Seeking Alpha
Profile| Send Message|
( followers)  

MGM Resorts International (NYSE:MGM) – The operator of casino resorts attracted bullish options players this afternoon with the price of the underlying stock rallying as much as 3.65% to an intraday high of $11.36. It looks like investors expecting shares to continue higher ahead of August expiration purchased call options. The most optimistic of individuals picked up approximately 5,200 calls at the August $13 strike for an average premium of $0.21 each. Call buyers at this strike make money if MGM’s shares surge 16.3% to trade above the average breakeven price on the upside at $13.21 by expiration day next month. Other bullish traders who are perhaps hoping shares can retain the present rally, but not looking for shares to move much higher ahead of expiration in August, sold 3,000 puts at the August $10 strike for an average premium of $0.37 each. If investors are selling these puts outright, they walk away with the full premium received on the transaction as long as MGM’s shares exceed $10.00 through expiration day. Investors populating MGM Resorts International today exchanged more than 2.2 call options for each single put option in play on the stock as of 3:45 pm ET. MGM is scheduled to report its second-quarter results ahead of the opening bell of August 3, 2010.

iShares Silver Trust ETF (NYSEARCA:SLV) – Shares of the iShares Silver Trust fell more than 2.90% to $17.26 in late afternoon trading inspiring some traders to load up on put options. Fresh put activity was most heavily concentrated in the September contract where current put volume at in- and out-of-the-money strikes exceeds previously existing open interest. Investors bracing for further bearish movement in the price of the SLV’s shares purchased 1,900 in-the-money puts at the September $18 strike for an average premium of $1.17 apiece. In-the-money put buyers are prepared to profit should shares of the fund decline another 2.5% to slip beneath the average breakeven point on the downside at $16.83 by September expiration. Put volume was heaviest at the September $16 strike where more than 16,700 contracts changed hands by 3:25 pm ET. It looks like investors purchased at least 14,400 of those lots for an average premium of $0.29 each. Shares of the fund must fall 9.00% from the current price before September $16 strike put buyers breakeven at a share price of $15.71. Finally, pessimists purchased roughly 2,000 put options at the lower September $15 strike for an average premium of $0.12 a-pop. Profits are available to investors long the lower-strike contracts if the SLV’s shares plunge 13.8% to trade below the average breakeven price of $14.88 by expiration day. Options implied volatility on the SLV is up 5.4% to 27.03% as of 3:30 pm ET.

CNinsure, Inc. (NASDAQ:CISG) – Bearish investors dominated options trading activity on the insurance intermediary engaged in marketing and selling insurance products in China. CNinsure’s shares fell as much as 5.1% this afternoon, touching down at an intraday low of $23.04, and are currently down 3.90% on the day to stand at $23.25 as of 3:10 pm ET. Pessimistic players expecting CISG’s shares to continue to decline in the next couple of months purchased put options in the September and October contracts. Traders picked up approximately 4,500 puts at the September $20 strike for an average premium of $0.75 apiece. Investors long the puts are positioned to profit should CNinsure’s shares plunge 17.2% from the current price of $23.25 to breach the average breakeven price to the downside at $19.25 by September expiration. Bearish sentiment spread to the October $20 strike where some 2,200 put options were purchased at an average premium of $1.25 a-pop. Put buyers at this strike make money as long as the price of the underlying stock plummets 19.35% from the current price to trade beneath the average breakeven point on the puts at $18.75 by October expiration. The demand for put options on CNinsure today helped lift the overall reading of options implied volatility on the stock 25.7% to 49.70% by 3:20 pm ET.

