Tuesday Options Update: ING, TMRK, BA, JPM, PRGO, ADP & CPB

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 |  Includes: ADP, BA, CPB, ING, JPM, PRGO, TMRK
by: Interactive Brokers

ING Groep N.V. (NYSE:ING)The Amsterdam-based financial services firm popped up on our scanners in the second half of the trading session after one bullish options trader populated the April 2011 contract with a bullish ratio risk reversal strategy. ING’s shares are up 3.35% to trade at $11.14 as of 2:35 pm in New York. The investor utilized 10,800 option contracts to take a bullish stance on the stock, which is sizeable in relation to the 15,233 lots of overall previously existing open interest. The trader sold 3,600 puts at the April 2011 $11 strike at a premium of $1.20 each in order to buy 7,200 calls at the higher April 2011 $13 strike for a premium of $0.55 apiece. The bullish player pockets a net credit of $0.10 per contract on the transaction, and keeps the full amount of premium received as long as ING’s shares exceed $11.00 through April expiration. Additional profits start to accumulate if the price of the underlying stock jumps 16.7% over the current price of $11.14 to surpass the effective breakeven point at $13.00 by expiration day. Shares in ING Groep last traded above $13.00 back on November 24, 2009. ING is slated to report third-quarter earnings ahead of the opening bell on November 10, 2010. The overall reading of options implied volatility on ING is down 4.8% to stand at 39.89% as of 2:45 pm.

Terremark Worldwide, Inc. (NASDAQ:TMRK) Shares of the provider of managed IT infrastructure services shot up as much as 13.9% during the session to hit an intraday- and new 52-week high of $11.12. Terremark posted a narrower-than-expected second-quarter loss of $0.12 per share yesterday evening and raised its fiscal 2011 sales view and guidance for the third quarter. The sharp rally in the price of the underlying shares and the firm’s improved outlook going forward inspired one cautiously optimistic options strategist to initiate a delta neutral hedge. It looks like the investor purchased roughly 288,700 TMRK shares at $11.0615 each and picked up 8,750 puts on an approximate delta of 0.33 at the April 2011 $10 strike for a premium of 1.05 per contract. This transaction positions the investor to benefit from continued appreciation in the price of Terremark’s shares, but also protects him in case shares should reverse course in the next six months to expiration. The overall reading of options implied volatility on TMRK plunged 19.1% to 47.71% following earnings.

Boeing Co. (NYSE:BA)The jetliner manufacturer upped its forecast for commercial aircraft demand in China over a 20 year period to $480 billion from $400 billion and said world air-cargo traffic is likely to return to its 2007 peak this year and subsequently grow at 5.9% annually over the next two decades. Despite the positive reports from the Chicago-based firm, shares of the world’s largest aerospace company are down 1.1% to stand at $69.69 as of 1:30 pm. One long-term bullish options trader reacted to Boeing’s rosier outlook for global aircraft demand by purchasing a plain-vanilla debit call spread in the January 2013 contract. The investor picked up 3,000 in-the-money calls at the January 2013 $65 strike for a premium of $14.25 per contract, and sold the same number of calls at the higher January 2013 $75 strike at a premium of $9.60 apiece. Net premium paid to initiate the spread amounts to $4.65 per contract. The trader stands prepared to make money should Boeing’s shares exceed the effective breakeven price of $69.65 through expiration day in January 2013. Maximum potential profits of $5.35 per contract are available to the options trader if BA’s shares surge 7.6% over the current price of $69.69 and trade above $75.00 by expiration.

JPMorgan Chase & Co. (NYSE:JPM)A short strangle initiated in JPMorgan’s December contract this morning indicates one options trader expects the price of the underlying stock to remain range-bound through expiration day in the final month of 2010. Shares of the financial services firm are currently down 0.95% to arrive at $37.06 as of as of 12:00 pm in New York trading. It appears the strangle-strategist sold approximately 10,000 puts at the December $36 strike for an average premium of $1.16 each in combination with the sale of roughly the same number of calls at the higher December $39 strike at an average premium of $0.79 a-pop. Gross premium pocketed by the seller amounts to an average of $1.95 per contract. The trader keeps the full premium received on the sale as long as JPM’s shares trade within the confines of the strike prices described through expiration day next month. But, this strategy is not without its risks. The investor will start to absorb losses in the event that, at expiration, JPMorgan’s shares are trading above the upper breakeven price of $40.95 or beneath the lower breakeven point at $34.05. Shares in JPMorgan Chase & Co. have traded above $34.05 for more than one year, but exceeded the upper breakeven price of $40.95 as recently as September 21, 2010.

