Archer-Daniels Midland Co. (ADM) – Warren Buffett’s comments that Archer-Daniels Midland is the “kind of company we look at” in regards to hunting for acquisition candidates fueled heavier than normal activity in ADM options, bumping its shares up as much as 1.8% and pushing options-implied volatility up 20.7% to 30.82% today. In an interview on Bloomberg Television this morning, Buffett also cited General Dynamics (GD) and Exelon Corp. (EXC) as attractive, but options on those names remain relatively quiet.
Shares in Archer-Daniels Midland, one of the world’s largest processors of corn, wheat, cocoa and other feedstuffs, were up 1.00% at $30.75 just before 1:00 pm on the East Coast. ADM call volume jumped, with calls changing hands roughly six times on the stock for each single put option in play. Much of the put activity, though light in comparison to interest in calls, appears to be the work of bullish players selling the contracts to harvest available premium. Investors positioning for shares to extend gains scooped up out-of-the-money calls across several expiries. Call volume is heaviest out at the September $31 strike, where more than 14,000 contracts changed hands against 3,476 previously existing open positions.
While roughly half of the calls traded to the middle of the market, it looks like at least 5,400 of the contracts were purchased for an average premium of $1.13 a pop. Call buyers profit if shares in ADM rally another 4.5% to surpass the average breakeven price of $32.13 by September expiration. Nearer-term optimists purchased August $32 and $33 strike calls for premiums of $0.57 and $0.28, respectively. These investors make money if shares climb around 6.0% and 8.2% by expiration next month. Fourth-quarter earnings from ADM are expected to hit the stands on August 2 ahead of the opening bell.
TRW Automotive Holdings Corp. (TRW) – Bearish options strategists tackled the supplier of automotive systems, modules and components this morning, with shares in TRW Automotive Holdings Corp. tumbling 8.4% to $54.46 by 12:05 pm in New York. The company’s second earnings report, scheduled for the morning of August 3, is right around the corner, and one pessimistic player purchased a put spread to position for shares in the underlying to extend losses through expiration next month.
It looks like the investor purchased 2,000 puts at the August $50 strike for a premium of $1.00 each, and sold the same number of puts at the lower August $45 strike at an average premium of $0.325 a pop. Net premium paid to initiate the spread amounts to $0.675 per contract. Thus, the investor stands prepared to profit should shares in the auto components supplier decline 9.4% from an earlier intraday low of $54.46 to breach the average breakeven point on the downside at $49.325 at expiration. Maximum potential profits of $4.325 are available to the bearish player in the event that TRW’s shares plunge 17.4% in the next six weeks to trade below $45.00 at expiration in August. The sharp decline in the price of the underlying coupled with the rise in demand for put options on the stock helped boost options implied volatility on TRW 18.8% to 38.04% in early afternoon trade.
Radware, Ltd. (RDWR) – Shares in Tel Aviv, Israel-based Radware are bucking the trend on the final trading day of the week, increasing as much as 4.50% to $36.50 during the first half of the session. The provider of application delivery and network security products popped up on our "hot by options volume" market scanner due to bullish activity in the September contract. It looks like traders scooped up around 1,235 in-the-money calls at the September $34 strike for an average premium of $3.49 each. More than 1,630 calls changed hands at that strike this morning against open interest of just two contracts. Call buyers profit if Radware’s shares rally another 2.7% to surpass the average breakeven price of $37.49 by September expiration. Investors holding the options could see the value of their positions soar or suffer following RDWR’s second-quarter earnings report ahead of the opening bell on July 26. Options-implied volatility on the stock moved up 4.6% to 43.95% by 11:30 am ET.
Biosante Pharmaceuticals, Inc. (BPAX) – The specialty pharmaceutical company’s shares shot up 9.1% today to secure an intraday and new two-year high of $3.47. Investors anticipating additional gains in the price of the underlying ahead targeted BPAX call options this morning. The stock was rated new Outperform with a target share price of $6.00 by an analyst at Leerink Swann yesterday. Bulls picked up more than 1,400 in-the-money calls at the August $3.0 strike for an average premium of $0.47 earlier in the session, when shares in BPAX were up, but had yet to reach their highs of the day.
Now, with shares up over 8.1% as of 1:15 pm ET, the August $3.0 strike call touts a far greater price tag of $0.62 per contract. The share price rally and 26.9% increase in options implied volatility on Biosante to 81.14%, jacked up the value of options on the biotech company today. Investors long the August $3.0 strike calls profit if shares in BPAX exceed the average breakeven price of $3.47 at expiration next month. Biosante Pharmaceuticals reports second-quarter earnings after the close on August 11.