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BP PLC (BP) – Options volume, options implied volatility and the value of shares in BP are on the rise ahead of a press conference in which the oil company will reportedly shed light on a possible deal with the Russian state-controlled oil company, Rosneft (OTC:RNGZY). Volume in options traded on BP is fast approaching 270,000 in the final 30 minutes of the session, with shares in the name having rallied as much as 4.1% to touch an intraday- and more than 6-month high of $49.50.

The overall reading of options implied volatility on the stock continues to climb as well, currently standing 30.1% higher on the session at 30.16% as of 2:55pm. Investors populating BP options are trading call options on the stock more than 2.2 times for each single put option in action. Trading traffic in calls is heaviest at the January $50 strike where more than 18,600 contracts have changed hands. Investors were also seen buying higher-strike calls in the name, with 12,500 calls exchanged at the January $52.5 strike on open interest of just 3,834 lots.

The majority of these call options traded on the ask for an average premium of $0.18 each. Bullishness spread to the higher January $55 strike where more than 4,500 calls were picked up at an average premium of $0.05 a-pop. Similar buying patterns were observed in February contract calls, albeit at lower volume. Meanwhile, put options expiring at the end of next week received a good deal of traffic as well. More than 26,500 puts changed hands at the January $47 strike, versus previously existing open interest of just 4,401 contracts. Investors appear to be buying the puts, perhaps to lock in gains, hedge a long position in the underlying shares, or to speculate on a near-term pullback in the price of the underlying. Upwards of 13,100 puts were bought and sold in roughly equal numbers at the closer-to-the-money January $48 strike ahead of the closing bell.

Weatherford International Ltd. (NYSE:WFT) – Activity in long-dated call options on the provider of oil equipment and services indicates one options trader foresees substantial appreciation in the price of Weatherford’s shares over the next 12 months. WFT shares are currently up 2.8% to stand at an intraday- and new 52-week high of $23.88 as of 1:50pm in New York. The bullish options trader purchased a sizeable call spread, buying 10,000 lots at the January 2012 $30 strike for a premium of $1.31 per contract, and selling the same number of calls up at the January 2012 $40 strike at a premium of $0.25 apiece. The net cost of the transaction amounts to $1.06 per contract. Thus, the investor responsible for the spread is positioned to profit should shares in Weatherford surge 30% over today’s high of $23.88 to surpass the effective breakeven price of $31.06 ahead of expiration day next January. Maximum potential profits of $8.94 per contract, or $8.940 million, are available to the trader should WFT’s shares jump 67.5% to trade above $40.00 before the contracts expire in 2012.

ITT Corp. (NYSE:ITT) – Shares of the manufacturer of a range of engineered products edged 0.65% lower this afternoon to $59.06, returning some more of the big gains posted earlier this week on the firm’s plans to split itself into three publicly traded companies. ITT Corp.’s shares surged 21.6% from Monday’s low of $52.61 to a new 52-week high of $64.00 on Tuesday, bringing the stock up 52.2% off its August 25, 2010 52-week low of $42.05. Investors populating ITT Corp. options today are employing bullish tactics also observed during trading on Thursday. Investors paid an average of $0.60 per contract to buy more than 13,000 calls at the April $65 strike this afternoon. Call buyers at this strike are poised to profit should shares in the name surge 11.1% over the current price of $59.06 to surpass the average breakeven point to the upside at $65.60 ahead of April expiration. Options traders purchased more than 12,000 calls at the same strike yesterday for an average premium of $0.85 apiece.

AMR Corp. (AMR) – Investors expecting shares of the operator of American Airlines to fly higher ahead of August expiration appear to be selling out-of-the-money call and put options in order to finance the purchase of in-the-money call options. Shares in AMR Corp. are up 0.80% this morning to stand at $8.63 as of 11:20am in New York. A large portion of total volume in August contract call and put options was generated by one strategist placing a three-legged bullish ratio spread on the airline operator. It looks like the investor picked up 7,000 in-the-money calls at the August $8.0 strike for a premium of $1.78 each, sold 14,000 calls at the higher August $12 strike at a premium of $0.42 per contract, and sold 14,000 puts down at the August $6.0 strike for premium of $0.32 apiece. The net cost of the transaction amounts to just $0.30 per contract, and positions the investor to make money above an effective breakeven share price of $8.30 through expiration day. Maximum potential profits of $3.70 per contract are available to the trader should shares in AMR Corp. jump 39% over the current price of $8.63 to settle at $12.00 at expiration in August.

