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Halliburton Co. (HAL)Investors are piling into put options on the oil services provider this afternoon following reports that suggest Halliburton shares culpability with BP for failing to act on warning signs that may have prevented the disastrous Deepwater Horizon oil spill in the Gulf of Mexico. At around 1:30 pm this afternoon, HAL’s shares descended into freefall, declining as much as 16.15% to an intraday low of $28.86 in the span of about 30 minutes. Shares gained some composure later in the session, but are still down 10.15% to stand at $30.93 as of 2:45 pm in New York. According to articles on the subject today, HAL submitted documents to the National Commission investigating the BP spill that showed that three out of the four tests of the foam cement conducted by Halliburton before the April 20 blowout indicated the mixture would be unstable. Although Halliburton shared the results of one of two tests conducted in February, neither BP nor Halliburton acted on the information from the foam-stability tests. Uncertainty regarding the impact this new information may have on HAL going forward sent options traders into overdrive and fueled a more than 89.7% increase in the stock’s overall reading of options implied volatility to an intraday high of 62.38%. Investors have driven options volume on Halliburton up to 225,000 contracts as of 3:05 pm. Volume is heaviest in the November contract with the $30 strike put options receiving the most attention. More than 19,000 puts have changed hands at that strike. But, traders are purchasing more bearish contracts as well in case HAL’s shares continue to suffer in the weeks ahead. Pessimists purchased puts at the November $25 strike, where more than 3,400 lots changed hands, at an average premium of $0.39 each. Near-term call options are quite active, as well. The majority of volume in November contract calls appears to be the work of sellers throwing in the towel on the HAL following today’s news story. Longer-term bearishness appeared in the April 2011 contract where one trader initiated a ratio put spread. It looks like the investor purchased 1,250 puts at the April 2011 $28 strike for a premium of $2.39 each, and sold 2,500 puts at the lower April 2011 $20 strike at a premium of $0.73 apiece. The net cost of the transaction amounts to $0.93 each and positions the investor to make money if HAL’s shares crash through the breakeven price of $27.07 by expiration day in April. Maximum potential profits of $7.07 per contract are attainable for this trader if shares plummet 35.3% from the current price of $30.93 to settle at $20.00 at expiration. Shares in Halliburton hit their 52-week low of $21.01 back on June 1, 2010.

BP Plc. (BP) The oil company’s shares are rallying on HAL’s misfortune this afternoon and leading options traders to eye further upside potential by picking up weekly and near-term calls on the stock. BP’s shares increased as much as 3.1% during afternoon trading to touch an intraday high of $41.35. Currently, the price of the underlying stock is up 1.3% to stand at $40.63 with less than 20 minutes to go before the final bell tolls. Bullish players scooped up some 5,900 calls at the October $41 strike for an average premium of $0.29 each, and picked up another 2,700 calls at the higher October $42 strike at an average premium of $0.10 apiece. Call buyers make money if BP’s shares exceed the average breakeven prices of $41.29 and $42.10, respectively, by expiration tomorrow. Optimism spread to the November $41 and $42 strikes where calls were also in high demand. Uncertainty regarding the impact of today’s news on BP going forward has lifted the stock’s overall reading of options implied volatility 17.8% to 32.00% as of 3:35 pm in New York.

USEC Inc. (USU)The supplier of low enriched uranium for commercial nuclear power plants appeared on our ‘hot by options volume’ market scanner after bullish players picked up January 2011 contract call options. USEC’s shares are up 8.65% to stand at $5.39 as of 1:05 pm in New York trading, but earlier rallied as much as 10.7% to touch an intraday high of $5.49. The price of the underlying stock shot up after the closing bell on Wednesday on news the U.S. Department of Energy is proceeding to the next phase of the $2 billion loan guarantee process for the firm’s American Centrifuge Plant in Piketon, OH. Shares in USEC Inc. have risen 56.85% to today’s high of $5.49 since touching down at a 52-week low of $3.50 back on November 30, 2009. Options traders looking for USU’s shares to continue to appreciate in the next several months purchased approximately 5,200 calls at the January 2011 $6.0 strike for an average premium of $0.32 each. Call buyers make money if shares jump 17.25% over the current price of $5.39 to exceed the average breakeven point at $6.32 by expiration day in January. USU shares last traded up at a 52-week high of $6.50 back on April 12, 2010. The firm is scheduled to report third-quarter earnings after the final bell tolls on November 2, 2010. Options implied volatility on the stock is up 24.9% this afternoon to arrive at 60.08% by 1:15 pm.

