Ford Motor Co. (F) – A massive bullish transaction employing 300,000 call options launched the automaker to the top of our ‘most active by options volume’ market scanner before 11:00 am ET this morning. Ford’s shares are currently up 1.80% to stand at $10.80 as of 12:05 pm ET. The options strategist responsible for the enormous three-legged spread known as a call tree appears to be positioning for Ford’s shares to rally significantly ahead of expiration day in September. The investor purchased 150,000 calls at the September $12 strike for a premium of $0.41 apiece, sold 75,000 calls at the September $14 strike at a premium of $0.09 each, and sold 75,000 calls at the higher September $15 strike for a premium of $0.05 a-pop. Net premium paid to establish the transaction amounts to $0.27 per contract, which brings the total price tag on the trade up to $4.05 million. The bullish investor starts to make money as long as Ford’s shares rally 13.6% over the current price of $10.80 to surpass the effective breakeven price to the upside at $12.27 by expiration day. The trader is poised to amass maximum potential profits of $2.23 per contract or total gains of $33.45 million if Ford’s shares trade at any price above $15.00 by expiration day in September. The sale of 75,000 calls at both the September $14 and $15 strikes implies the trader makes money on a 1-to-1 basis if shares rally above $12.00 and continue up to $14.00, but if shares rally above $14.00, profits amass on a position that is half the size of the original due to the short stance taken at the September $14 strike. Essentially the call tree was purchased by an investor expecting Ford’s shares to heat up in the next couple of months. If the stock fails to rally above $12.00 by expiration, however, the investor will lose the full $0.27 premium per contract paid to purchase the enormous trade.
Vivus, Inc. (VVUS) – A three-legged options combination play on biopharmaceutical company, Vivus, Inc., appears to be the work of an investor building up downside protection on the stock in case the firm’s obesity drug, Qnexa, fails to garner support from the advisory committee to the Food & Drug Administration during their meeting scheduled for July 15. Vivus’ shares have had a terrific run up this week having rallied 27.66% from an intraday low of $9.47 on Tuesday up to today’s high of $12.09. VVUS shares are currently up 1.11% on the day to arrive at $11.82 just before 12:30 pm ET. One savvy options investor opted to sell out-of-the-money call options in the July contract in order to partially finance the purchase of a debit put spread. The transaction is a smart trade particularly if the advisory committee does not advise the FDA to approve Qnexa because Vivus’ shares will likely plummet on such news. The investor purchase 2,500 puts at the July $9.0 strike for a premium of $2.05 each, sold 2,500 puts at the lower July $7.0 strike for a premium of $1.10 apiece, and sold 2,500 calls at the July $20 strike for a premium of $0.35 a-pop. Net premium paid to enact the transaction is reduced to just $0.60 per contract. It seems likely the trader is long shares of the underlying stock. If this is the case, the investor is protected in case shares plunge 28.9% from the current price to breach the average breakeven point on the puts at $8.40 by expiration day. July contract options expire the day after the advisory committee is set to assemble. Additionally, the sale of the calls not only reduces the price paid to purchase downside protection, but also yields an effective exit strategy for the trader should shares of the underlying stock surge 69.2% to exceed $20.00 by July expiration. Vivus’ shares are likely to rally hard and fast if Qnexa scores well with the advisory committee next week. Options traders exchanged more than 49,000 contracts on Vivus, Inc. by 12:40 pm (ET). Vivus was rated new ‘outperform’ with a 12-month target price of $20.00 at Wedbush yesterday.
Wendy’s/Arby’s Group, Inc. (WEN) – The owner and franchisor of Wendy’s and Arby’s restaurants popped up on our ‘hot by options volume’ market scanner due to bullish activity in the November contract. WEN’s shares climbed more than 5.3% during the first half of the day to trade at $4.16. Options traders hungry for continued bullish movement in the price of the underlying stock purchased 2,000 calls at the November $5.0 strike for an average premium of $0.30 per contract. Investors long the calls are positioned to profit should WEN’s shares surge 27.4% in the next four months to surpass the average breakeven price of $5.30 by November expiration day.
Altera Corp. (ALTR) – Shares of the global semiconductor company rallied 2.00% to $27.39 in the first half of the trading session inspiring investor demand for call options on the stock. Bullish players expecting Altera’s shares to continue to appreciate and attain a new 52-week high by August expiration scooped up roughly 7,500 calls at the August $28 strike for an average premium of $0.85 per contract. Call buyers make money if shares of the underlying stock surge 5.33% over the current price to trade above the average breakeven point at $28.85 by expiration day next month. The current 52-week high on Altera Corp. is $27.48 attained back on April 21, 2010.