The sale of twice as many calls and twice as many puts significantly reduces the cost of putting on the directional play, but is not without certain risks. The trader faces potentially devastating losses to the upside if AMR’s shares rally harder than he expects before the contracts expire. Losses start to accumulate in the event that shares increase 81.9% in the next seven months to surpass the upper breakeven price of $15.70. Furthermore, the sale of twice as many puts implies the investor could have shares of the underlying stock put to him at $6.00 apiece if the stock loses altitude and the puts land in-the-money at expiration. AMR Corp. is scheduled to report fourth-quarter earnings before the market opens on Wednesday of next week.

Olin Corp. (NYSE:OLN) – The commodity chemicals company popped up on our "hot by options volume" market scanner within the first hour of the trading session after one investor initiated a delta neutral combination spread involving Olin stock and near-term call options. Shares in Olin Corp. are currently up 1.20% to stand at $20.50 as of 12:05pm in New York. It looks like the investor is prepared to benefit from upward or downward movement in the price of Olin’s shares through January expiration. The trader sold 325,000 shares of the underlying stock at $20.27 each, and purchased 5,000 in-the-money calls at the January $20 strike for a premium of $0.50 apiece on a 0.65 delta. The profit and loss profile on the transaction is such that the investor will benefit from share price erosion on the short stance in OLN shares.

Meanwhile, the value of the long calls will grow significantly, trumping losses on the short stock position, as long as the price of the underlying continues to rise before the contracts expire next week. Delta on the call options has edged up to 0.85 as of 12:15pm from the 0.65 delta at which the transaction was initiated this morning. The January contract calls expire well in advance of Olin Corp.’s fourth-quarter earnings report after the close of trading on January 31, 2011.

Verigy, Ltd. (NASDAQ:VRGY) – One options strategist has had a change of heart regarding the likelihood that Verigy’s shares will rise in any meaningful way in the final week remaining before January expiration. Shares of the manufacturer of advanced test systems and solutions for the semiconductor industry slipped 0.90% in early afternoon trade to $13.15 as of 12:30pm. It looks like the formerly bullish player has thrown in the towel on a large debit call spread, unraveling the position today to take in the premium still left on the table. The trader originally accumulated a 13,000-lot January $13/$14 strike call spread at an average net cost of $0.61 per contract between December 30, 2010, and January 3, 2011.

Shares in Verigy were trending higher at the end of last year on reports the firm received a sweetened $15.00 per share takeover bid by rival chip-tester, Advantest (NYSE:ATE). Verigy’s shares jumped up to $13.75 on the takeover scenario, but have since pulled back somewhat. Analysts at Citigroup (NYSE:C) upped their share price target on VRGY yesterday on a more positive view a deal will take place and maintained a ‘hold’ rating on the stock. But, it seems perhaps that the dwindling amount of time remaining before the near-term calls expire spurred the investor to take down the trade today. The investor sold the spread this morning for an average net premium of $0.25 per contract, thus absorbing a net loss of $0.36 per contract on the closing sale. The overall reading of options implied volatility on the stock fell 8.2% to 51.61% by 12:50pm.

Nanometrics, Inc. (NASDAQ:NANO) – Shares of the supplier of advanced process control metrology systems used in the manufacturing of semiconductors rallied as much as 27.65% this morning to hit an intraday- and new 6-year high of $17.17 following Intel’s (NASDAQ:INTC) better-than-expected earnings report last night. NANO’s shares as well as shares in other chip equipment makers were lifted after Intel projected it will hike capital spending by 73% this year to $9 billion. The huge jump in shares of Nanometrics inspired demand for in- and out-of-the-money calls on the stock. Bullish players scooped up more than 1,225 now in-the-money call options at the January $16 strike for an average premium of $0.39 apiece. Call buyers at this strike start to make money if NANO’s shares exceed the average breakeven price of $16.39 through expiration next week. More than 1,770 calls have changed hands at the January $16 strike in the first half of the session on zero previously existing open positions. Nanometrics will report fourth-quarter earnings after the closing bell on February 10, 2011.

Source: Friday Options Brief: BP, WFT, ITT, AMR, OLN, VRGY & NANO