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Caterpillar, Inc. (CAT) – The machinery maker’s shares fell during the past five trading sessions and started out this week on the decline, as well. Shares in CAT fell briefly this morning, but reversed course to rally as much as 1.8% to an intraday high of $108.27. But, the rebound in the price of the underlying stock today may not be a lasting trend according to some options players initiating bearish stances on Caterpillar today. It looks like one pessimist purchased a put spread, buying around 3,000 puts at the June $100 strike for a premium of $1.39 each, and selling the same number of puts at the lower June $90 strike at a premium of $0.26 a-pop. The net cost of initiating the spread amounts to $1.13 per contract. Thus, the trader starts making money if CAT’s shares drop 8.7% from today’s high of $108.27 to breach the effective breakeven point on the spread at $98.87 by expiration in June. Maximum potential profits of $8.87 per contract are available to the investor should shares plummet 16.9% to trade below $90.00 at expiration next month. Longer-term bearish sentiment appeared in January 2012 contract put options. One trader purchased 5,000 deep out-of-the-money puts at the January 2012 $72.5 strike for a premium of $1.59 each. Rising levels of options implied volatility on CAT as well as bearish movement in the share price will benefit the investor by lifting premium on the puts, while the erosion of time value on the long position will work against him. The puts may have been tied to stock. Options traders are exchanging roughly 1.6 put options on the stock today for each single call option in play as of 12:30pm in New York.

KongZhong Corp. (KONG)The Beijing, China-based wireless media company popped up on our scanner this morning due to predominantly bearish activity in June contract options. Shares in KongZhong Corp. plunged 24.9% during the session to touch an intraday low of $5.71. The company is scheduled to report first-quarter earnings after the final bell on May 24, 2011. Investors positioning for the stock to extend losses picked up put options at the June $5.0 strike. More than 3,500 puts changed hands at that strike on zero lots of open interest. It looks like most put players are buying the options for an average premium of $0.29 apiece. Put buyers make money if shares in KongZhong fall another 17.5% from today’s low of $5.71 to trade below the average breakeven price of $4.71 by June expiration. Shares in KONG last traded below $4.71 back in October 2009. The sharp drop in share price combined with the rise in demand for KONG put options lifted options implied volatility on the stock 86.1% to 116.21% in early afternoon trade. Investors are trading roughly 14.6 puts on the stock for each single call option in action thus far in the session.

Acorda Therapeutics, Inc. (NASDAQ:ACOR) Shares in the biopharmaceutical company are a shade lower this morning, but one options strategist populating the June contract appears to be positioning for a rally in the price of the underlying stock by expiration. Acorda’s shares currently stand 0.60% lower on the session at $25.89 as of 11:15am. It looks like the bullish player sold 2,500 puts at the June $25 strike at a premium of $1.15 each, in order to purchase the same number of call options up at the June $27 strike for a premium of $1.55 apiece. Net premium paid to initiate the transaction amounts to $0.40 per contract. The investor significantly reduced the cost of purchasing the calls, and therefore the share price at which he will break even. Profits are available to the trader should shares in Acorda Therapeutics rally 5.8% over the current price of $25.89 to exceed the breakeven point at $27.40 by expiration day in June. The short stance in June $25 strike puts suggests the trader expects ACOR’s shares to at least trade above $25.00 over the next five weeks, but is willing to have shares put to him at $25.00 in the event that the contracts land in the money and are exercised at expiration.

American Axle & Manufacturing Holdings, Inc. (NYSE:AXL) Call options on the auto parts manufacturer are active this morning with shares rising as much as 3.1% to an intraday high of $11.59. More than 5,200 calls have changed hands at the June $12 strike against open interest of just 306 contracts. Investors are buying and selling the calls, but it looks like the majority of traders are buying the options at an average premium of $0.40 each. Bulls purchasing the contracts make money if shares in American Axle & Manufacturing rally another 7.0% over today’s high of $11.59 to surpass the average breakeven price of $12.40 by expiration day next month. Shares in the auto parts supplier closed above $12.40 as recently as April 29, 2011. The increase in demand for AXL calls helped lift the stock’s overall reading of options implied volatility 7.6% to 43.42% just before 11:15am in New York.

Source: Monday Options Brief: CAT, KONG, ACOR & AXL