Research in Motion, Ltd. (RIMM) – Investors taking a long-term bearish stance on the Blackberry maker initiated put butterfly spreads on the stock today, which yield maximum benefits in the event that the stock is trading well beneath its current 52-week low by expiration in January 2012. Shares in the Ontario, Canada-based company fell as much as 2.8% during the session to touch down at an intraday low of $44.71. A number of analysts lowered their share price targets on RIMM in recent days as rival Apple continues to encroach on the company’s share of the smartphone market. Butterfly spreads on the stock suggest some options players expect RIMM’s losing streak to continue into next year. Investors purchased around 3,500 puts at the January 2012 $40 strike for an average premium of $3.77 each, sold 7,000 puts at the January 2012 $37.5 strike at an average premium of $2.83, and picked up 3,500 puts at the January 2012 $35 strike for an average premium of $2.10 apiece. Net premium paid to initiate the put ‘fly amounts to just $0.21 per contract. The parameters of the strategy imply an average breakeven share price of $39.79. Maximum potential profits of $2.29 per contract are available on the spread should shares in RIMM plunge 16.1% from the current price of $44.71 to settle at $37.50 at expiration in January. The strategy employed substantially reduced the overall cost of taking a long-term bearish view on the Blackberry provider. Investors long the butterfly spread paid an average of just $0.21 per contract, but could make up to $2.29 per contract if shares behave as they anticipate. The reward-to-risk ratio is a sweet 10.9-to-1 on this strategy. Options implied volatility on RIMM is up 7.4% as of 12:10pm in New York to stand at 46.35%.
MBIA, Inc. (MBI) – Put options on the insurer are active this morning ahead of the company’s first-quarter earnings report on Tuesday after the final bell. Shares in Armonk, NY-based MBIA are currently trading 1.5% lower on the session to arrive at $9.90 as of 11:05am. Almost all of the volume in MBIA put options was generated by one strategist populating the June contract. It looks like the investor initiated a debit put spread, buying 8,100 puts at the June $9.0 strike for a premium of $0.41 each, and selling the same number of puts at the lower June $8.0 strike at a premium of $0.15 apiece. Net premium paid for the spread amounts to $0.26 per contract. Thus, the put player profits if shares in the name drop 11.7% from the current price of $9.90 to breach the effective breakeven point on the spread at $8.74 by expiration day next month. Maximum potential profits of $0.74 per contract are available to the put spreader in the event that MBIA’s shares plunge 19.2% to trade below $8.00 at expiration. The trader responsible for the transaction loses the entire net premium of $0.26 per contract paid for the spread if the price of the underlying exceeds $9.00 through expiration day in June. The insurance company’s shares have traded above the spread’s breakeven price of $8.74 since August 26, 2010, and have not traded below $8.00 since July 2010.
H&R Block, Inc. (HRB) – Reports that a group of mortgage bond investors are seeking to have a now defunct subprime lending unit of H&R Block Inc. buy back billions of dollars in failed mortgages sent shares in the name sharply lower today and drove up demand for in- and out-of-the money put options on the stock. HRB’s shares fell as much as 9.4% during the first half of the session to an intraday low of $15.62, but are currently trading a lesser 5.6% lower on the day at $16.26 in early-afternoon trade. Investors populating HRB options are largely ignoring call options at the moment, and are instead trading nearly 25 puts on the stock for each single call option in action. More than 6,900 puts changed hands at the May $16 strike on previously existing open interest of just 658 contracts. It looks like the majority of the puts were purchased for an average premium of $0.36 a-pop. Put buyers make money if shares in H&R Block trade below the average breakeven price of $15.64 at May expiration. Fresh positioning in May $14 and $15 strike put options was also largely initiated by buyers bracing for shares to continue to decline in the near term. Some investors placed cheap speculative bearish bets on the stock, picking up around 122 puts at the May $13 strike for an average premium of 6 pennies per contract. A subsequent steep drop in the price of the underlying such as the one seen today ahead of May expiration would lift premium on the deep out-of-the-money puts to the benefit of buyers. Options traders who purchased put options around one month ago are now holding far more expensive contracts. It looks like investors purchased around 5,000 puts at the May $17 strike for an average premium of $0.55 apiece during the second and third weeks of April. The now in-the-money puts at that strike have just about doubled in value since they were purchased. Finally, bearish positioning spread to the June $15 strike where more than 5,000 puts changed hands on paltry previously existing open interest of just 90 contracts. The majority of these puts were purchased for an average premium of $0.53 apiece. Put buyers at this strike profit if the price of the underlying stock falls 11.0% from the current price of $16.26 to breach the effective breakeven point on the downside at $14.47 by expiration day in June. The spike in demand for HRB puts helped lift the stock’s overall reading of options implied volatility 43.1% to 44.14% by 12:35pm in New York.
Metlife, Inc. (MET) – A sizable put spread on Metlife this morning indicates at least one options player sees the potential for shares in the insurance company to pull back in the next six weeks. The stock is currently off slightly to stand 0.25% lower on the day at $44.71 as of 12:45pm in New York. It looks like the pessimistic player purchased a put spread within the first hour of the opening bell. The transaction involved the purchase of some 5,000 puts at the June $42 strike for a premium of $0.61 each, against the sale of the same number of puts at the lower June $38 strike at a premium of $0.17 apiece. Net premium paid to establish the bearish spread amounts to $0.44 per contract. The investor responsible for the trade starts making money if MET’s shares fall 7.0% from the current price of $44.71 to breach the effective breakeven point on the spread at $41.56 by expiration day in June. Maximum potential profits of $3.56 per contract are available to the put player if Metlife’s shares plummet 15.0% in the next six weeks to trade below $38.00 ahead of June expiration. Shares in Metlife have traded above $38.00 since November 30, 2010.