Whole Foods Market, Inc. (WFMI) – Shares of the operator of natural and organic foods supermarkets slipped 2.40% lower this afternoon to $35.31 as of 3:05 pm ET. The stock popped up on our ‘hot by options volume’ market scanner after one strategist initiated a short strangle in the November contract. It looks like the investor responsible for the trade expects shares in Whole Foods remain range-bound through expiration day next month. The trader sold 5,000 puts at the November $33 strike at a premium of $1.00 each, and shed 5,000 calls at the November $38 strike for premium of $0.92 a-pop. Gross premium pocketed by the strangle-seller amounts to $1.92 per contract. The trader keeps the full premium received as long as WFMI’s shares trade within the boundaries of the strike prices described through expiration. Short stances taken in both call and put options expose the investor to losses, however, should the price of the underlying stock fly upward or fall substantially in the next six weeks. The options strategist starts to lose money if shares rally above the upper breakeven price of $39.92, or should shares trade below the lower breakeven point at $31.08, by expiration day in November.
Technology Select Sector SPDR ETF (XLK) – A massive debit put spread utilizing a total of 224,000 contracts on the Technology fund went through electronically this afternoon just after 2:00 pm in New York trading. The spread is perhaps the work of one big options market participant positioning for the price of the underlying shares to slide lower ahead of December expiration. Shares of 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, edged 0.17% lower to $23.14 by 2:50 pm ET. Companies represented in the Technology Select Sector Index are engaged in industries such as information technology, consulting, semiconductor equipment and products, as well as telecommunications services. The enormous transaction involved the purchase of 112,000 puts at the December $23 strike for a premium of $0.87 apiece, and the sale of 112,000 puts at the lower December $20 strike at a premium of $0.19 each. The net cost of the transaction amounts to $0.68 per contract or $7.616 million. The party responsible for the transaction is prepared to make money should shares of the fund fall 3.54% from the current price of $23.14 to breach the effective breakeven point at $22.32 by December expiration. Maximum potential profits of $2.32 per contract, or $25.984 million, are available if the XLK’s shares drop 13.57% to trade below $20.00 by expiration day. The current 52-week low on the tech-sector fund is $20.01, attained back on July 1, 2010.
US Airways Group, Inc. (LCC) – It looks like some options investors are throwing in the towel on the operator of US Airways today with the price of the underlying shares descending 1.7% earlier in the session to touch down at an intraday low of $9.07. LCC popped up on our scanners in the first 20 minutes of the trading day after approximately 13,000 calls were sold at the November $10 strike for an average premium of $0.43 apiece. An additional 7,000 calls were sold at the same strike around 12:30 pm ET this afternoon at a premium of $0.41 each. Call sellers may be ditching previously established bullish stances on the stock. Roughly 20,000 calls were purchased back on September 27 at the November $10 strike for an average premium of $0.65 a-pop. If this is the case, traders are taking available premium off the table and absorbing net losses on the transaction, perhaps because they expect LCC’s shares to slip lower ahead of expiration. The sale of the contracts suggests investors see the price of the airline operator’s shares trading below $10.00 through expiration day next month.
Potash Corp. of Saskatchewan, Inc. (NYSE:POT) – Diverse bullish options strategies employed on the potash producer this morning indicate a number of investors are itching for a rally in the price of the underlying shares ahead of year’s end. It looks like one trader initiated a bullish risk reversal in the November contract, while another optimistic player populating December contract call options enacted a butterfly spread. POT’s shares are currently down 0.90% at $140.11 as of 12:05 pm ET, perhaps on reports that Sinochem Group, China’s largest fertilizer trader, might have trouble acquiring state financial support for a takeover of the Canadian firm, which would make a deal between the two firms less likely to occur. POT rejected a $40 billion takeover bid by BHP Billiton in August and said it intends to seek other bids. The nearer-term bullish player appears to have put on a risk reversal, selling 5,000 puts at the November $130 strike at a premium of $1.75 each in order to buy the same number of calls at the November $140 strike for premium of $5.25 apiece. The net cost of the transaction amounts to $3.50 per contract, thus positioning the trader to make money if POT’s shares rally 2.4% over the current price of $140.11 to surpass the effective breakeven price of $143.50 by expiration day next month. Further along, in the December contract, an options player initiated a butterfly spread, buying 1,400 in-the-money calls at the December $140 strike, selling 2,800 calls at the December $150 strike, and purchasing 1,400 calls at the higher December $160 strike price. The investor paid a net $2.50 per contract to initiate the call ‘fly and starts to make money if the potash producer’s shares rally 1.705% to surpass the effective breakeven price of $142.50 by December expiration. Maximum potential profits of $7.50 per contract are available to the trader if POT’s shares jump 7.05% in the next couple of months to settle at $150.00 at expiration.
BMC Software, Inc. (NASDAQ:BMC) – Shares of the software company rallied as much as 9.55% in the first half of the trading session to touch a 10-year high of $43.44 on reports the firm may put itself up for sale. The surge in the price of the underlying stock and speculation BMC Software could be up for grabs spurred options traders to action right out of the gate this morning. A number of investors expecting BMC’s shares to climb higher initiated debit call spreads on the stock. One such optimist picked up 2,500 calls at the January 2011 $45 strike at a premium of $2.85 each, and sold the same number of calls at the higher January 2011 $55 strike for a premium of $0.55 apiece. Net premium paid to establish the spread amounts to $2.30 per contract. The investor stands ready to amass profits should the software company’s shares increase 8.9% over today’s high of $43.44 to surpass the effective breakeven point on the spread at $47.30 by January expiration. Maximum potential profits of $7.70 per contract are available should shares surge 26.6% and trade above $55.00 ahead of expiration day next year. The overall reading of options implied volatility on BMC Software is up 11.0% at 41.14% just before 1:00 pm in New York trading.
Target Corp. (TGT) – Shares of the retailer fell 0.90% to an intraday low of $53.59 at the start of the trading session after the firm’s reported 1.3% rise in same-store sales for the month of September disappointed analysts expecting an increase of 1.9% in revenue last month at Target stores open for more than one year. TGT’s shares have recovered as of 11:45 am ET to stand 0.10% higher on the day at $54.15. It looks like disappointing data from the company prompted one options strategist to initiate a ratio put spread in the November contract. The bearish transaction may also represent a hedge ahead of Target’s third-quarter earnings release before the opening bell on November 17, 2010. The investor picked up 2,500 in-the-money puts at the November $55 strike for a premium of $2.18 each, and sold 5,000 puts at the lower November $52.5 strike at a premium of $1.09 apiece. The transaction nets out to zero and position the investor to accumulate maximum potential profits of $2.50 per contract if Target’s shares fall 3.05% to settle at $52.50 at expiration day in November. If TGT’s earnings miss estimates entirely and cause shares to drop sharply, the trader will amass losses on the spread beneath the effective breakeven price of $50.00.
Buckle, Inc. (NYSE:BKE) – Options traders are scooping up call options on the casual-clothing retailer today after the firm reported same-store sales increased 3% in September. Analysts had been expecting Buckle to post a 4.4% decline in same-store sales for the previous month. The positive surprise sent the retailer’s shares up as much as 10.5% to an intraday high of $29.50 in morning trading. Shares are currently up 8.30% to stand at $28.91 as of 1:05 pm ET. The most popular options on the stock today are the near-term October $30 strike calls. The majority of the 1,130 calls exchanged at that strike were purchased for an average premium of $0.40 each. Investors long the calls make money if Buckle’s shares surge 5.15% and trade above $30.40 by October expiration. BKE’s overall reading of options implied volatility is down 8.1% at 42.45% in early afternoon trading.