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Potash Corp. of Saskatchewan, Inc. (NYSE:POT) Investors are utilizing options on the Canadian potash producer to speculate on the direction shares are likely to take in the event that BHP Billiton opts to up their bid for the company from $40 billion. Potash Corp.’s shares fell as much as 4.1% this morning to an intraday low of $139.50 on news Canada sided with POT management’s opposition to the deal by blocking BHP’s hostile takeover bid. The ruling gives BHP until December 3, 2010, to revise its offer before a final decision is made on the matter. During the course of the session, POT’s shares parsed some of the earlier losses, and are currently trading 2.75% lower on the day at $141.48 as of 3:25 pm in New York. More than 337,000 option contracts have already changed hands on the stock with 35 minutes remaining before the final bell. One speculator eyeing the potential for POT’s shares to rally if a higher bid is extended by BHP initiated a sizeable call spread on the stock. The trader picked up 11,250 calls at the December $150 strike for a premium of $2.80 each, and sold the same number of calls at the higher December $160 strike at a premium of $0.85 apiece. The net cost of establishing the spread amounts to $1.95 per contract. Thus, the investor is prepared to make money should POT’s shares rally 7.4% over the current price of $141.48 to exceed to effective breakeven point on the spread at $151.95 by December expiration. The call-spreader could end up pocketing maximum potential profits of $8.05 per contract if the fertilizer manufacturer’s shares jump 13.1% to trade above $160.00 ahead of expiration day next month. Canada’s ruling on the hostile takeover took some wind out of the sails of uncertainty and sent POT’s overall reading of options implied volatility down 20.1% to 31.16% in late afternoon trading.

Qualcomm, Inc. (NASDAQ:QCOM)Shares in the biggest maker of mobile-phone chips jumped after it released profit and sales forecasts for the current quarter that beat analysts’ estimates. The better-than-expected outlook from the San Diego, CA-based company inspired a number of analysts to up their ratings and price targets on the stock. QCOM’s shares increased as much as 8.2% at the start of the trading session to touch an intraday high of $49.45, and are currently up 5.45% at $48.18 just before 2:15 pm in New York. More than 215,300 contracts have now changed hands on Qualcomm, and investors are displaying a slight preference for call options versus puts. An equity collar initiated in the January 2011 contract caught our eye today amid frenzied trading across a number of expiries. It looks like the investor responsible for the trade sold 12,500 calls at the January 2011 $52.5 strike for a premium of $0.60 apiece in order to partially finance the purchase of the same number of puts at the January 2011 $44 strike at a premium of $0.80 each. The investor paid a net premium of $0.20 per contract for the collar, which was tied to stock purchased at $48.45 on a 0.44 delta. The purchase of QCOM shares indicates the investor is bullish on the mobile-phone chip maker and hoping to see the rally continue ahead of expiration next year. Selling the calls to buy puts is a nice strategy because the puts offer downside protection in case the price of the underlying shares slides lower, while the sale of calls cheapens the price of this protection. Additionally, selling calls provides an effective exit strategy on the long stock position. If the calls land in-the-money by expiration, the investor may have the shares called from him at $52.50 apiece. In this scenario, he exits the position having gained roughly 8.35% on the rally in the price of Qualcomm’s shares to $52.50 from $48.45. QCOM’s overall reading of options implied volatility has contracted 24.5% to 23.82% in late afternoon trading.

Financial Select Sector SPDR Fund (NYSEARCA:XLF)A massive bull call spread was picked up on the financials ETF in the first 25 minutes of the trading session this morning by an investor positioning for a significant rebound in the financial sector of the S&P 500 by December expiration. The optimistic transaction follows the launch of the Fed’s second round of quantitative easing, the size and scope of which has steepened the yield curve and casts banks’ earnings in a rosier light going forward. The financial sector is currently outperforming the S&P 500 today, with XLF shares trading higher by 1.9% to arrive at $15.02 as of 1:10 pm in New York trading. The big bullish player picked up 125,000 now in-the-money calls at the January 2011 $15 strike for an average premium of $0.60 apiece, and sold the same number of calls up at the December $17 strike at an average premium of $0.08 each. The net cost of the transaction amounts to $0.52 per contract or $6.5 million and positions the trader to make money if the price of the underlying fund rallies another 3.3% to exceed the average breakeven price of $15.52 by December expiration day. If the trade comes good by expiration, the investor walks away with maximum potential profits of $1.48 per contract, or $18.5 million. More than 482,600 option contracts changed hands on the XLF by 1:15 pm.

