Viacom, Inc. (VIA.B) – A short straddle on global entertainment giant, Viacom, suggests one options player sees the price of the underlying stock settling at $35.00 by expiration in December. Viacom’s shares rallied as much as 2.90% during the session to touch an intraday high of $35.78. The straddle-strategist sold 4,500 now in-the-money calls at the December $35 strike at a premium of $2.25 each, and sold 4,500 puts at the same strike at a premium of $2.025 a-pop. Gross premium pocketed on the trade amounts to $4.275 per contract for a total of $1,923,750.00. The investor keeps the full premium received on the transaction if Viacom’s shares settle at $35.00 at expiration. Short positions assumed in both call and put options leave the investor vulnerable to losses if the price of the underlying stock shifts drastically in either direction away from the strike price selected. Premium received on the straddle acts as a buffer against limited fluctuation in the firm’s share price, but losses start to amass for the investor if the price of the underlying rallies above the upper breakeven price of $39.275, or if the stock trades below the lower breakeven point at $30.725, ahead of December expiration day.
KB Home (KBH) – An investor hoping to see shares of the homebuilding company rise by January 2011 expiration constructed what looks to be a plain-vanilla debit call spread on the stock today. KB Home’s shares are up 0.70% at $11.35 as of 2:55 pm ET, but earlier rallied as much as 1.86% to touch an intraday high of $11.48. The bullish player picked up 10,000 calls at the January 2011 $14 strike for a premium of $0.50 each, and sold the same number of calls at the higher January 2011 $16 strike at a premium of $0.15 apiece. Net premium paid to initiate the transaction amounts to $0.35 per contract. Thus, the investor stands ready to make money if KB Home’s shares jump 26.4% over the current price of $11.35 to surpass the effective breakeven point at $14.35 by expiration day next year. Maximum potential profits of $1.65 per contract are available to the call-spreader should the price of the underlying stock surge 41.00% to trade above $16.00 by January expiration.
Nokia Corp. (NOK) – Shares of the world’s biggest cell phone manufacturer are down 1.70% to arrive at $9.94 in the final hour of the trading week. An options investor expecting shares to stagnate over the next 4.5 months sold a strangle on the stock in the January 2011 contract. Earlier this week Nokia was cut to ‘sell’ from ‘hold’ at Citigroup on concerns the mobile maker will continue to lose market share. The strangle-strategist sold 5,000 calls at the January 2011 $11 strike for premium of $0.51 each, and shed the same number of puts at the lower January 2011 $9.0 strike at a premium of $0.46 apiece. Gross premium enjoyed on the transaction amounts to $0.97 per contract, which the investor keeps in full if Nokia’s shares trade without the confines of the strike prices described through expiration day. Short positions in both call and put options expose the trader to losses should shares rally above the upper breakeven price of $11.97, or if shares slip beneath the lower breakeven point at $8.03, ahead of expiration in January.
Technology Select Sector SPDR Fund (XLK) – Large prints in October contract call options on the XLK, an exchange-traded fund designed to provide investment results that correspond to the price and yield performance of the Technology Select Sector of the S&P 500 Index, suggests some bullish players are positioning for the price of the underlying shares to rise ahead of expiration next month. Shares of the fund are currently down slightly by 0.15% to stand at $22.46 as of 1:20 pm ET. Options traders exchanged approximately 22,000 calls at the October $23 strike versus previously existing open interest of just 1,418 contracts at that strike. It looks like most of the call options were purchased at an average premium of $0.22 per contract. Call buyers make money if the XLK’s shares rally 3.4% to surpass the average breakeven price of $23.22 by October expiration day. The fund’s shares last traded above $23.22 back on May 13, 2010.
