Friday Options Update: VLO, VRSN, USU, JAS

Includes: JAS, LEU, VLO, VRSN
by: Interactive Brokers

Valero Energy Corp. (NYSE:VLO) – The owner of refineries that produce gasoline and jet fuel attracted bullish options investors today amid a more than 3% rally in its share price to $19.39. Optimistic individuals picked up nearly 4,000 call options at the June $21 strike for a premium of $0.58 apiece. Call-buyers stand ready to accrue profits if Valero’s shares rally another 11.30% from the current price of the stock to surpass the effective breakeven point at $21.58 by expiration in June. Shares last traded above $21.00 back on October 26, 2009. Investors populating the options field on Valero today exchanged more than 2 call options for each single put in play thus far in the session.

VeriSign, Inc. (NASDAQ:VRSN) – Shares of the provider of internet infrastructure services rallied 1% during the session to attain a new 52-week high of $26.52. One options strategist, however, expects shares to remain range-bound through expiration day in June. The investor initiated a short strangle to take in option premium by selling an equal number of call and put options. The strangle was enacted through the sale of approximately 7,000 puts at the June $25 strike for a premium of $0.95 apiece, in conjunction with the sale of about the same number of calls at the higher June $27 strike for $1.35 each. Gross premium pocketed on the transaction amounts to $2.30 per contract. The investor keeps the full amount of premium if VeriSign’s shares trade within the boundaries of the strike prices described through expiration. Potentially devastating losses accumulate should shares of the underlying stock trade above the upper breakeven price of $29.30, or if the stock falls below the lower breakeven point at $22.70, ahead of expiration day in June.

USEC Inc. (USU) – The supplier of low enriched uranium for commercial nuclear power plants realized a 0.95% increase in the value of its shares to $5.29 during the first half of the trading session. A plain-vanilla debit put spread in the April contract suggests one investor is bracing for a potential pullback in the price of the underlying by expiration next month. The trader purchased 5,000 puts at the April $5.0 strike for a premium of $0.25 apiece, spread against the sale of 5,000 puts at the lower April $4.0 strike for $0.05 each. The net cost of the pessimistic play amounts to $0.20 per contract. Maximum potential profits – assuming no underlying share position is held by this individual – amount to $0.80 per contract should USEC’s shares plummet 25% from the current value of the stock to $4.00 by expiration day in April. The jump in options activity on the stock today lifted options implied volatility roughly 5% to 54.69%.

JAS – Jo-Ann Stores, Inc. – Shares of the Ohio-based fabric and craft retailer, with stores operating in f47 states around the country, rallied 2.15% to a new 52-week high of $40.45 today. Options trading on Jo-Ann Stores was dominated by one investor’s short straddle employed in the April contract. The total of 7,000 contracts involved in the transaction exceeds total existing open interest on the stock of 5,819 lots. The investor sold 3,500 in-the-money calls at the April $40 strike for a premium of $1.90 apiece, and shed 3,500 puts at the same strike for a premium of $1.60 each. Gross premium enjoyed by the trader amounts to $3.50 per contract. The total premium is safe in the investor’s wallet if Jo-Ann’s shares settle at $40.00 at expiration. The premium received on the trade provides limited protection against potential losses should shares move significantly in either direction. Losses do accumulate, however, if shares of the underlying stock trade above the upper breakeven price of $43.50, or if shares slip beneath the lower breakeven point at $36.50 ahead of expiration day.