Sprint Nextel Corp. (S) The telecommunications company’s shares are down 0.90% this morning to stand at $4.26 one day after a disappointing third-quarter earnings report from the firm sent the price of the underlying down as much as 12.6% to Wednesday’s intraday low of $4.22. Analysts at RBC Capital Markets cut their rating on Sprint to ‘sector perform’ from ‘outperform’ with a 12-month target share price of $5.00. But, a large call spread purchased in the February 2011 contract on the stock today suggests one long-term bullish player is positioning for Sprint’s shares to improve over the next four months. The trader picked up 15,300 calls at the February 2011 $5.0 strike at a premium of $0.21 each, and sold the same number of calls at the February 2011 $6.0 strike for a premium of $0.05 apiece. Net premium paid to initiate the transaction amounts to $0.16 per contract. Thus, the investor is poised to profit should Sprint’s shares surge 21.1% over the current price of $4.26 to surpass the effective breakeven price of $5.16 by February expiration. Maximum potential profits of $0.84 per contract are available to the trader if shares jump 40.845% to trade above $6.00 by expiration day next year.

Potash Corp. of Saskatchewan, Inc. (POT)Shares of the world’s largest fertilizer producer are lower this morning despite the firm’s better-than-expected third-quarter earnings report, improving global demand for potash, and POT’s upward revision to its full-year earnings forecast. The stock is currently down 2.70% to stand at $143.36. The Canadian potash maker, which is the target of a $40 billion hostile takeover offer from BHP Billiton, earned $1.32 a share in the third quarter, which handily beat average analyst estimates of $1.16 a share. One big options player wary that shares may extend losses through November expiration initiated a sizable bearish put butterfly spread. The investor purchased 5,000 puts at the November $140 strike for a premium of $4.05 each [wing 1], sold 10,000 puts at the November $135 strike at a premium of $2.35 apiece [body], and purchased 5,000 puts at the lower November $130 strike for premium of $1.35 a-pop [wing 2]. The net cost of the transaction amounts to $0.70 per contract and positions the trader to profit if shares fall another 2.8% to breach the effective breakeven price of $139.30 by November expiration. Maximum potential profits of $4.30 per contract are available to the trader if Potash Corp.’s shares decline 5.8% to settle at $135.00 at expiration day. The butterfly spread could be the work of an investor building up downside protection on a long position in the underlying shares rather than one initiating an outright bearish bet on the stock. Options implied volatility on Potash is up 5.9% at 37.58% as of 12:10 pm.

Vale, Inc. (VALE) The world’s largest iron-ore producer popped up on our ‘most active by options volume’ market scanner in the first half of the session after a large chunk of call options were picked up in the December contract. Shares in Vale are currently up 0.70% to trade at $32.25 as of 11:45 am in New York. The Brazilian company reported third-quarter profit of $6.04 billion on higher prices and stronger demand for raw materials used to make steel. Executives at the firm said Vale is looking to increase production by an average of 16% per year between 2001 and 2015, while the company’s CFO said earlier today that the company plans to invest $24 billion in 2011. One bullish options investor hoping to see Vale’s shares rally significantly in the next couple of months purchased approximately 32,000 calls at the December $34 strike for an average premium of $0.98 apiece. The trader makes money if the mining company’s shares jump 8.456% over the current price of $32.25 to surpass the effective breakeven point on the upside at $34.98 by expiration day. Options players exchanged more than 44,000 calls at the December $34 strike by 11:55 am today versus previously existing open interest of 23,485 contracts.

Skechers USA, Inc. (SKX)Shares of the footwear maker are down 18.6% to arrive at $19.24 as of 12:15 pm in New York trading, but earlier fell as much as 19.6% to touch an intraday- and new 52-week low of $19.00. The Manhattan Beach, CA-based company posted third-quarter earnings of $0.74 a share on revenue of $554.6 million, which both missed consensus estimates of $1.02 a share and $572.2 million, respectively. Skechers was cut to ‘neutral’ from ‘outperform’ with a 12-month target share price of $23.00 at Wedbush today, and was downgraded to ‘hold’ from ‘buy’ at Capstone Investments today. Some investors populating SKX options today are betting shares will fail to rally back up to pre-earnings report levels by January 2011 expiration. These pessimists sold 2,000 calls at the January 2011 $24 strike to pocket premium of $0.47 per contract. Call sellers keep the full premium received on the transaction as long as Skechers’ shares trade below $24.00 through expiration day next year. Investors selling the calls may or may not be covered. If the latter is true, traders start to lose money should SKX shares surge 27.2% over the current price of $19.24 to trade above the effective breakeven point at $24.47 by January expiration. Skechers’ overall reading of options implied volatility is down 18.1% to stand at 51.60% following earnings.

Source: Thursday Options Update: HAL, BP, USU, S, POT, VALE & SKX