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Bank of America Corp. (NYSE:BAC) – One massive options transaction on Bank of America today suggests one investor has made a bee-line for the hills. The trader observed ducking for cover appears to be expecting the recent rebound in the price of the financial firm’s shares to come to an abrupt end ahead of September expiration. Shares in BAC climbed 2.1% during the session to pin down an intraday high of $13.49. It looks like the options player sold shares of the underlying stock for approximately $13.35 each and purchased 100,000 calls at the September $14 strike for premium of $0.10 apiece. The trader, who is now short the stock and effectively long a stop loss, seems to be anticipating shares will falter ahead of expiration. Near-term pessimism by one trader was countered by longer-term bullish activity on BAC in the January 2011 contract where it looks like another investor put on a three-legged bullish combination strategy. The options optimist sold 10,000 puts at the January 2011 $12.5 strike at a premium of $0.84 each, purchased 10,000 calls at the January 2011 $14 strike for premium of $1.00 apiece, and sold 10,000 calls at the higher January 2011 $17.5 strike at a premium of $0.16 a-pop. The transaction nets out to $0.00 and positions the trader to make money if shares of the financial services firm rally above $14.00 by expiration day. Maximum potential profits of $3.50 per contract are secure in the trader’s piggy bank if the bank’s shares jump 29.7% to trade above $17.50 by expiration day in January. We note that open interest at each of the strikes described is sufficient to cover each of the three legs of the transaction. Therefore, it is possible that the seemingly bullish trade represents a closing transaction instead.

SPDR S&P Retail ETF (NYSEARCA:XRT) – Options on the retail ETF were some of the most actively traded during the current session. The majority of the 171,000 contracts exchanged on the fund as of 2:50 pm ET were September contract puts and calls, but there were some longer-term positions established today, as well. Shares of the XRT, an exchange-traded fund designed to replicate the performance of the S&P Retail Select Industry Index, earlier rallied as much as 1.35% to an intraday high of $38.71. One big options player hoping to see the XRT’s shares increase substantially by December expiration initiated a large-volume debit call spread this afternoon. The investor appears to have purchased 20,000 calls at the December $41 strike for a premium of $1.25 each, and sold the same number of calls at the higher December $45 strike at a premium of $0.27 apiece. The net cost of the transaction amounts to $0.98 per contract. Thus, the call-spreader is positioned to make money if shares of the fund add 8.45% to today’s high of $38.71 to surpass the effective breakeven price of $41.98 by expiration day in the final month of 2010. Maximum potential profits of $3.02 per contract are available to the retail-bull should the XRT’s shares jump 16.25% in the next several months to trade above $45.00 by December expiration.

Zimmer Holdings, Inc. (NYSE:ZMH) – Shares of the manufacturer of orthopedic reconstructive implants, dental and spinal implants, trauma products and related surgical products popped up on our ‘hot by options volume’ market scanner today due to contrarian trading activity in January 2011 contract call options. Zimmer’s shares earlier fell 1.5% to an intraday low of $48.27 before improving late in the session to stand 0.6% lower on the day at $48.70 as of 3:30 pm ET. ZMH was rated new ‘market perform’ at Oppenheimer & Co. today. Despite the decline in the price of the underlying shares, one options trader took a bullish stance on the stock by purchasing approximately 8,300 calls at the January 2011 $55 strike for an average premium of $1.15 apiece. The investor is poised to profit should Zimmer Holdings’ shares jump 15.3% over the current price of $48.70 to rally above the average breakeven price of $56.15 ahead of expiration day. ZMH’s shares last traded above $56.15 back on July 16, 2010.

Green Mountain Coffee Roasters, Inc. (NASDAQ:GMCR) – News the specialty coffee company plans to increase the price of its single-serving coffee packs, known as K-Cups, by 10% to 15% starting October 11, 2010, fueled an 8.75% rally in the firm’s shares price to an intraday high of $33.94. Green Mountain cited mounting green coffee prices and other short-term cost increases as impetus for its decision to charge more for K-Cups. Investors expecting the coffee maker’s shares to continue higher ahead of September expiration looked to the September $33.33 strike where at least 2,000 now in-the-money calls were picked up at an average premium of $0.74 apiece. Call buyers make money if GMCR’s shares trade above the average breakeven price of $34.07 by September expiration day. Bullish sentiment spread to the higher September $35 strike where traders purchased approximately 1,400 call options for an average premium of $0.29 a-pop. Investors long the calls stand ready to profit if Green Mountain’s shares surge 4.00% over today’s high of $33.94 to exceed the average breakeven point at $35.29 by expiration this month.