Perrigo Co. (NYSE:PRGO)Shares of the manufacturer and distributor of over-the-counter and generic prescription pharmaceuticals are up 0.40% to stand at $67.24 this morning after the firm reported first-quarter earnings and raised its fiscal-year earnings forecast. The largest store-brand maker of OTC drugs recorded a 43% increase in profit, earning $74.4 million in the first quarter, as well as a 21% rise in revenue, posting sales of $641.3 million. Perrigo said it sees fiscal 2011 earnings coming in between $3.28 and $3.43 a share, up from earlier predictions of $3.08 to $3.28 per share. The drug maker appeared on our ‘hot by options volume’ market scanner in the first half of the trading session after one options strategist purchased a put spread in the December contract. The investor may be taking an outright bearish stance on PRGO because he expects shares to reverse course, alternatively the trader may have initiated the spread to protect the value of a long position in the underlying shares. It looks like the put player picked up 2,050 lots at the December $65 strike for an average premium of $2.31 each, and sold the same number of puts at the lower December $60 strike at an average premium of $0.71 apiece. The net cost of the transaction amounts to $1.60 per contract, thus positioning the trader to profit, or realize downside protection, if PRGO’s shares fall 5.7% from the current price of $67.24 to breach the effective breakeven point at $63.40 by December expiration. Maximum potential profits of $3.40 per contract are available to the investor should Perrigo’s shares plunge 10.75% lower to trade below $60.00 by expiration day next month.

Automatic Data Processing, Inc. (NASDAQ:ADP) The provider of business outsourcing services such as payroll, tax and benefits administration solutions popped up on our scanners after one options player ramped up bullish sentiment on the stock. ADP’s shares increased as much as 0.90% during the first half of the trading day to touch an intraday high of $45.13. The options trader populating Automatic Data Processing is revisiting the stock it seems in order to roll a sizeable position in near-term call options up to a higher strike price in the December contract. It looks like the trader originally purchased 5,000 calls at the November $44 strike for an average premium of $0.44 apiece back on September 30, 2010, when the price of the underlying shares were trading around $42.13. The subsequent appreciation in ADP’s shares boosted premium on the now in-the-money calls at the November $44 strike, allowing the trader to sell all 5,000 lots for a premium of $1.23 today. Average net profits on the sale of the call options amounts to $0.79 per contract. Next, the investor extended bullish sentiment on ADP by picking up a fresh batch of 5,000 calls at the higher December $46 strike for a premium of $0.54 apiece. Profits start to accumulate on the new position – from an expiration standpoint – if shares rally another 3.1% over today’s high of $45.13 to surpass the effective breakeven price of $46.54 by December expiration.

Campbell Soup Co. (NYSE:CPB) – Shares of the global manufacturer of branded convenience food products are up slightly by 0.15% this afternoon to trade at $36.25 as of 12:30 pm. The soup maker appeared on our ‘hot by options volume’ market scanner after a long-term bullish player initiated a debit call spread in the January 2012 contract. The investor appears to have purchased 3,000 in-the-money calls at the January 2012 $35 strike for a premium of $3.60 each, marked against the sale of the same number of calls at the higher January 2012 $40 strike at an average premium of $1.425 apiece. Net premium paid to establish the spread amounts to $2.175 per contract. Thus, the trader starts to make money if CPB’s shares increase 2.55% over the current value to surpass the average breakeven price of $37.175 by expiration. The investor may walk away with maximum potential profits of $2.825 per contract if Campbell’s shares surge 10.3% to trade above $40.00 ahead of expiration day. The food products company currently touts a 52-week high of $37.59, attained back on August 30, 2010.wilk