Ford Motor Co. (F) – The automaker’s shares are up 0.55% at $16.78 heading into the close this afternoon after earlier rising as much as 0.95% to an intraday high of $16.85. Bullish options traders expecting Ford’s shares to continue to rally higher over the next six months sold in-the-money put options in the June 2011 contract today. Bank of America/Merrill Lynch reiterated their ‘buy’ rating on the stock, upped their target share price on Ford Motor Co. to $24.00 from $20.00, and revised higher earnings estimates for 2011 and 2012 for the automaker. Optimistic options investors looked to the June 2011 $17 strike to sell some 16,000 in-the-money puts to receive premium of $1.92 per contract. Put sellers keep the hefty chunk of change received on the transaction as long as Ford’s shares exceed $17.00 ahead of expiration day next year. The sale of the contracts suggests traders are more than happy to have shares of the underlying stock put to them at an effective price of $15.08 each should shares fail to rally sufficiently, and the put options trade in-the-money at expiration.
Microsoft Corp. (MSFT) – Bullish risk reversals initiated using Microsoft call and put options expiring in July 2011 are signs of investor optimism on the software company. Microsoft’s shares started out the session in the black but have slipped lower in the final hour of trading, losing 0.70% to stand at $27.04 as of 3:10 pm. One options strategist is positioning for shares in MSFT to rebound sharply ahead of July expiration by selling a total of 15,000 puts at the July 2011 $23 strike for a premium of $0.83 each, in order to buy the same number of calls at the higher July 2011 $30 strike at a premium of $0.97 apiece. The net cost of the risk reversal amounts to $0.14 per contract, providing relatively cheap upside exposure should Microsoft’s shares take off in 2011. Shares of the software developer must rally 11.5% over the current price of $27.04 in order for the stock to exceed the effective breakeven price of $30.14 on the calls by expiration day.
Quicksilver, Inc. (ZQK) – Call options on the California-based maker of clothing for the skateboard and surfing enthusiast are in fashion with options traders today on reports the company may be the target of a takeover. Shares in Quicksilver surged 22.25% this afternoon to touch an intraday high of $5.66. Rumors that Paris-based PPR SA, a luxury goods group touting high-end brands such as Balenciaga, Bottega Veneta and Stella McCartney, may be interested in buying Quicksilver sent speculators straight to the options playing field. Investors picked up in- and out-of-the-money calls across multiple expiries, driving options volume on ZQK above 4,380 by 2:55 pm, which is nearing the overall level of open interest on the stock of 5,641 contracts. Options traders purchased more than 920 in-the-money calls at the December $5.0 strike for an average premium of $0.32 each. Bullish players also scooped up more than 910 calls at the higher February 2011 $6.0 strike for an average premium of $0.29 apiece. More than 1,150 calls changed hands at that strike thus far in the session versus paltry previously existing open interest of just 139 contracts. Call buyers at this strike are prepared to make money should shares in Quicksilver jump 11.1% over today’s high of $5.66 to surpass the average breakeven price of $6.29 by expiration day in February. Options implied volatility is higher by 8.1% to arrive at 61.33% as of 3:00 pm in New York.
Lululemon Athletica, Inc. (LULU) – Christmas arrived early for investors in Lululemon Athletica with the athletic apparel maker’s shares rallying more than 19.65% today to a new all-time high of $66.66. LULU’s shares jumped after the Canadian company reported third-quarter earnings that shattered Street estimates. The designer of high-quality yoga apparel and accessories earned $0.36 a share in the quarter, which easily blew the lid off average analyst estimates of $0.25 a share. Lululemon said it expects to earn between $0.46 and $0.48 a share on revenue of $210 to $215 million in the fourth quarter. Investors were chomping at the bit before the opening bell to get in on the action and commenced call buying right out of the gate this morning. It looks like bulls bought more than 1,400 now in-the-money calls at the December $60 strike for an average premium of $4.19 each, and purchased another 1,100 in-the-money calls at the higher December $65 strike at an average premium of $1.51 apiece. Approximately 1,000 calls were picked up at the December $70 strike, the highest available strike price in the front month, for an average premium of $0.32 per contract. Call buyers gravitated to the longer-term January 2011 contract, as well. Investors appear to have purchased the majority of the more than 3,670 calls exchanged at the January 2011 $70 strike for an average premium of $1.61. LULU’s overall reading of options implied volatility fell more than 21% at the start of the trading session to 40.25%, but is currently down a lesser 11% on the day to stand at 45.36% just before 1:00 pm in New York.
