JPMorgan Chase & Co. (NYSE:JPM) – Three-legged bullish options combinations enacted on JPMorgan Chase & Co. at the start of the trading session indicates investors are expecting the price of the underlying shares to rally significantly by November expiration. Shares started to rally late last week on news the bank may increase its dividend next year and rise as much as 45% in the next two years on acquisitions made during a down economy and on the strength of its senior management team, according to analysts cited in Barron’s. JPMorgan’s shares are currently up 0.80% at $39.07 as of 11:30 am ET, but earlier increased as much as 2.00% to touch an intraday high of $39.54. Bullish players purchased approximately 11,000 now in-the-money calls at the November $39 strike for an average premium of $1.91 each, sold roughly 11,000 calls at the higher November $43 strike at an average premium of $0.42 apiece, and shed some 11,000 puts at the November $37 strike for an average premium of $0.85 a-pop. Average net premium paid to establish the spread amounts to $0.64 per contract. Thus, traders employing this strategy are poised to profit should JPM’s shares rally above the average breakeven price of $39.64 by expiration day in November. Maximum potential profits of $3.36 per contract are available should the bank’s shares surge 10.05% over the current price of $39.07 to exceed $43.00 by November expiration.
Medifast, Inc. (NYSE:MED) – Contrarian players initiated bull call spreads on the maker of weight management products this morning despite the 2.10% decline in the price of the underlying shares to $26.29. It looks like investors purchased 2,000 calls at the January 2011 $29 strike for an average premium of $2.38 each, and sold the same number of calls at the higher January 2011 $33 strike at an average premium of $1.15 apiece. The net cost of buying the spread amounts to $1.23 per contract. Profits start to accumulate for call-spreaders should Medifast’s shares surge 15.00% over the current price of $26.29 to surpass the effective breakeven price of $30.23 by January expiration. Maximum potential profits of $2.77 per contract are available to the investor if MED’s shares jump 25.5% and trade above $33.00 by expiration day next year. Medifast is scheduled to report third-quarter earnings ahead of the opening bell of November 4, 2010. Demand for calls on the stock helped lift the overall reading of options implied volatility 5.00% to 54.30% by 11:45 am ET.
Sara Lee Corp. (SLE) – Shares of the manufacturer of branded consumer goods such as meats, baked goods, beverages and household products jumped as much as 12.80% at the start of the trading session to an intraday high of $15.15 – the biggest gain in nearly two years – after the New York Post reported Sara Lee Corp. rejected a $12 billion unsolicited leveraged buyout offer by KKR & Co. SLE’s shares cooled somewhat by 11:55 am ET to stand 8.40% higher on the day at $14.56. Takeover speculation and rising demand for options on the stock lifted Sara Lee’s overall reading of options implied volatility 33.2% to 30.40% in the first half of the trading session. Investors hoping to see the price of the underlying stock continue higher purchased some 3,800 calls at the November $15 strike for an average premium of $0.57 per contract. Call buyers are prepared to profit should Sara’s shares surge 6.95% over the current price of $14.56 to exceed the average breakeven point to the upside at $15.57 by November expiration day. Approximately 5,430 calls changed hands at the November $15 strike versus paltry existing open interest of just 40 contracts at that strike.
Wynn Resorts, Ltd. (NASDAQ:WYNN) – Casino companies rallied today after Macau, the world’s largest gambling arena, reported that revenue jumped 40% in the month of September. Shares in Las Vegas, NV-based Wynn Resorts increased as much as 5.82% in morning trading to secure an intraday high of $92.16. The stock is currently up 3.60% at $90.25 as of 12:10 pm ET. Bullish players betting WYNN’s shares could extend gains through October expiration scooped up in- and out-of-the-money call options. Traders picked up roughly 1,500 in-the-money calls at the October $90 strike for an average premium of $3.02 each. In-the-money call buyers make money if the casino operator’s shares rally 3.1% over the current price of $90.25 to surpass the average breakeven point at $93.02 by expiration day. Bullish sentiment spread to the higher October $95 strike where approximately 2,600 calls were purchased for an average premium of $1.11 apiece. Investors long the contracts make money if Wynn Resorts’ shares rise 6.50% to trade above $96.11 by October expiration. Finally, options traders coveted 1,000 calls at the October $100 strike by shelling out an average premium of $0.35 per contract. Options implied volatility on the stock is up 4.9% at 45.34% as of 12:15 pm ET.