Iron Mountain, Inc. (IRM) – Shares of the global provider of information management and related services for all media increased as much as 1.925% during morning trading to touch an intraday high of $20.64. Iron Mountain made its way onto our scanners due to bullish options activity in the September and October contracts. Plain-vanilla call buying ensued at the October $22.5 strike where traders picked up approximately 2,700 calls for an average premium of $0.15 apiece. Investors long the calls make money if Iron Mountain’s shares surge 9.7% to exceed the average breakeven price of $22.65 by October expiration. Back on August 24, 2010, when IRM shares were trading around $21.41, one optimistic player bet the price of the underlying stock would not trade below $20.00 by September expiration. The investor did this by selling 12,000 puts at the September $20 strike for premium of $0.25 per contract. In the six days following the transaction, Iron Mountain’s shares slid 6.2%, but never traded below $20.09 since the puts were sold. Today the investor bought back the puts for just $0.10 per contract to pocket net profits of $0.15 per contract. Perhaps hoping to garner additional profits from the same strategy, the trader once again sold 12,000 puts, this time at the October $20 strike, to take in premium of $0.50 per contract. If the stock happens to trade below $20.00 by October expiration, the investor is obliged to have shares put to him at an effective price of $19.50 each. The overall reading of options implied volatility on Iron Mountain is up 7.8% at 32.19% as of 1:00 pm ET.
Tyson Foods, Inc. (TSN) – Bearish investors breakfasted on Tyson Foods’ put options this morning with shares of the world’s largest supplier of beef and pork declining as much as 7.9% to an intraday low of $15.68. Traders positioning for continued erosion in the price of the underlying stock picked up approximately 1,300 now in-the-money puts at the January 2011 $16 strike for an average premium of $1.25 each. Put buyers at this strike make money if Tyson’s shares fall 5.9% from today’s low of $15.68 to slip beneath the effective breakeven price of $14.75 by January expiration. Pessimists purchased more than 3,700 puts at the January 2011 $15 strike for an average premium of $0.88 apiece. Investors holding these contracts are poised to profit should shares plunge 9.95% lower to trade below the average breakeven price of $14.12 by expiration day. Increased demand for put options on the stock and rapid erosion in the price of Tyson’s shares helped lift the overall reading of options implied volatility 17.68% to a high of 35.21% today.
Huntsman Corp. (HUN) – The manufacturer of chemical products popped up on our ‘hot by options volume’ market scanner in the first half of the trading session after one investor rolled a large long call position forward to a more bullish strike in the October contract. Huntsman’s shares rallied as much as 1.05% at the open to touch an intraday high of $10.72 before sliding down to a low of $10.48. Shares recovered somewhat by 11:50 am ET to stand 0.40% higher on the day at $10.65. It looks like the HUN-bull originally accumulated approximately 12,800 calls at the September $9.0 strike for an average premium of $0.79 apiece starting on August 17, 2010, when shares were trading around $9.55 each. The subsequent rally in the price of the underlying stock lifted premium on the September $9.0 strike calls, allowing the investor to sell 12,832 contracts today at a premium of $1.65 apiece. Average net profits on this leg of the transaction amount to $0.86 per contract. Next, the investor extended optimism on the chemical company by purchasing 12,832 calls at the higher October $10 strike for an average premium of $0.90 each. Profits on the new position start to accrue if Huntsman’s shares rally 2.35% to surpass the breakeven point of $10.90 by October expiration. Other signs of bullish sentiment also took place at the October $10 strike where investors sold 1,100 puts to pocket premium of $0.25 apiece. Put sellers keep the full premium received as long as shares exceed $10.00 through expiration next month. Investors short the puts are apparently happy to have shares of the underlying stock put to them at an effective price of $9.75 should the puts land in-the-money at expiration.
iShares MSCI EAFE Index ETF (EFA) – The purchase of a put spread on the EFA, an exchange-traded fund designed to correspond to the price and yield performance of the MSCI EAFE Index – an index that includes stocks from Europe, Australasia and the Far East, suggests one options strategist is bracing for shares of the fund to slip ahead of January 2011 expiration. Shares of the ETF are currently down 0.80% to stand at $53.47 as of 11:35 am ET. Within the first 25 minutes of the trading session, the put player picked up 9,098 now in-the-money puts at the January 2011 $54 strike at a premium of $3.59 each, and sold the same number of puts at the lower January 2011 $50 strike for premium of $2.05 apiece. Net premium paid to establish the spread amounts to $1.54 per contract. Profits, or downside protection on a large position in the underlying shares, kick in if the fund’s shares decline another 1.9% from the current price of $53.47 to breach the effective breakeven point on the spread at $52.46 by expiration. Maximum potential profits or protection amounting to $2.46 per contract are realized by the options trader if the EFA’s shares fall 6.5% to trade below $50.00 by expiration in January. Options implied volatility on the fund is up 5.00% at 22.59% as of 11:40 am ET.