Capital One Financial Corp. (NYSE:COF) – Bullish traders flocked to the “what’s in your wallet?” financial services company right out of the gate this morning to pick up near-term call options. Investors populating COF options exchanged more than 7 calls on the stock for each single put option in action ahead of midday in New York. Capital One’s shares increased as much as 2.8% earlier in the session to touch an intraday high of $39.93. The stock is currently trading 1.65% higher on the day to stand at $39.50 as of 11:30 am ET. Options investors hoping to see COF shares continue to appreciate ahead of expiration day this month purchased approximately 3,500 calls at the September $40 strike for an average premium of $0.68 each. Bulls holding these contracts make money if the credit card issuer’s shares rally 3.00% over the current price to trade above the average breakeven point to the upside at $40.68 by September expiration. Optimism spread to the higher September $41 strike where investors picked up 2,600 calls for premium of $0.35 per contract. Call buyers are poised to profit should shares of the underlying stock jump 4.7% to exceed $41.35 by expiration in just over one week’s time. Bullish traders also bought 1,300 call options at the September $42 strike at a premium of $0.17 a-pop. Investors break even on their purchases if COF’s shares surge 6.75% to trade above $42.17 by expiration day. Finally, uber-bulls bought roughly 1,100 calls at the September $43 strike for an average premium of $0.11 apiece. Investors long the calls make money if the financial services provider’s shares rally 9.1% and exceed the average breakeven price of $43.11 at expiration.

Yahoo, Inc. (NASDAQ:YHOO) – A couple of different bullish options strategies initiated on the online media company this morning indicate some investors expect Yahoo’s shares to rebound by expiration in January 2011. The Sunnyvale, CA-based company’s shares increased as much as 1.92% to secure an intraday high of $13.79 as of 12:30 pm ET. Plain-vanilla call buyers itching for a sharp rally in the price of the underlying stock purchased approximately 2,000 lots at the January 2011 $15 strike for an average premium of $0.61 each. Investors long the calls make money if Yahoo’s shares surge 13.2% over the current price of $13.79 to exceed the average breakeven point at $15.61 by expiration day next year. Another optimistic options investor employed a different tactic. It looks like this trader established a bullish risk reversal, selling 5,000 puts at the January 2011 $12.5 strike for an average premium of $0.635 each in order to purchase the same number of January 2011 $17.5 strike calls at an average premium of $0.18 apiece. The trader pockets an average net credit of $0.455 per contract on the transaction, and keeps the full amount as long as Yahoo’s shares exceed $12.50 through expiration day. Additional profits start to accumulate should the online media firm’s shares jump 26.9% to trade above the effective breakeven price of $17.50 by January 2011 expiration day. We note that while the transaction looks bullish, open interest at all strikes described is sufficient to cover today’s volume many times over. Thus, the activity could potentially be the work of an investor closing out, adding volume to or subtracting volume from previously established positions on the stock.

ZymoGenetics, Inc. (ZGEN) – Shares of the biotechnology firm engaged in developing therapeutic proteins to combat life-threatening illnesses jumped 84.7% to touch an intraday- and new 52-week high of $9.79 in the first half of the trading session after Bristol-Myers Squibb agreed to acquire the company for $885 million, or $9.75 per share in cash. Investors expecting ZymoGenetics’ shares to rally higher by November expiration purchased approximately 1,400 calls at the November $10 strike for an average premium of $0.10 each. Call buyers make money if the Seattle-based company’s shares increase 3.2% over today’s high of $9.79 to surpass the effective breakeven price of $10.10 by expiration day. The overall reading of options implied volatility on ZGEN came crashing down, falling 68% to 16.37%, following news of the buyout by Bristol-Myers Squibb.

New York Times Co. (NYSE:NYT) – Renewed speculation the newspaper publisher may be acquired inspired bullish options activity on the stock during the first half of the trading day. Shares in New York Times Co. jumped 8.00% to an intraday high of $8.38 in morning trading before cooling off by 12:15 pm ET to stand just 3.75% higher on the day at $8.05. Churning of the rumor mill sent speculators to the October $9.0 strike where more 4,200 calls changed hands versus puny previously existing open interest at that strike of just 5 call options. It looks like some traders, positioning for NYT’s shares to continue higher if the firm should perhaps receive a takeover bid by October expiration, bought approximately 2,400 of the October $9.0 strike calls at an average premium of $0.30 apiece. Investors long the calls make money if the newspaper publisher’s shares surge 15.5% over the current price of $8.05 to trade above the average breakeven price of $9.30 by expiration day. Grist from the rumor mill coupled with increased investor demand for options on NYT boosted the stock’s overall reading of options implied volatility 23.1% to 62.16% by 12:25 pm ET. Earlier in the session, NYT’s reading of implied volatility jumped 44.3% to an intraday high of 72.89%.

Source: Wednesday Options Update: BAC, XRT, ZMH, GMCR, COF, YHOO, ZGEN, NYT