Thursday Options Brief: ANDS, FXI, GME, BIIB, TRA, WYN & AES

by: Interactive Brokers

Anadys Pharmaceuticals, Inc. (NASDAQ:ANDS) – Biotechnology firm, Anadys Pharmaceuticals, enticed a long-term bullish investor to shell out option premium in order to establish a debit call spread in the September contract. ANDS-shares are trading 0.45% higher on the day to $2.19 as of 2:25 pm (NYSE:ET). The optimistic options player purchased 3,000 calls at the September $2.5 strike for a premium of $0.55 apiece, marked against the sale of 3,000 calls at the higher September $5.0 strike for $0.15 each. The net cost of the call spread amounts to $0.30 per contract. The transaction positions the trader to accrue maximum potential profits of $2.20 per contract should shares of the underlying stock surge 128.3% over the current price to $5.00 by expiration day in September. Shares must rally at least 27.85% in order for the investor to break even on the trade at a share price of $2.80 each.

iShares FTSE/Xinhua China 25 Index Fund (NYSEARCA:FXI) – The China exchange-traded fund, which corresponds to the price and yield performance of an underlying index invested in 25 of the largest and most liquid Chinese companies, realized a 0.95% decline in the price of its underlying shares to $41.13 this afternoon. Investors touting long-term pessimistic outlooks on the fund purchased put options in the January 2011 contract. It appears some 25,500 put options were picked up at the January 2011 $35 strike for an average premium of $2.50 apiece. Put-purchasers could be seeking downside protection on long underlying share positions. On the other hand, the contracts may have been purchased outright by extremely bearish individuals anticipating a 21% decline in shares of the FXI to $32.50 ahead of expiration. Investors in this case reel in profits should the price of the underlying fund trade below $32.50 in the next nine months to expiration day in January.

GameStop Corp. (NYSE:GME) – Shares of the largest retailer of video games jumped more than 5.10% during the trading session to $19.22 due to speculation the firm may be acquired. Despite the current rally in GameStop’s shares to $19.22 today, the stock still stands 41.45% below its 52-week high of $32.82 attained back on April 13, 2009. Investors taken-in by the takeover rumors purchased approximately 10,300 calls at the March $20 strike for an average premium of $0.47 per contract. The call options ready these traders to enjoy profits should shares continue to increase ahead of March expiration next week. Shares must add 6.50% to their current value in order for call-buyers to begin to amass profits above the breakeven price of $20.47.

Biogen IDEC, Inc. (NASDAQ:BIIB) – An iron-condor initiated on biotechnology firm, Biogen IDEC, Inc., this morning indicates one investor expects shares to remain range-bound through expiration day in April. Shares of the underlying stock are trading 1% lower on the day at $58.12. The options player responsible for the transaction essentially established two credit spreads on the stock to take in option premium today. The condor involved the sale of 3,000 put options at the April $55 strike price for a premium of $1.03 apiece, and the purchase of 3,000 puts at the lower April $50 strike for $0.26 apiece. On the call side, the investor sold 3,000 lots at the April $60 strike for a premium of $1.80 each, and purchased the same number of calls at the higher April $65 strike for a premium of $0.77 apiece. The investor pockets a total net credit of $1.80 per contract, which he keeps if shares trade within the range of $55.00 to $60.00 through expiration day. While $1.80 per contract represents the maximum amount of profits available to the trader, potential losses are quite a bit higher. If shares trade outside of the price range described above in either direction, the investor faces maximum losses of $3.20 per contract. The credit received today does provide limited protection against losses. However, losses begin to accrue should Biogen’s shares trade above the upper breakeven point at $61.80, or if shares slip beneath the lower breakeven price of $53.20 by April expiration.

Terra Industries, Inc. (TRA) – Shares of the North American producer of nitrogen products slipped 0.45% during the session to $46.75, inspiring near-term bearish options trading in the March contract. It looks like one investor initiated a plain-vanilla debit put spread to brace for continued share price erosion ahead of expiration. The trader purchased approximately 16,000 puts at the March $46 strike for an average premium of $0.60 apiece, and sold about the same number of puts at the lower March $45 strike for $0.30 each. The net cost of the transaction amounts to $0.30 per contract and positions the investor to accrue maximum potential profits of $0.70 per contract should Terra’s shares trade at or below $45.00.

Wyndham Worldwide Corp. (NYSE:WYN) – The provider of hospitality products and services attracted bullish investors to the options field today as its shares increased 0.90% to attain a new 52-week high of $24.64. Options players positioned for continued upward movement in the price of the underlying stock by purchasing approximately 4,600 calls at the March $25 strike for an average premium of $0.38 apiece. Call-buyers are positioned to amass profits if Wyndham’s shares rally another 3% from the current price to surpass the effective breakeven point on the calls at $25.38 ahead of March expiration. The spike in demand for call options on the stock lifted Wyndham’s reading of overall options implied volatility 13.4% to 34.01% as of 12:15 pm (ET).

The AES Corp. (NYSE:AES) – The operator of power plants that provide electricity to clients around the globe realized a 2% improvement in its shares today to $11.49. The rally in the price of the underlying stock caught the attention of bullish investors with an appetite for call options. Traders picked up roughly 8,600 calls at the April $12.5 strike for an average premium of $0.19 per contract. Investors long the calls are perhaps anticipating continued bullish movement in the price of AES’s shares by expiration next month. Call-buyers profit if the electricity maker’s share price jumps 10.45% from the current value of the stock to exceed the breakeven point at $12.69 by expiration day. Options implied volatility appreciated 15% to 39.93% by midday on the east coast. More than 11,760 call options changed hands at the April $12.5 strike, which blows existing open interest of 692 contracts at that strike right out of the water.

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