July $20 strike for a premium of $1.60 each. The put player starts to make money on the new position if Netgear’s shares trade below the effective breakeven price of $18.40 ahead of July expiration day.
Energy Select Sector SPDR (XLE) – Shares of the XLE, an exchange-traded fund designed to provide investment results that correspond to the price and yield performance of the Energy Select Sector of the S&P 500 Index, fell 1.1% at the start of the trading day to an intraday low of $51.77. The fund’s shares clawed their way back up, however, and currently stand 0.10% higher on the day at $52.39 as of 12:25 pm ET. One options investor anticipating bearish movement in the price of the underlying fund purchased a plain-vanilla debit put spread in the first hour of the trading day. The pessimistic player picked up 5,000 puts at the July $52 strike for a premium of $1.45 each, and sold the same number of puts at the lower July $48 strike for a premium of $0.48 apiece. The net cost of the spread amounts to $0.97 per contract. Thus, the investor makes money on the transaction if the XLE’s shares decline 2.6% from the current price of $52.39 to breach the effective breakeven point on the downside at $51.03. The trader pockets maximum potential profits of $3.03 per contract if the fund’s shares fall 8.4% to trade at or below $48.00 by July expiration.