Monday Options Brief: DLTR, SPWRB, VZ, AMKR, NXY, CMCSK, MYL, DELL & ZGEN

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Includes: AMKR, CEO, CMCSA, DELL, DLTR, MYL, SPWR, VZ, ZGEN
by: Interactive Brokers

Dollar Tree Stores, Inc. (NASDAQ:DLTR) An investor expecting shares in Dollar Tree to rally significantly by November expiration initiated a bullish risk reversal on the stock today with the price of the discount retailer’s shares up 2.55% at $43.10 as of 3:05 pm ET. It looks like the trader sold approximately 4,825 puts at the November $40 strike for an average premium of $1.30 each in order to partially finance the purchase of the same number of call options at the higher November $45 strike for an average premium of $1.60 apiece. The net cost of putting on the risk reversal trade amounts to $0.30 per contract. Thus, the investor is prepared to make money should Dollar Tree Stores’ shares jump 5.1% to trade above the average breakeven price of $45.30 by expiration day in November. The investor may also be making a bullish wager on DLTR ahead of the firm’s second-quarter earnings report scheduled for release before the opening bell on August 19, 2010.

SunPower Corp. (SPWRB) News that solar energy developer, Etrion Corp., agreed to purchase the two initial phases of Italy’s largest solar park from SunPower Corp. for roughly $63.5 million in cash plus debt today sent SunPower’s shares up as much as 5.4% today to an intraday high of $12.59. Shares are currently trading 4.25% higher on the day to arrive at $12.45 as of 3:15 pm ET. The move higher in the price of the underlying stock attracted bullish options players to the August contract. Investors hoping to see SunPower’s shares continue to appreciate ahead of August expiration purchased roughly 1,000 calls at the August $12.5 strike for an average premium of $0.50 each. Call buyers make money if SPWRB’s shares can rally another 4.4% to surpass the average breakeven price of $13.00 by expiration day. Other optimistic individuals sold 1,100 in-the-money puts at the August $12.5 strike to take in an average premium of $0.60 apiece. Put sellers retain the full premium enjoyed on the transaction as long as SunPower’s shares are trading above $12.50 through August expiration. Investors short the puts are ready and willing to have shares of the underlying stock put to them at an effective price of $11.90 in the event the put contracts land in-the-money at expiration day.

Verizon Communications, Inc. (NYSE:VZ)Shares of the provider of communications services increased as much as 1.725% during the trading session to secure an intraday high of $30.06, but are currently up a lesser 1.25% on the day to stand at $29.92 as of 2:50 pm ET. Bullish strategists dominated options activity on the stock today with a number of investors scooping up call options in the August and September contracts. Near-term optimists purchased approximately 4,100 calls at the August $30 strike for an average premium of $0.30 each. Traders long the calls make money if, by expiration, Verizon’s shares exceed the average breakeven price of $30.30. Bulls looked to the higher August $31 strike to buy some 3,000 calls for an average premium of $0.05 apiece. VZ’s shares must rally 3.8% over the current price of $29.92 in order for investors long the August $31 strike calls to make money above the average breakeven point at $31.05 by August expiration. Traders expecting shares of the underlying stock to appreciate ahead of September expiration purchased about 2,300 calls at the September $30 strike for an average premium of $0.60 a-pop. Investors long the calls are poised to profit should Verizon’s shares rally 2.3% to first surpass the current 52-week high of $30.53, and ultimately breach the average breakeven point on the calls at $30.60 by expiration day next month.

Amkor Technology, Inc. (NASDAQ:AMKR) The sale of a large chunk of put options on the provider of semiconductor packaging and testing services suggests one strategist expects Amkor’s shares to exceed $5.00 through expiration in January 2011. AMKR’s shares rallied at the end of last week after the firm posted better-than-expected second-quarter results and forecast increased demand in the third quarter. The price of the underlying stock is roughly unchanged today at $6.03 as of 2:40 pm ET. The put seller shed 5,000 lots at the January 2011 $5.0 strike to take in premium of $0.40 per contract. The investor responsible for the transaction keeps the full premium received as long as Amkor’s shares trade above $5.00 through expiration day. The transaction indicates the investor is happy to have shares of the underlying stock put to him at an effective price of $4.60 each should the puts land in-the-money at expiration next January.