Eastman Kodak Co. (EK) – Call options on Eastman Kodak are in high demand today with shares of the imaging products and services firm rising as much as 13.6% this morning to an intraday high of $5.42. Options traders hoping the current rally is one of many bullish Kodak moments to come scooped up in- and out-of-the-money calls in the December and January 2011 contracts. Investors purchased at least 1,900 in-the-money calls at the December $5.0 strike for an average premium of $0.30 apiece, and picked up another 1,500 contracts at the higher December $5.5 strike at an average premium of $0.14 each. Bullish sentiment spread to the January 2011 $5.0 strike where some 2,500 in-the-money calls were coveted at an average premium of $0.63 a-pop. Trading traffic is heaviest at the higher January 2011 $6.0 strike where more than 7,350 call options changed hands as of 12:15 pm. At least 3,800 of these call options appear to have been purchased for an average premium of $0.25 per contract. Call buyers at this strike are poised to profit should Kodak’s shares jump 15.3% over today’s high of $5.42 to surpass the average breakeven price of $6.25 by January 2011 expiration day. The sharp rise in demand for call options on EK and the substantial shift in the price of the underlying helped lift the overall reading of options implied volatility on the photo-firm 38.1% to 77.50% in early afternoon trade.
CNO Financial Group, Inc. (CNO) – Shares of the insurer are currently up 6.05% to trade at a new 52-week high of $6.82 as of 11:25 am in New York trading. One options strategist is positioning for the price of the underlying stock to continue to climb in 2011. It looks like the investor initiated a calendar spread, buying 6,745 in-the-money calls at the January 2011 $6.0 strike for a premium of $0.70 each, and selling the same number of longer-dated calls at the January 2012 $7.5 strike at a premium of $0.77 apiece. The trader pockets a net credit of $0.07 per contract on the spread. The investor may decide to exercise his right to purchase some 674,500 shares of the underlying stock at an effective price of $5.93 a share by January 2011 expiration. The spread would then mimic that of a covered call strategy. The short position in January 2012 $7.5 strike calls serve as an exit strategy on the position in the underlying, dictating maximum potential gains of 26.475% if shares rally up from an effective purchase price of $5.93 a share to $7.50, as long as the longer-dated contracts land in-the-money ahead of expiration day in more than one year. Of course, it is also possible the investor responsible for the spread has different plans in mind to perhaps unravel or adjust his position in CNO call options going forward. Options implied volatility on CNO Financial Group is lower by 5.2% to stand at 37.32% this morning.
Smithfield Foods, Inc. (SFD) – The hog producer and pork processing firm popped up on our scanners this morning due to activity in January 2011 contract call options. Smithfield’s shares surged 10.8% during the session to hit an intraday high of $19.61 after the firm swung to a second-quarter profit of $0.86 a share, versus a net loss of $0.17 a share in the same period last year. Investors itching for continued bullish movement in the price of Smithfield’s shares looked to the January 2011 $20 strike to pick up more than 3,000 calls for an average premium of $0.59 per contract. Call buyers at this strike are prepared to make money should SFD’s shares rally another 5.00% over today’s high of $19.61 to exceed the average breakeven price of $20.59 ahead of expiration day next month. Open interest at the January 2011 $20 strike is sufficient to cover volume in calls traded during the current session many times over. But, it looks like call buyers today are building upon long call positions at that strike. Back on November 18, 2010, it seems approximately 19,000 calls were purchased for an average premium of $0.45 each. Investors that bought the calls for a premium of $0.45 each in November are now holding calls worth roughly 31.1% more, on average.