Citrix Systems, Inc. (NASDAQ:CTXS) – Shares of the software company fell as much as 11.2% this morning to touch an intraday low of $62.16 following cautious words from the firm’s CEO regarding its new product launch. Citrix Systems’ shares are currently down 9.10% at $63.62 just before 12:00 pm ET. Initially, options investors reacted by initiating bearish transactions, but it looks like contrarian players swooped in to purchase bull call spreads in order to position for shares to reverse course ahead of December expiration. Bullishness on the stock may have followed Pacific Crest’s comment that Citrix’s third-quarter is likely to be ok. The company reports its results for the third-quarter after the market closes on October 21, 2010. Bears were quick to purchase put options and sell out-of-the-money calls in the October contract. Investors picked up 1,000 puts at the October $60 strike for a premium of $0.90 each. Put buyers at this strike make money if CTXS shares fall 7.1% from the current price of $63.63 to breach the effective breakeven point to the downside at $59.10 by expiration day. Traders also purchased 1,500 puts at the October $62.5 strike at an average premium of $1.39 a-pop, which yields an average breakeven price of $61.11. Pessimists sold some 1,100 calls at the October $67.5 strike for a premium of $0.76 each, and shed 4,700 calls at the higher October $70 strike to receive an average premium of $0.49 apiece. Call sellers keep the premium received on the sale as long as shares of the underlying stock fail to rally above the strike prices described through October expiration. Investors expecting Citrix Systems’ shares to recover by December expiration purchased call spreads, buying 5,000 calls at the December $65 strike for an average premium of $4.70 each, and selling the same number of calls at the December $70 strike at an average premium of $2.59 apiece. Average net premium paid to initiate the spread amounts to $2.11 per contract. Thus, the medium-term bullish players are poised to profit should shares surge 5.5% over the current price to surpass the effective breakeven point at $67.11 by December expiration day. Maximum potential profits of $2.89 per contract are available to traders if shares jump 10.0% to trade above $70.00 by expiration. The CEO’s cautious tone, the drop in the price of CTXS shares and the increase in demand for options lifted the stock’s overall reading of options implied volatility 15.0% to 51.34% by 12:15 pm ET.
M & T Bank Corp. (NYSE:MTB) – An options strategist expecting shares of the New York regional lender to trade within a certain range through November expiration sold a strangle on the stock in the first half of the trading session. MTB’s shares are down 5.45% to stand at $78.56 as of 12:35 pm ET. Allied Irish Banks said Tuesday it plans to sell a 22% stake in MTB in a public offering underwritten by Citigroup and Morgan Stanley. The investor sold 4,950 puts at the November $75 strike for a premium of $2.80 each, and sold the same number of calls at the November $85 strike at a premium of $2.10 apiece. Gross premium received by the investor for writing the strangle amounts to $4.90 per contract or a total of $2.4255 million. The trader keeps the full premium received on the transaction as long as MTB’s shares trade within the boundaries of the strike prices described through November expiration. The short stance taken in both call and put options expose him to losses, however, should shares fly upward to exceed the upper breakeven price of $89.90, or if the stock trades below the lower breakeven price of $70.10 at expiration.
Hercules Offshore, Inc. (NASDAQ:HERO) – The provider of shallow-water drilling and marine services to the oil and natural gas industries popped up on our ‘hot by options volume’ market scanner after one contrarian trader initiated a cautiously optimistic transaction in the April 2011 contract. HERO’s shares plunged 11.15% lower today to trade at $2.31 by 1:00 pm ET. The options strategist appears to have enacted a delta neutral hedge, buying approximately 115,000 shares of the underlying stock at $2.55 each, and picking up 5,000 protective put options at the April 2011 $2.0 strike for a premium of $0.30 apiece on a 0.23 delta. The investor is likely taking advantage of the sharp pullback in HERO’s shares today. He takes a long position in the stock, perhaps because he expects shares to rebound by April expiration, but purchases the put options as an insurance policy of sorts in case shares fail to rally and instead erode further. Other put players appear to be buying the April 2011 $2.0 strike calls outright at an average premium of $0.30 each. Plain-vanilla put buyers make money if HERO’s shares fall another 26.4% from the current price of $2.31 to breach the effective breakeven point to the downside at $1.70 by expiration day. Options traders exchanged more than 9,500 puts at the April 2011 $2.0 strike thus far in the session versus paltry previously existing open interest of just 30 contracts at that strike.
TeleCommunication Systems, Inc. (NASDAQ:TSYS) – Reports that the provider of secure mobile communication technology won a contract from the U.S. Marine Corps worth up to $269 million sent the firm’s shares up as much as 43.97% to an intraday high of $5.37. The rally inspired bulls to purchase roughly 800 now in-the-money calls at the October $5.0 strike for an average premium of $0.25 each. Investors holding these contracts make money if TSYS shares trade above $5.25 through October expiration. Optimists also picked up another 1,000 in-the-money calls at the November $5.0 strike for an average premium of $0.55 a-pop. These investors are prepared to profit should shares rally another 3.35% over today’s high of $5.37 to surpass the average breakeven price of $5.55 by expiration day in November. News of the company’s contract with the Marine Corps sent TeleCommunication’s overall reading of options implied volatility 28.5% lower to 74.10% by 12:30 pm ET.