Monday Options Update: F, ALU, WMB, TLCR, PG & LNG

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 |  Includes: F, LNG, NOK, PG, TLCR, WMB
by: Interactive Brokers

Ford Motor Co. (NYSE:F)The automaker’s shares jumped 6.80% during the session to an intraday high of $17.41, the highest recorded share price for Ford Motor Co. since June 3, 2002. Options on Ford are extremely well trafficked today with shares surging to new heights and the market eagerly awaiting rival General Motors Company’s public stock offering. More than 2.2 call options are changing hands on the stock for each single put in play out of the more than 704,650 contracts exchanged on the automobile maker as of 3:45 pm in New York. Nearer-term call options are the most active, with volume in November $17 strike calls exceeding 70,800 lots ahead of the closing, bell versus previously existing open interest of 45,757 contracts at that strike. The majority of those in-the-money call options were purchased for an average premium of $0.46 apiece. Call buyers at this strike make money if Ford’s shares exceed $17.46 ahead of expiration on Friday. Buying interest spread all the way up to the sky-high November $20 and $21 strikes. More than 5,000 of the November $20 strike calls were picked up for an average premium of $0.03 a-pop. The premium on these contracts will continue to rise as long as Ford’s shares head higher in the next 4 trading sessions, and may provide call buyers the opportunity to bank handsome profits ahead of expiration day. The December $20 strike calls were even more popular, with some 17,000 lots purchased at an average premium of $0.15 each. Bullish players were also seen selling in- and out-of-the-money put options across multiple expiries. Near-term November $16 strike puts were the most heavily populated as upwards of 53,250 contracts changed hands by 3:50 pm. Strong demand for the automaker’s option contracts, GM’s impending IPO and the sharp shift in Ford’s share price today helped lift the overall reading of options implied volatility on the stock 9.4% to 45.92% late in the session.

Alcatel-Lucent (ALU)The telecommunications equipment company was the target of bullish options activity during the first half of the trading session. It looks like one investor initiated a long-term optimistic stance on the stock by selling out-of-the-money put options in the January 2012 contract. Shares in Alcatel-Lucent are up 0.70% in early-afternoon trading to stand at $2.96 as of 1:10 pm in New York. The strategist sold 8,000 puts at the January 2012 $2.5 strike to take in an average premium of $0.37 per contract. The trader keeps the full amount of premium received on the sale as long as shares in ALU exceed $2.50 through January 2012 expiration. But, the transaction is not without its risks. The investor could wind up having 800,000 shares of the underlying stock put to him at an effective price of $2.13 apiece if the puts land in-the-money by expiration day. Thus, the put seller starts to absorb losses if ALU shares plunge 28.0% from the current price of $2.96 to breach the effective breakeven point at $2.13 before the options expire in 2012. We note that Alcatel-Lucent’s shares have traded above $2.13 since July 13, 2009.

Williams Companies, Inc. (NYSE:WMB) Shares of the natural gas company are up 0.15% at $23.08 as of 12:35 pm in New York, but rallied as much as 1.95% at the start of the session to touch an intraday high of $23.50 on news the firm intends to buy 86,000 acres in Bakken shale for $925 million in cash from unnamed private sellers. Williams was rated new ‘neutral’ with a 12-month target share price of $25.00 at Susquehanna today. Call options on the Tulsa, Oklahoma-based firm are popular today following the upgrade and news of the North Dakota acreage acquisition. Investors expecting Williams’ shares to continue higher in the next few months picked up calls in the January 2011 and February 2011 contracts. Bulls purchased about 1,000 calls at the January 2011 $25 strike for an average premium of $0.73 each. But, volume was particularly heavy at the higher January 2011 $27 strike where more than 11,000 calls changed hands. It looks like traders bought the majority of the calls for an average premium of $0.33 per contract. Investors long the calls make money if WMB’s shares surge 18.4% over the current price of $23.08 to surpass the average breakeven point to the upside at $27.33 by expiration day in January. Another 1,300 calls were picked up at the higher January 2011 $28 strike for an average premium of $0.23 a-pop. Finally, call options changed hands more than 2,000 times at the February 2011 $26 and $27 strikes within the first 10 minutes of the trading session. The overall reading of options implied volatility on Williams Companies is up 4.3% at 37.34% as of 12:45 pm.

Talecris Biotherapeutics Holdings Corp. (NASDAQ:TLCR) The biotechnology company popped up on our ‘hot by options volume’ market scanner in the first half of the trading session after one strategist initiated a three-legged bearish spread in the March 2011 contract. Shares in Talecris Biotherapeutics are currently down 1.35% to stand at $22.76 as of 12:10 pm in New York trading. It looks like the options player sold 3,000 calls at the March 2011 $25 strike for a premium of $1.50 each, purchased the same number of puts at the March 2011 $22.5 strike at a premium of $2.60 apiece, and sold 3,000 puts at the lower March 2011 $17.5 strike for a premium of $0.55 a-pop. Net premium paid to initiate the spread amounts to $0.55 per contract. Thus, the investor is poised to profit should shares of the biotech firm fall another 3.55% to breach the effective breakeven point on the downside at $21.95 by expiration day in March. Maximum potential profits of $4.45 per contract are available to the trader should shares in Talecris plunge 23.1% lower to trade below $17.50 by March expiration. The investor may or may not be utilizing the spread to protect a position in TLCR shares. The sale of 3,000 calls at the March 2011 $25 strike could result in potentially devastating losses if the trader is uncovered and TLCR shares rally sharply ahead of expiration. If the investor is long the stock, it seems he is willing to have the shares called from him at $25.00 each in the event that the calls land in-the-money.

Procter & Gamble Co. (NYSE:PG) A bullish buy-write strategy on the consumer products manufacturer caught our eye this morning. It looks like one options player picked up a sizeable chunk of PG shares and simultaneously sold long-dated out-of-the-money call options against the stock. Shares in Procter & Gamble are up 0.40% at $64.59 as of 12:20 pm, but earlier rallied as much as 0.90% to hit an intraday high of $64.91. It appears the investor purchased 330,000 shares in PG for $64.8928 each, and sold about 10,000 calls at the January 2012 $70 strike for a premium of $2.03 each on a delta of about 0.33. The sale of the calls cheapens the price paid to get long shares of the underlying stock and establishes an effective exit strategy for the trader should shares breach $70.00 in the next 14 months. The investor may walk away with gains of approximately 11.35% if PG shares rally up from the effective purchase price of $62.8628 and trade above $70.00 by expiration day in January 2012. PG shares last hit their current 52-week high of $65.00 back on November 5, 2010.

Cheniere Energy, Inc. (NYSEMKT:LNG)Shares of the operator of liquefied natural gas receiving terminals and natural gas pipelines jumped 14.4% today to secure an intraday high of $5.00 after Citigroup upped its price target on the stock to $5.00 from $3.75. Bullish options traders expecting Cheniere’s shares to continue to climb ahead of December expiration scooped up call options. Investors purchased approximately 1,300 calls up at the December $6.0 strike for an average premium of $0.20 apiece. Call buyers at this strike make money if LNG shares jump 24% and trade above the effective breakeven price of $6.20 by December expiration day. Options implied volatility on the stock is up 5.5% as of 12:55 pm to arrive at 100.16%.