Humana Inc. (HUM) – Call options on the health benefits company are in high demand this afternoon with shares of the underlying stock trading higher by 3.15% to arrive at $53.85 in the final hour of the session. Shares rallied as much as 3.965% earlier today to secure a new 2-year high of $54.27. An analyst at Wedbush said earlier that health insurers may wind up reporting a better third quarter than previously forecast. Additionally, she mentioned Humana is her top pick for a health insurer that’s most likely to top Wall Street estimates in the third quarter. Humana is scheduled to report results ahead of the opening bell on November 1, 2010. Activity in November contract calls indicates one big player sees today’s rally in Humana’s shares extending through to expiration day next month, post-earnings. It looks like the bullish investor purchased 14,176 calls outright at the November $55 strike for an average premium of $1.425 per contract. The call buyer makes money if HUM’s shares rally another 4.8% over the current price of $53.85 to surpass the average breakeven point to the upside at $56.425 ahead of expiration. Options implied volatility on HUM is up 11.6% to arrive at 32.71% with 35 minutes remaining in the session.
SIGA Technologies, Inc. (SIGA) – Shares of the bio-defense company jumped 52.7% today to an all time high of $13.07 on reports the firm won a U.S. government contract worth up to $2.8 billion to supply its smallpox antiviral drug. The stock is currently up 42.75% at $12.22 heading into the close. Options traders initiated bullish stances on the stock right out of the gate this morning in order to position for continued appreciation in the price of SIGA’s shares. Investors picked up approximately 1,200 in-the-money calls at the October $12 strike for an average premium of $0.44 apiece, and are poised to profit should shares exceed $12.44 through expiration on Friday. Nearly 1,000 calls were purchased at the higher October $13 strike for an average premium of $0.20 each. Investors holding these contracts make money if SIGA’s shares rally another 8.00% over the current price of $12.22 to surpass the average breakeven point at $13.20 by October expiration. Optimism spread to the November $11 strike where another 1,135 in-the-money calls were coveted at an average premium of $1.35 per contract. These traders face an average breakeven share price of $12.35 and start to amass profits if the stock trades above this point through November expiration day. Another 840 in-the-money call options were picked up at the November $12 strike for an average premium of $0.75 a-pop. Finally, near-term bulls also looked to the October $11 strike to sell approximately 1,000 puts for an average premium of $0.16 each. Put sellers keep the full premium as long as the bio-defense firm’s shares exceed $11.00 through expiration in two days. SIGA Technologies’ overall reading of options implied volatility shrank 6.3% to 71.88% by 3:30 p.m. in New York. More than 16,980 option contracts have changed hands on the stock this afternoon versus total existing open interest of 19,707 lots. Calls were the clear favorite amongst investors populating SIGA options today. Traders exchanged more than 4.8 calls on the stock for each single put in play thus far in the session.
Alexion Pharmaceuticals, Inc. (ALXN) – The implementation of a three-legged bearish options combination play on the maker of therapeutic products this morning suggests one strategist may be bracing for the price of the underlying stock to fall by January 2011 expiration. ALXN shares are currently down 0.35% to arrive at $68.17 as of 11:35 a.m. in New York. The investor sold 2,000 calls at the January 2011 $75 strike at a premium of $2.40 each, purchased the same number of puts at the lower January 2011 $60 strike for a premium of $2.50 per contract, and sold 2,000 puts at the January 2011 $50 strike at a premium of $1.00 apiece. The trader receives a net credit of $0.90 per contract on the transaction, and keeps that amount as long as shares trade below $75.00 through expiration day. Additional profits start to accumulate if Alexion’s shares decline 12.00% from the current price of $68.17 to breach the $60.00-level by expiration day. Maximum potential profits, including the net credit received, of $10.90 per contract are available to the investor should the pharmaceutical firm’s shares plummet 26.65% and trade below $50.00 by January expiration. The short call position exposes the investor to potentially devastating losses in the event that ALXN shares fly upward to exceed the effective upper breakeven price of $75.90 by expiration day next year. Alexion Pharmaceuticals is slated to report third-quarter results ahead of the opening bell on October 21, 2010.
CBS Corp. (CBS) – The media company popped up on our ‘hot by options volume’ market scanner in the first half of the trading session after one investor booked profits on a previously established bullish position. Shares of the mass media company are currently flat on the day at $17.90 as of 11:45 a.m., but earlier rallied 1.675% to touch a new 52-week high of $18.20. The firm’s shares have surged 39.9% to $18.20 since reaching a 3-month low of $13.10 on August 25, 2010. It looks like the investor originally purchased 4,000 calls at the October $17 strike at an average premium of $0.35 each back on September 13, 2010, when CBS Corp.’s shares were trading around $15.69. The subsequent appreciation in the price of the underlying shares significantly increased premium on the calls, which are now trading in-the-money. Thus, the investor sold all 4,000 lots today for a premium of $1.10 each to pocket net profits of $0.75 per contract. It appears the same trader is also positioning for the media company’s shares to climb higher by scooping up a fresh batch of 4,000 calls at the higher November $20 strike at a premium of $0.25 a-pop. The investor makes money on the new position if shares in CBS Corp. rally another 11.25% over today’s high of $18.20 to trade above the effective breakeven point at $20.25 by November expiration. CBS Corp. is scheduled to report third-quarter earnings after the final bell on November 4, 2010.
Repsol YPF, SA (REP) – Shares of the Madrid, Spain-based oil and gas company are up 0.50% to stand at $27.85 as of 12:10 p.m., but options activity in the April 2011 contract this morning indicate one strategist is prepared for the price of the underlying stock to decline. The three-legged bearish combination play transacted on REP today follows news that the European Commission, the regulatory arm of the EU, plans to propose broader liability rules and stricter standards for offshore drillers in order to improve safety in the petroleum industry post-BP catastrophe. The options trader responsible for the pessimistic position sold 3,382 calls at the April 2011 $30 strike at a premium of $1.30 each, purchased the same number of puts at the April 2011 $25 strike for a premium of $1.80 per contract, and sold 3,382 puts at the lower April 2011 $20 strike at a premium of $0.40 apiece. Net premium paid to establish the spread amounts to just $0.10 per contract. The trader is poised to profit, or realize downside protection, if REP’s shares fall 10.6% from the current price of $27.85 to breach the effective breakeven point to the downside at $24.90 by expiration day in April. Maximum potential profits of $4.90 per contract pad the investor’s wallet should shares of the oil company plunge 28.2% to trade below $20.00 by expiration. Options implied volatility on the stock is up 5.3% at 36.03% as of 12:20 p.m.
Great Atlantic & Pacific Tea Co., Inc. (GAP) – Put options on the operator of supermarkets are a hot commodity today with shares of the underlying stock falling as much as 21.1% this morning to secure an intraday low of $3.14. The company reveals second-quarter results before the market opens on October 20, 2010. Investors looking for shares to tumble lower scooped up some 4,600 puts at the May 2011 $2.0 strike for an average premium of $0.50 each. Put buyers make money if GAP’s shares plunge 52.2% lower to trade beneath the effective breakeven price of $1.50 each. From that point, traders may pocket maximum potential profits of $1.50 per contract in the event that shares collapse down to $0.00 by expiration in May 2011. The significant erosion in the price of GAP’s shares, increased demand for put options on the stock and impending earnings have lifted the overall reading of options implied volatility on the supermarket operator 51.9% to 123.13% as of 12:35 p.m. in New York.