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Smithfield Foods, Inc. (NYSE:SFD)Shares in the hog producer and pork processing company rallied as much as 5.95% this afternoon to touch an intraday- and more than two-year high of $24.04 following an upgrade to ‘buy’ from ‘hold’ with a 12-month target share price of $28.00 at BB&T Capital Markets. Options on Smithfield Foods are more active than usual today, but investors are favoring puts over calls as of 12:40pm. More than 2.6 puts are trading on SFD at present for each single call in action. Put volume is heaviest at the July $23 strike where more than 4,340 contracts have changed hands on open interest of just 609 lots. Investors bought almost all of the put options at the July $23 strike for a premium of $1.50 apiece. Put buyers make money if shares in the packaged meat provider plunge 10.6% from today’s high of $24.04 to breach the effective breakeven price of $21.50 ahead of July expiration. Demand for puts on the stock spread to the lower July $22 strike where more than 1,750 puts were picked up at a premium of $1.10 each, versus previously existing open interest of 213 contracts. Traders long the puts stand prepared to profit in the event that Smithfield’s shares drop 13.0% in the next four months to trade below the effective breakeven price of $20.90 by expiration day. The closeness in the timing of the put transactions at these strikes suggest one investor could be responsible for most if not all of the put activity described. The trader or traders responsible for the put buying may be outright bearish on Smithfield Foods through July expiration, or are perhaps building up downside protection on a long position in the underlying stock. The pork producer is scheduled to report fourth-quarter earnings ahead of the opening bell on June 16, 2011.

SandRidge Energy, Inc. (NYSE:SD) A large three-legged options combination play on SandRidge Energy appears to be the work of an investor expecting the price of the underlying to pull back from today’s new highs. The natural gas and oil producer’s shares rose 4.35% this afternoon, peaking at an intraday- and new 52-week high of $11.98. The pessimistic player traded a total of 50,000 options on SD, most of them puts, which position him to make money if shares reverse course ahead of September expiration. It looks like the investor sold 10,000 calls at the September $14 strike for a premium of $0.94 each in order to partially finance the purchase of the 20,000-lot September $9.0/$11 put spread for a net premium of $0.74 each. Premium received on the sale of the call options reduces the cost of the bear put spread to around a net cost of $0.37 per contract. Thus, the investor stands prepared to profit should shares in SandRidge fall 11.3% to breach the effective breakeven price on the spread at $10.63 by September expiration day. Maximum potential profits of $1.63 per contract are available to the three-legged bear if SandRidge’s shares plunge 24.9% from today’s high of $11.98 to trade below $9.00 within the next six months to expiration. The short calls at the September $14 strike expose the investor to potentially devastating losses in the event of a sharp move higher in SD shares unless the three-legged play was initiated to hedge a long position, and those short calls are covered. SandRidge Energy, Inc. reports first-quarter earnings after the closing bell on May 5, 2011.

CBS Corp. (NYSE:CBS) Put options on the mass media company are popular this morning with shares in the name vacillating about Wednesday’s closing price of $24.87. The stock started the session in rally mode before briefly dipping into negative territory. Shares in CBS Corp. are currently up 0.25% to stand at $24.93 as of 11:45am. Options traders piled into April contract puts earlier today suggesting some strategists are expecting the price of the underlying to pull back ahead of expiration next month. Investors exchanged more than 8,000 puts at the April $24 strike in the first half of the session on paltry previously existing open interest off just 264 contracts. Most of the puts appear to have been purchased for an average premium of $0.55 a-pop. Put buyers are poised to profit should shares in CBS Corp. drop 5.9% from the current price of $24.93 to breach the average breakeven point on the downside at $23.45 ahead of expiration day. The sharp rise in demand for puts on CBS helped lift the stock’s overall reading of options implied volatility 8.1% to 36.53% by 11:50am in New York. CBS Corp. According to reports out this morning, the entertainment provider’s Showtime pay TV service said Wednesday that by this summer, previous seasons of its original series such as “Dexter” will no longer be available on Netflix.

BioMimetic Therapeutics, Inc. (NASDAQ:BMTI)One options strategist dabbling in BioMimetic call options today appears to be positioning for shares in the biotechnology company to trade above their current 52-week by May expiration. Shares in BMTI climbed as much as 2.85% during the session to hit an intraday high of $12.99. Notable bullish plays in BioMimetic options cropped up recently, with a June $11/$15 call spread purchased on the stock just last Friday. The investor assuming a bullish stance on BMTI today scooped up around 2,000 calls at the May $14 strike for a premium of $1.70 each. The call buyer starts to make money on the trade if shares in BMTI jump 20.8% in the next couple of months to exceed the effective breakeven price of $15.70 by May expiration day. The calls are set to expire after the company reports first-quarter earnings after the close on May 10, 2011. BioMimetic’s overall reading of options implied volatility ticked up 8.4% to 79.52% this afternoon.

Source: Thursday Options Brief: SFD, SD, CBS & BMTI