Friday Options Update: FXI, GFI, MCO, KWIK, GME, JDSU, SVU

by: Interactive Brokers

iShares FTSE/Xinhua China 25 Index Fund (NYSEARCA:FXI) – A large-volume short strangle enacted on the FXI, an exchange-traded fund that tracks the price and yield performance of the FTSE/Xinhua China 25 Index – an index designed to mirror the performance of 25 of the largest and most liquid Chinese companies – implies one big options player expects shares of the underlying fund to train within a specified range through May expiration. Shares of the FXI are down more than 4% to $42.12 as of 12:15 pm ET. The strangle-player sold 25,000 calls at the May $44 strike for a premium of $0.93 each, and sold 25,000 puts at the lower May $42 strike for $1.09 apiece. Gross premium pocketed on the transaction amounts to $2.02 per contract. The investor responsible for the short strangle keeps the full $2.02 premium received today as long as the FXI’s share price remains with the range of $42.00 to $44.00 through expiration day next month. The short position in both call and put options exposes the trader to losses in the event that shares rally above the upper breakeven price of $46.02, or if shares slip beneath the lower breakeven price of $39.98, ahead of May expiration. Options implied volatility is up 11.4% to 30.82% as of 12:20 pm ET.

Gold Fields Ltd. (NYSE:GFI) – Shares of the gold mining company are down more than 5.2% to $12.35 today, but bullish options trading on the stock suggests one trader is itching for a rebound in the price of the underlying shares by July expiration. Gold Fields received an upgrade to ‘outperform’ from ‘sector perform’ earlier in the week at RBC Capital. The optimistic individual sold 7,000 calls at the July $15 strike for a premium of $0.20 apiece in order to partially finance the purchase of the same number of in-the-money calls options at the April $12 strike for $0.90 each. The net cost of getting long the near-term in-the-money options amounts to $0.70 per contract. The parameters of this transaction somewhat mimic those of a covered call strategy. This is because the in-the-money calls in the April contract – assuming shares are able to resist slipping beneath $12.00 through the end of the trading session – allow the investor to take ownership of shares of the underlying stock at an effective price of $12.70 each. Meanwhile, the short stance in July $15 strike calls provides the investor with an effective exit strategy should Gold Fields’ shares surge through $15.00 by expiration day. Shares of the gold mining company must increase 21.45% over the current price of $12.35 in order to exceed $15.00 in the next several months. If this occurs, the trader will have the underlying share position called from him at $15.00 each, and will walk away with gains of 18% on the rally in Gold Fields’ shares from the effective purchase price of $12.70 each to the selling price of $15.00 apiece.

Moody’s Corp. (NYSE:MCO) – Investors engaged in frenzied put buying behavior today given the 6.4% collapse in the price per share of the ratings agency to $27.75. Even with expiration looming for April contract options, investors opted to shell out premium to take ownership of puts. Bearish players purchased at least 2,400 now in-the-money puts at the April $28 strike for an average premium of $0.27 each. Traders long these contracts make money if Moody’s share price slips beneath the average breakeven point to the downside at $27.73. Buying interest continued at the lower April $27 strike where pessimists paid an average of $0.14 apiece to pick up 2,700 put options. These contracts expire worthless unless Moody’s shares drop beneath $27.00, and investors do not turn a profit unless shares decline another 3.2% to breach the average breakeven price of $26.86, ahead of expiration. Uber-bearish players purchased a minimum of 3,200 puts at the May $25 strike for an average premium of $0.52 apiece. Investors long these put contracts are prepared to profit should Moody’s shares plummet 11.8% from the current price of $27.75 to breach the effective breakeven price of $24.48 by May expiration day. Options implied volatility exploded during the first half of the trading day, and currently stands 52.5% higher at 49.84%.

Quicksilver Resources Inc. (NYSE:KWK) – The independent energy company engaged in the exploration, development and production of natural gas and oil in the U.S. received a near-term vote of confidence by one options investor today even though its shares surrendered 4.2% during the first half of the session to stand at $14.10. The optimistic options player displayed bullish sentiment on the stock by selling 7,000 puts short at the May $14 strike in order to take in a premium of $0.75 per contract. Premium pocketed on the put sale is safe in the investor’s wallet as long as Quicksilver’s shares trade above $14.00 through May expiration day. Put-selling in this case indicates the trader is happy to have shares of the underlying stock put to him at an effective price of $13.25 each in the event that the put contracts land in-the-money at expiration.

GameStop Corp. (NYSE:GME) – Shares of the videogame retailer are up 2.4% to $25.00 this morning on an upgrade to ‘buy’ from ‘hold’ with a 12-month target share price of $32.00 at BB&T Capital Markets where analysts mentioned GameStop’s 2010 earnings could exceed current estimates. Investors reacted to the upgrade by initiating bullish transactions on the stock. Optimistic players purchased roughly 3,800 call options at the May $27 strike for an average premium of $0.67 per contract. Plain-vanilla call buyers make money if GME’s share price surges 10.7% from the current value of the stock to surpass the average breakeven price of $27.67 by May expiration. Options implied volatility on GameStop is up 11.6% to 47.87% as of 10:50 am ET.

JDS Uniphase Corp. (JDSU) – Contrarian options players employed bullish strategies on the maker of telecommunications equipment this morning despite the 2.4% decline in the price of the underlying shares to $13.41. Investors positioned for a rebound – and new 52-week high – in JDS Uniphase’s share price in the next several weeks by picking up 11,600 call contracts at the May $14 strike for an average premium of $0.65 each. Call-coveters stand ready to accrue profits should JDSU-shares rally through the effective breakeven point on the calls at $14.65 by expiration day next month. JDS Uniphase Corp. attained its current 52-week high of $13.95 per share during Thursday’s trading session. Bullish investors long the May $14 strike calls are anticipating a fresh 52-week high, but the price per JDSU share must increase at least 5% over the current high of $13.95 in order for call-buyers to make money on the options purchased today.

Supervalu Inc. (NYSE:SVU) – The operator of a retail-grocery chain in the United States experienced a 0.40% decline in the value of its underlying share price this morning to $17.09, but the slight decline in price did not deter bullish options players from making their mark. Investors anticipating a significant rally and new 52-week high in Supervalu’s shares in the next several months purchased 3,000 calls at the July $20 strike for an average premium of $0.35 per contract. Call-buyers make money as long as SVU-shares surge 19% over the current price to exceed the average breakeven point at $20.35 by expiration day.

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