Nexen Corp. (NXY)The Canada-based global energy company popped up on our ‘hot by options volume’ market scanner today after one investor initiated bullish transactions on the stock in the December contract. Nexen’s shares inched up 1.35% to arrive at $21.08 by 12:45 pm ET. It looks like the investor sold 12,250 puts at the December $17.5 strike for a premium of $0.50 each in order to partially finance the purchase of 3,000 calls at the December $22.5 strike for premium of $1.05 each, as well as the purchase of 7,500 calls at the higher December $25 strike at an average premium of $0.425 apiece. The investor seems to be positioning for shares to rally significantly ahead of December expiration. Nexen’s shares must rally at least 6.7% in order for the December $22.5 strike calls to land in-the-money, whereas the December $25 strike calls require that shares rally 18.6% before they land in-the-money by December expiration. The sale of the put options indicates the options player expects Nexen’s shares to at least be trading above $17.50 through expiration day in December. The short stance in puts also implies the trader is willing to have shares of the underlying stock put to him at an effective price of $17.00 each should the put contracts land in-the-money at expiration. Nexen’s shares have traded above $17.50 since April 2009, and reached a 52-week high of $26.92 on April 23, 2010.

Comcast Corp. (CMCSK)The use of a short strangle on the provider of video, high-speed Internet and phone and cable services suggests one strategist expects the price of the underlying stock to remain range-bound through August expiration. Comcast’s shares inched 0.75% higher during the first half of the session to arrive at $17.70 just before 11:35 am ET. One options trader appears to have sold 4,000 calls at the August $18 strike for a premium of $0.15 each in combination with the sale of 4,000 puts at the lower August $17 strike also for premium of $0.15 apiece. Gross premium pocketed by the strangle-seller amounts to $0.30 per contract. The investor keeps the full premium received on the sale as long as Comcast’s shares trade within the range of the strike prices described through expiration day. The trader is exposed to potentially devastating losses should shares fail to settle within the specified range. Losses start to accumulate if the price of the underlying stock rallies above the upper breakeven price of $18.30, or if shares slip beneath the lower breakeven point at $16.70, ahead of expiration.

Mylan, Inc. (NASDAQ:MYL)The global pharmaceutical company that develops and distributes generic, branded generic and specialty pharmaceuticals popped up on our ‘most active by options volume’ market scanner today after one options player sold a large chunk of August contract calls. Mylan’s shares are up nearly 2.00% to $18.00 as of 11:45 am ET after its shares were upgraded to ‘outperform’ from ‘market perform’ with a 12-month target share price of $22.00 at Sanford Bernstein. Despite the bullish move in share price and the ratings upgrade, one investor sold into the rally, shedding approximately 18,500 calls at the August $18 strike for premium of $0.30 per contract. Perhaps the responsible party is long an offsetting number of shares of the underlying stock, and is thus selling covered calls to take in available premium. If this is the case, the investor is willing to have the underlying shares called from him at $18.00 each. Conversely, if the trader is not long the underlying stock, the sale of the calls is an unlimited risk strategy that could result in substantial losses. In this scenario, the investor starts to incur losses if Mylan’s shares rally above $18.30 and the calls of which he is short are uncovered. Options implied volatility on MYL slumped 7.5% lower to 28.92% by 12:00 pm ET.

Dell, Inc. (NASDAQ:DELL) The just-in-time manufacturer of personal computers attracted bearish options players during the session with shares of the underlying stock edging 0.60% lower to $13.04 by 12:15 pm ET. Pessimists picked up 1,100 puts at the August $13 strike for an average premium of $0.35 apiece. Investors buying the puts outright make money if Dell’s shares fall another 3.00% to breach the average breakeven point to the downside at $12.65 by August expiration. Bearish sentiment spread to the September contract where traders were seen selling in- and out-of-the-money call options. It looks like some 3,200 calls were sold at the September $13 strike for an average premium of $0.60 each. Investors may be throwing in the towel on previously established long call positions, or could be engaging in outright call selling. Traders selling the calls outright walk away with the full $0.60 premium in hand as long as the price of the underlying stock is less than $13.00 at expiration. More pessimistic individuals expecting shares to decline significantly by expiration day next month sold approximately 3,900 in-the-money calls at the September $12 strike for premium of $1.29 per contract. There are only 360 lots of open interest at that strike, which indicates today’s volume is all new activity. In-the-money call sellers keep the full $1.20 premium received today only if Dell’s shares fall 8.00% from the current price of $13.04 to trade below $12.00 by September expiration.

ZymoGenetics, Inc. (ZGEN) Shares of the biotechnology company engaged in the development of therapeutic proteins to combat life-threatening illnesses are up 5.9% to stand at $4.32 as of 11:25 am ET. It looks like one options investor populating the November contract today expects ZymoGenetics’ shares to continue to improve in the next several months. The trader appears to have sold 1,500 in-the-money puts at the November $5.0 strike to take in premium of $1.05 per contract. The put seller walks away with the full premium in his wallet as long as ZGEN’s shares surge 15.75% over the current price of $4.32 to trade above $5.00 by expiration day in November. The biotechnology firm’s shares last exceeded $5.00 back on May 26, 2010. The sale of the put contracts implies the trader is willing to have shares of the underlying stock put to him at an effective price of $3.95 each if the puts are in-the-money at expiration.