Arena Pharmaceuticals, Inc. (ARNA) – Shares of the clinical-stage biopharmaceutical company shot up 10.7% today to an intraday high of $5.89, inspiring one options strategist to purchase a debit put spread in the October contract. Arena’s shares have increased significantly since an FDA advisory panel said it does not recommend rival Vivus’ (VVUS) obesity drug, Qnexa, receive FDA approval. The bullish options investor prepared for continued upward movement in Arena’s shares by purchasing 3,000 now in-the-money calls at the October $5.0 strike for a premium of $2.45 each, and selling the same number of calls at the higher October $7.0 strike at a premium of $1.45 apiece. The net cost of the transaction amounts to $1.00 per contract. Thus, the trader is prepared to make money should the biopharmaceutical firm’s shares rally 1.85% over the current price of $5.89 to trade above the effective breakeven price of $6.00 by October expiration day. The investor walks away with maximum potential profits of $1.00 per contract if Arena’s shares surge 18.85% to exceed $7.00 by expiration. In the nearer-term September contract, another bullish player opted to sell 2,700 puts at the September $2.0 strike to take in an average premium of $0.30 per contract. The put seller keeps the premium received on the transaction as long as Arena’s shares trade above $2.00 through expiration day in September. Options implied volatility on ARNA is higher by 14.1% to 101.05% as of 2:55 pm (ET).
Arthur J. Gallagher & Co. (AJG) – The international insurance brokerage and risk management services firm appeared on our ‘hot by options volume’ market scanner after call options changed hands in the September contract. AJG’s shares are currently down 0.05% to stands at $25.79 as of 3:00 pm (ET). Investors purchased 1,800 in-the-money calls at the September $25 strike for an average premium of $1.30 apiece. Call buyers are perhaps selecting in-the-money calls because on Thursday the firm declared a regular quarterly cash dividend of $0.32 per share of common stock of the company, payable on October 15, 2010, to shareholders of record as of September 30, 2010. Investors long the calls are entitled to that dividend if they exercise their contracts and take ownership of shares of the underlying stock by September expiration.
Chiquita Brands International, Inc. (CQB) – Call buying on the international marketer and distributor of bananas and fresh produce continues today with shares of the underlying stock trading higher by 3.15% to stand at $13.10 as of 1:20 pm (ET). Bullish traders started to buy November $12.5 strike calls yesterday afternoon as Chiquita’s shares rallied nearly 5.5% to end Thursday afternoon at an intraday high of $12.72. The company’s shares continued their ascension today, inspiring investors to build up bullish stances on the stock ahead of the second-quarter earnings report next Thursday. Investors purchased approximately 3,000 calls at the November $12.5 strike by 1:25 pm (ET) for an average premium of $1.73 apiece. Call buyers make money if Chiquita’s shares increase another 8.6% to surpass the average breakeven point at $14.23 by November expiration. Traders buying the calls on Thursday have a clear first-mover advantage because they paid an average of $1.52 each for the November $12.5 strike calls, which is $0.21 less than today’s call coveters paid for the same contracts. The demand for call options on Chiquita Brands International lifted the overall reading of options implied volatility 4.7% to 56.28% just before 1:30 pm (ET).
Great Atlantic & Pacific Tea Co., Inc. (GAP) – Shares of the operator of supermarkets located in the U.S. are hemorrhaging today after the firm reported an abysmal first-quarter adjusted loss of $4.60 per share, versus average analyst expectations of a loss of $0.70 per share, ahead of the opening bell this morning. GAP’s shares also nosedived on news its CEO, Ron Marshall, left the company. The A&P/Fresh operator’s shares fell as much as 31.8% in the first half of the trading session, crashing straight through its now defunct 52-week low of $3.55, to touch down at an intraday and new 52-week low of $2.68. Bearish options strategists anticipating continued erosion in the price of GAP’s shares purchased approximately 2,450 puts at the January 2011 $2.5 strike for an average premium of $0.55 per contract. Put buyers make money if, by expiration day, shares of the underlying stock plummet 27.2% from today’s low of $2.68 to slip beneath the effective breakeven point to the downside at $1.95. The demand for put options on GAP today helped boost the overall reading of options implied volatility on the stock 9.3% to 88.50% as of 12:20 pm (ET).
Quicksilver Resources Inc. (KWK) – Call options on the energy company are in high demand this morning with shares of the underlying stock rallying as much as 13.5% to an intraday high of $14.47. Shares are currently up 7.05% to stand at $13.65 as of 11:15 am (ET). News that Quicksilver Resources plans to sell its interests in Quicksilver Gas Services for approximately $701 million in cash, among other terms involved in the deal, to repay debt, lifted KWK’s shares after the closing bell on Thursday and continues to fuel today’s rally. Options investors hoping to see continued appreciation in the price of Quicksilver’s shares picked up approximately 2,600 calls at the August $15 strike for an average premium of $0.44 apiece. Call buyers are positioned to make money should shares surge 13.1% over the current price of $13.65 to surpass the average breakeven point to the upside at $15.44 by August expiration day.
McDonald’s Corp. (MCD) – The world’s largest restaurant chain posted a 12% rise in second-quarter net income ahead of the opening bell this morning, recording profits of $1.13 a share, which just came in just above average analyst forecasts of $1.12 a share. Shares of the Big Mac-maker fell, however, slipping 3.00% to $69.26 by 12:30 pm (ET) today. One long-term bullish investor, hungry for a rebound and new 52-week high for the price of the underlying shares, appears to have taken advantage of the slight pullback in share price today by purchasing a plain-vanilla debit call spread in the January 2011 contract. It looks like the trader purchased approximately 1,500 calls at the January 2011 $70 strike for an average premium of $4.17 each, and sold the same number of calls at the higher January 2011 $80 strike for an average premium of $0.67 apiece. Net premium paid to establish the spread amounts to $3.50 per contract. McDonald’s shares must surge 6.1% over the current price of $69.26 in order for the call-spreader to start to make money above the average breakeven price of $73.50 by expiration day next year. Maximum potential profits of $6.50 per contract are available to the trader should shares jump 15.50% to surpass $80.00 by expiration.
Foot Locker, Inc. (FL) – The global retailer of athletic footwear and apparel popped up on our ‘hot by options volume’ market scanner due to bullish activity in September contract call options. Foot Locker’s shares increased 2.5% to $13.99 by 11:55 am (ET). It looks like one optimistic individual is positioning for shares to rally higher by purchasing 1,650 calls at the September $15 strike for a premium of $0.50 a-pop. The investor stands ready to accrue profits should the footwear retailer’s shares surge 10.8% to trade above the effective breakeven price of $15.50 by expiration day in September. Foot Locker’s shares last traded above $15.50 back on May 3, 2010.