Fortress Investment Group, LLC (FIG) – The asset management firm popped up on our ‘hot by options volume’ market scanner in the first half of the trading session after one investor enacted a large-volume bullish transaction in the January 2012 contract. FIG’s shares rallied nearly 1.5% to $4.15 just before 12:25 pm ET. The trader appears to have essentially financed the purchase of in-the-money calls by selling a straddle. It looks like the investor purchased 12,300 deep in-the-money calls at the January 2012 $2.5 strike at a premium of $2.20 each, sold 12,300 calls at the higher January 2012 $5.0 strike for a premium of $0.75 apiece, and shed 12,300 in-the-money puts at the January 2012 $5.0 strike for a premium of $1.50 each. The spread yields a net credit of $0.05 per contract to the investor. The trade positions the responsible party to amass maximum potential profits of $2.55 per contract – including the net credit of $0.05 received on the transaction – as long as Fortress Investment Group’s shares rally 20.5% over the current price of $4.15 to exceed $5.00 by expiration day in 2012.
China Yuchai International, Ltd. (CYD) – A three-legged bearish options combination play on the holding company with a controlling interest in Yuchai, a Chinese diesel engine manufacturer, indicates one strategist is bracing for share price erosion through September expiration. The price of the underlying stock slipped 0.45% to $18.74 by 12:00 pm ET. It looks like the investor responsible for the transaction sold 6,350 calls at the September $20 strike at a premium of $0.60 each, purchased the same number of puts at the September $17.5 strike for a premium of $0.85 apiece, and sold 6,350 puts at the lower September $15 strike at a premium of $0.15 a-pop. The net cost of buying the combo trade amounts to $0.10 per contract. Thus, the investor is prepared to either make money or protect the value of a position in the underlying shares, should he hold one, if CYD’s shares fall another 7.15% from the current price of $18.74 to breach the effective breakeven point at $17.40 by September expiration. If this transaction represents an outright bearish bet rather than a protective play the trader is prepared to amass maximum potential profits of $2.40 per contract as long as shares plunge 19.95% to trade below $15.00 by expiration day next month. The short position in calls exposes the trader to potentially unlimited losses, assuming no offsetting long stock position is held, if CYD’s shares fly upward. Losses in this scenario start to accumulate if shares exceed $20.00 ahead of expiration day.
Crocs, Inc. (CROX) – Shares of the designer and manufacturer of footwear for persons of all ages increased as much as 11.3% at the start of the trading session to touch an intraday- and new 52-week high of $14.00. The producer of plastic clogs forecast third-quarter net income of $0.22 a share, which exceeds average analyst estimates of $0.15 a share, helping shares of the underlying stock higher. Crocs’ shares have come off the boil a bit, however, and are currently up 5.00% on the day at $13.21 as of 11:20 am ET. The firm posted second-quarter earnings of $0.37 a share after the closing bell yesterday, which was substantially higher than the average consensus view for its earnings of $0.22 a share. Some options traders initiated near-term bullish bets on the shoe maker by buying calls and selling puts in the August contract. It looks like investors sold approximately 1,000 put options at the August $12 strike for an average premium of $0.14 each. These puts may have originally been purchased to hedge an earnings disappointment. Bulls hoping shares will continue to appreciate picked up about 1,000 now in-the-money calls at the August $13 strike for an average premium of $0.72 a-pop. Call buyers make money if CROX shares trade above the average breakeven price of $13.72 through August expiration. Finally, it looks like other investors expect Crocs’ shares to go no higher than $14.00 by expiration day. Roughly 1,500 calls were sold at the August $14 strike for an average premium of $0.25 apiece. Traders could be closing out previously established long call positions, or may be selling into the rally to pocket inflated premium on out-of-the-money calls. If the latter is true, call sellers keep the full $0.25 premium per contract as long as the price of the underlying stock fails to rally above $14.00 at expiration. Post-earnings the overall reading of options implied volatility on CROX plunged 28.1% to 52.26% as of 11:30 am ET.
Nuance Communications, Inc. (NUAN) – Near-term call options on the software company are active today with the release of the firm’s second-quarter earnings close at hand. Nuance’s shares declined 1.90% by 12:35 pm ET to stand at $17.10. Investors appear to be both buying and selling out-of-the-money calls today in order to prepare for the earnings report after the market closes on Monday August 9, 2010. Some traders appear to be making bullish bets, buying approximately 2,200 August $17.5 strike calls at an average premium of $0.53 each. Call buyers make money if NUAN’s shares rally 5.4% over the current price of $17.10 to trade above the average breakeven point on the upside at $18.03 by August expiration day. Other investors sold 2,200 calls at the same August $17.5 strike for an average premium of $0.53 each. Call sellers keep the premium received on the sale of the calls as long as Nuance Communications’ shares fail to exceed $18.00 by expiration. NUAN’s shares last traded above $18.00 back on May 5, 2010.