Verizon Communications, Inc. (VZ) – Activity in Verizon LEAPS suggests one strategist is positioning for shares in the communications company to trade at a substantially higher price by expiration in January 2013. Verizon’s shares are currently up 1.75% today to stand at $38.29 as of 12:15pm in New York. The stock is hovering just $0.66 below its 52-week high of $38.95 this afternoon, one day before Apple’s white iPhone 4 comes out. The phone will sell for a suggested retail price of $199 for the 16gb model at Verizon wireless stores in addition to AT&T stores and Apple’s online store. In VZ options, it looks like one bullish player purchased a call spread, picking up 4,000 deep in-the-money calls at the Jan. 2013 $35 strike at a premium of $4.86 each, and selling the same number of calls up at the Jan. 2013 $45 strike for a premium of $1.11 apiece. Net premium paid to initiate the spread amounts to $3.74 per contract, and positions the investor to make money above a breakeven share price of $38.74 through expiration in more than one year. Maximum potential profits of $6.26 per contract are available to the call-spreader should shares in VZ surge 17.5% over the next 20 months to exceed $45.00 at expiration. Verizon’s shares last traded above $45.00 back in December 2007.
Alere, Inc. (ALR) – The Waltham, MA-based medical supplies company with a focus in women’s health popped up on our scanners today after one trader initiated a large-volume spread in the January 2012 contract. Alere’s shares are down 2.6% at $37.57 just before 12:45pm. The company posted first-quarter earnings of $0.61 a share, which met analyst expectations, ahead of the opening bell this morning. It appears the investor responsible for generating nearly all of the day’s options volume on the stock is positioning for a rally in the price of the underlying. The size of the transaction, with total volume of 30,000 options, is substantial in comparison to overall open interest on the stock of 35,922 contracts. It looks like the options player responsible for the trade sold 15,000 puts at the Jan. 2012 $35 strike for a premium of $2.55 each, and purchased the same number of calls at a premium of $2.05 apiece at the higher January 2012 $45 strike. The investor pockets a net credit of $0.50 per contract on the trade, and keeps the full amount as long as Alere’s shares exceed $35.00 through expiration day next year. Additional profits start to amass in the event that the stock surges 19.8% over the current price of $37.57 to trade above $45.00 at expiration. The shares need not move at all, however, for the trader to walk away with the premium of $0.50 per contract in hand. The erosion of time value on the short puts will work in his favor should he decide to buy back the contracts at some point prior to January expiration day. But, the sale of the put options indicates the investor could wind up having 1.5 million ALR shares put to him at $35.00 each if the puts land in-the-money and are exercised at expiration. Options implied volatility on the stock is down 15.8% at 28.20% as of 1:00pm.
Silicon Image, Inc. (SIMG) – Shares in the provider of semiconductor products to equipment manufacturers in the consumer electronics, personal computer, mobile and storage markets jumped 19.7% this morning to an intraday high of $9.05 after the chip maker forecast greater-than-anticipated second-quarter sales of $51 million. Silicon Image reported first-quarter results after the closing bell on Tuesday, and was raised to ‘Buy’ from ‘Hold’ at Needham & Co. with a 12-month share price target of $11.00. Options traders who purchased calls in the front month yesterday are today holding far more valuable contracts. It looks like investors picked up around 1,230 calls at the May $7.5 strike on Tuesday for an average premium of $0.57 apiece ahead of the earnings report. The spike in the price of SIMG’s shares sent premium on the contracts sharply higher. Investors buying the same May $7.5 strike calls today paid an average premium of $1.39 apiece. Traders purchased roughly 530 calls today, while 675 call options traded to the middle of the market at that strike. The value of the call options purchased by traders acting ahead of the earnings announcement more than doubled overnight. Options implied volatility on Silicon Image dropped 24% by 11:35am in New York to stand at 57.29% post-earnings.
NXP Semiconductors NV (NXPI) – Substantial volume in October contract call and put options on chip maker NXP Semiconductors NV indicates one trader sees the price of the underlying stock remaining range-bound through expiration. Earlier in the month, NXP Semiconductors was rumored to be in takeover talks with Intel, Qualcomm and Broadcom, but the company’s Chief Executive quickly dispelled speculation and said NXP was not for sale. NXPI shares are currently down 3.3% to trade at $33.05 as of 1:10pm. The stock, which has 16,489 contracts in open interest, appeared on our ‘hot by options volume’ market scanner after more than 10,000 options changed hands in the October contract. It looks like one investor initiated a short strangle, selling around 5,000 calls at the October $37.5 strike at a premium of $2.85 each, and selling roughly 5,000 puts at the lower October $30 strike at a premium of $3.13 apiece. Gross premium pocketed on the transaction amounts to $5.98 per contract. The trader keeps the entire amount of premium as long as shares in the chip manufacturer trade within the boundaries of the strike prices described through expiration day. The investor may benefit from subsiding levels of implied volatility as well as erosion in the extrinsic value of the contracts over time. NXP Semiconductors is scheduled to report first-quarter earnings before the market opens on May 4, 2011. The $5.98 in premium provides limited protection from losses should shares swing sharply in either direction, but losses start to amass if the stock fall beneath the lower breakeven price of $24.02, or given a strong rally above the upper breakeven point at $43.48, by expiration day. NXPI shares have never traded anywhere near $43.48, but did trade under $24.02 at the end of January 2011.