iShares MSCI Emerging Markets Index Fund (NYSEARCA:EEM)Shares of the emerging markets ETF rallied more than 2.25% today to secure a new 52-week high of $48.58, inspiring frenzied options activity on the fund. One big player purchased a large-volume put spread on the fund, perhaps to protect the value of a position in the underlying shares. Alternatively, the huge put play may be a sign that this options market participant is expecting EEM’s shares to reverse course by expiration next month. The investor responsible for the transaction purchased 60,000 put options at the December $47 strike for a premium of $0.94 each, and sold 60,000 puts at the lower December $43 strike for a premium of $0.30 apiece. The trader paid a net premium of $0.68 per contract for the spread, which means he faces an effective breakeven price of $46.32. Shares of the EEM would need to fall 4.65% from today’s high of $48.58 for the investor to start make money, or for downside protection to kick in. Maximum potential profits of $3.32 per contract are available on this trade should the price of the underlying fund plunge 11.5% lower to settle below $43.00 by expiration day in December.

Navistar International Corp. (NYSE:NAV)Shares of the international manufacturer of trucks, buses and military vehicles are up 3.3% this morning to stand at $53.75 as of 10:45 am in New York after the firm said it delivered about 17,000 vehicles to U.S. and Canadian customers in the fourth quarter, and received more than 28,000 orders for its 2010 vehicles. Navistar popped up on our ‘hot by options volume’ market scanner due to activity in long-term call options. It looks like one trader initiated a debit call spread in the January 2012 contract to position for Navistar’s shares to appreciate substantially going forward. The investor picked up 1,500 calls at the January 2012 $65 strike for a premium of $6.20 each, and sold the same number of calls at the higher January 2012 $75 strike at a premium of $3.00 apiece. Net premium paid to establish the long-term bullish stance amounts to $3.20 per contract. Thus, the trader is prepared to make money should NAV’s shares jump 26.9% over the current price of $53.75 to surpass the effective breakeven point on the spread at $68.20 by expiration day. Maximum potential profits of $6.80 per contract are available to the investor should shares surge 39.5% to trade above $75.00 by January 2012 expiration. The vehicle manufacturer’s shares reached a 10-year high of $75.00 back on June 30, 2008. The current 52-week high of $58.00 was attained back on June 21, 2010.

SPDR S&P Metals and Mining ETF (NYSEARCA:XME)The XME, an exchange-traded fund that mirrors the performance of the S&P Metals & Mining Select Industry Index – an Index that represents industries such as steel, coal and consumable fuels, gold, precious metals and minerals, and mining, appeared on our scanners in the first half of the trading session after one strategist purchased a put spread in the December contract. The spread could be the work of an investor building up downside protection on a long position in the underlying fund, or a contrarian enacting an outright bearish bet that shares are set to decline before expiration next month. Shares of the ETF rallied as much as 4.07% this morning to hit an intraday high of $59.20, which is a scant $1.28 below the XME’s current 52-week high of $60.48, attained back on January 11, 2010. The put player purchased 5,000 contracts at the December $57 strike at a premium of $2.02 each, and sold the same number of puts at the lower December $53 strike for a premium of $0.90 a-pop. The net cost of the transaction amounts to $1.12 per contract and positions the investor to profit, or realize downside protection, if the XME’s shares fall 5.6% from today’s high of $59.20 to breach the effective breakeven point to the downside at $55.88 by expiration day. Maximum potential profits of $2.88 per contract pad the investor’s wallet if shares in the metals and mining ETF drop 10.5% and trade below $53.00 ahead of December expiration.

Source: Thursday Options Update: POT, QCOM, XLF, EEM, NAV & XME