Genzyme Corp. (GENZ) – Shares of the world’s largest maker of drugs for rare genetic diseases are down slightly by 0.35% to arrive at $67.16 as of 11:55 am ET after earlier rallying 1.25% to briefly touch a new 52-week high of $68.23. This marks a 27.7% increase in its share price since the end of last week, a rally fueled by mounting speculation the firm might be taken over by a larger company, namely, Sanofi-Aventis. One cautious options strategist initiated a three-legged spread in order to build-up downside protection through January 2011 expiration just in case shares surrender recent gains. It looks like the trader sold out-of-the-money call options to partially offset the cost of buying a debit put spread. The investor sold 7,000 calls at the October $75 strike for a premium of $1.60 each, purchased 7,000 puts at the January 2011 $65 strike for a premium of $4.80 apiece, and sold 7,000 puts at the lower January 2011 $50 strike for a premium of $1.10 a-pop. The net cost of the transaction amounts to $2.10 per contract. The trader responsible for the spread may be hedging a large underlying stock position. In this scenario, the investor is willing to have the shares called from him at October expiration should the price of the underlying stock exceed $75.00. Genzyme’s shares could top $75.00 if the biotechnology firm is ultimately purchased by another company for more than that amount in the next several months. But, the value of the underlying position is partly protected through expiration in January 2011 if it’s the case that no takeover occurs and shares either stagnate or head south. Downside protection kicks in should Genzyme’s shares fall 6.3% from the current price of $67.16 to breach the effective breakeven point on the put spread at $62.90 ahead of expiration day in January.

Xerox Corp. (NYSE:XRX) – It looks like one optimistic individual enacted a large-volume bullish risk reversal on the largest maker of high-speed color printers today in order to position for appreciation in the price of the underlying shares through September expiration. Xerox’s shares are currently up 0.50% at $9.58 just before 12:40 pm ET. The bullish player appears to have sold 15,000 puts at the September $9.0 strike for a premium of $0.25 apiece in order to purchase the same number of call options at the higher September $10 strike for a premium of $0.35 each. The net cost of the spread amounts to $0.10 per contract. Thus, the trader responsible for the transaction makes money as long as XRX shares increase another 5.4% to surpass the effective breakeven price of $10.10 ahead of expiration day in September.

Juniper Networks, Inc. (NYSE:JNPR) – Shares of the provider of switches and routers slipped 2.50% to $28.13 this morning, inspiring one wary options investor to brace for continued share price erosion through October expiration. The bearish player looked to the October contract and purchased a plain-vanilla debit put spread, buying 5,950 puts at the October $28 strike for an average premium of $1.43 each, and selling the same number of puts at the lower October $25 strike for an average premium of $0.54 apiece. The net cost of the transaction amounts to $0.89 per contract, thus positioning the investor to make money should Juniper’s shares fall another 3.6% to breach the average breakeven price on the spread at $27.11 by expiration day. Maximum potential profits of $2.11 per contract are available to the put player if JNPR’s shares plunge 11.1% to trade below $25.00 by October expiration. Juniper Networks’ shares traded below $25.00 as recently as July 8, 2010. The price of the underlying shares rebounded sharply during the month of July, rallying 30.33% from a 52-week low of $22.25 on July 1 to an intraday high of $29.00 during the current session. Perhaps the put spreader populating the stock today expects JNPR’s shares to surrender a significant portion of the month’s rally ahead of expiration.

EI Du Pont de Nemours & Co. (NYSE:DD) – Call options on the third-largest U.S. chemical maker are in high demand this morning with shares of the underlying stock increasing more than 5.5% to secure a new 52-week high of $41.14. DuPont’s shares surged at the start of the session after the firm raised its full-year earnings estimate and posted better-than-expected second-quarter profits of $1.17 a share, which topped average analyst forecasts of $0.94 a share. Near-term bulls itching for continued upward momentum in DD’s shares purchased approximately 2,100 calls at the August $41 strike for an average premium of $0.71 per contract. Call buyers stand ready to accumulate profits as long as the chemical manufacturer’s shares rally 1.4% over the new 52-week high of $41.14 and trade above the average breakeven price of $41.71 by expiration day in August. Options implied volatility on the stock declined 6.5% to 25.51% by 12:30 pm ET following earnings.

Source: Tuesday Options Update: MGM, SLV, CISG, GENZ, XRX, JNPR, DD