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Red Hat, Inc. (NYSE:RHT)Shares of the software company are down 2.5% at $46.67 in the final hour of the trading session, but near-term options activity on the stock suggests investors are hoping for the stock to rally ahead of January expiration. Red Hat’s better-than-expected forecast for fourth-quarter profits of $0.21 to $0.22 a share, released during the company’s third-quarter earnings report after the close of trading yesterday, inspired a plethora of analyst upgrades and hikes in share price targets. Investors expecting shares to rebound in short order took advantage of the decline in premium on out-of-the-money calls, and purchased the majority of some 7,850 contracts exchanged at the January 2011 $48 strike today. It looks like bulls bought approximately 4,000 of the call options for an average premium of $0.87 apiece. Call buyers are prepared to make money should Red Hat’s shares rally 4.7% over the current price of $46.67 to surpass the average breakeven price of $48.87 by January expiration. Following earnings, the overall reading of options implied volatility on the world’s largest distributor of the open-source Linux operating system plunged 27.7% to 29.90% by 3:45pm.

Financial Select Sector SPDR ETF (NYSEARCA:XLF)The purchase of a massive chunk of March 2011 contract put options on the financials SPDR ETF appears to be the work of a cautiously optimistic options strategist hedging a large position in the underlying shares. Shares in the XLF, an exchange-traded fund designed to track the performance of the Financial Select Sector of the S&P 500 Index, are up 0.90% to stand at $15.95 as of 3:45pm in New York. The investor appears to have established a delta neutral hedge, buying 1,500,000 shares of XLF, and picking up 50,000 protective puts at the March 2011 $15 strike for a premium of $0.39 per contract on a 0.30 delta. It seems the trader is positioning for continued bullish movement in the price of XLF shares, but opting to shell out extra premium as well for downside protection in case the sector does not perform as expected in the first few months of 2011. Options implied volatility on the fund is higher by 5.7% to arrive at 20.88% as of 3:50pm.

Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA) Shares of the biotechnology company are currently down 1.00% to stand at $15.09 as of 10:50am in New York, but near-term put activity on the drug maker this morning indicates one strategist is positioning for the price of the underlying stock to collapse ahead of expiration day next month. Earlier this week, analysts at Goldman Sachs rated Momenta Pharmaceuticals at ‘neutral’ and assigned its shares a $15.00 price target. It looks like the pessimistic player initiated a debit put spread, buying 2,000 lots at the January 2011 $12.5 strike for a premium of $0.45 each, and selling the same number of puts at the lower January 2011 $7.5 strike at a premium of $0.10 apiece. Net premium paid for the spread amounts to $0.35 per contract. Thus, the options investor is poised to profit should shares in Momenta plummet 19.5% from the current price of $15.09 to breach the effective breakeven point on the spread at $12.15 ahead of expiration. Maximum potential profits of $4.65 per contract are available to the trader should Momenta’s shares plunge 50.3% lower to trade below $7.50 by January expiration. The investor responsible for the transaction may simply be purchasing cheap downside protection to hedge a long position in the underlying rather than positioning for an all out collapse in Momenta Pharmaceuticals in the near future. Options implied volatility on MNTA is up slightly by 4.4% to stand at 57.84% as of 11:15am.

Office Depot, Inc. (NYSE:ODP)Call buyers hit up Office Depot right out of the gate this morning with shares of the office supplies firm trading as much as 6.6% higher during the first half of the session to touch an intraday high of $5.16. Near-term bulls scooped up more than 2,700 calls at the January 2011 $5.5 strike for an average premium of $0.20 apiece. Investors holding these contracts start to make money if Office Depot’s shares rally another 10.5% over today’s high of $5.16 to surpass the average breakeven price of $5.70 ahead of January expiration. Optimism spread to the February 2011 $5.0 strike where some 1,500 in-the-money calls were purchased at a premium of $0.55 each. Investors expecting shares to jump in the next couple of months also picked up more than 1,800 calls at the higher February 2011 $6.0 strike for an average premium of $0.15 a-pop. Higher-strike call buyers are prepared to profit should shares in Office Depot surge 19.2% to trade above the average breakeven point to the upside at $6.15 by February expiration day.

Alcoa, Inc. (NYSE:AA)Bullish options activity on the largest U.S. aluminum manufacturer caught our eye this morning with shares in Alcoa trading higher by 0.75% on the day to arrive at $15.00 by 11:25am in New York. One near-term optimistic options player established a ratio call spread, buying 2,500 calls at the January 2011 $15 strike for a premium of $0.48 each, and selling 5,000 calls at the higher January 2011 $17.5 strike at a premium of $0.05 apiece. The net cost of the ratio spread amounts to $0.38 per contract, thus positioning the investor to make money if Alcoa’s shares rally above the effective breakeven price of $15.38 by expiration day next year. Maximum potential profits of $2.12 per contract pad the investor’s wallet if shares of the aluminum maker jump 16.7% to trade above $17.50 before the options expire in January. Alcoa’s shares traded up at a 52-week high of $17.60 back on January 11, 2010. It looks like the ratio call-spreader hopes to see shares rally back up around that level in the near future. But, the sale of twice as many January 2011 $17.5 strike calls could result in losses to the trader if Alcoa’s shares increase far more than he expects. The investor may absorb losses in the event that, at expiration, AA’s shares are up 31.4% to trade above the upper breakeven price of $19.71.

CVB Financial Corp. (NASDAQ:CVBF) The holding company for Citizens Business Bank popped up on our scanners after a large chunk of deep out-of-the-money put options changed hands in the March 2011 contract. Shares in CVB Financial Corp. are currently up 4.4% to stand at $8.97 just before 12:00pm in New York trading. It looks like one options trader picked up 20,000 puts at the March 2011 $5.0 strike for a premium of $0.20 per contract. The investor responsible for the transaction may be purchasing downside protection, or is perhaps initiating an outright bearish position that could appreciate in value if CVBF shares pull back significantly in the next several months to expiration. From an expiration-only view, the trader starts to make money if the price of the underlying stock plummets 46.4% from the current price of $8.97 to breach the effective breakeven point to the downside at $4.80 ahead of March expiration. The 20,000 put options exchanged on CVB Financial Corp. today are more than 2.55 times greater than the volume comprising overall previously existing open interest on the stock of 7,805 contracts.

Source: Wednesday Options Brief: RHT, XLF, MNTA, ODP, AA & CVBF