Last night, at about 11:30 EST, Abu Dhabi gave a $10Bn bailout to Dubai (until the end of April, anyway) with the following statement from Sheik Ahmed bin Saaed Al Maktoum, chairman of the Dubai Supreme Fiscal Committee: "We are here today to reassure investors, financial and trade creditors, employees, and our citizens that our government will act at all times in accordance with market principles and internationally accepted business practices."  That was enough to send the Hang Seng from down 300 points to up 300 points in less than 30 minutes of trading (on both sides of their lunch break) while the Shanghai went from -2.2% to +1.7% and the Nikkei also reversed a 100-point drop, but only managed to get back to even at the close. 

US futures trading also went wild, up over 100 points at the time but we’ve given up about half of those gains as of 7:30.  Does it make sense that the Dubai crisis, which dropped us from 10,450 back to 10,250 when it came up, should be the catalyst to get us over 10,500 just because they were bailed out?  Of course it doesn’t - that’s why we went to cash.  This is one of the most ridiculously irrational markets I’ve ever seen.  The other "good" news this morning is also the same old songs:  Citigroup will repay their $20Bn TARP loan by diluting their stock by about 20% and GS says oil will go to $85 early next year.   

I don’t know why they even bother to pretend anymore - they should just put 10 market-boosting statements on a chip that randomly plays one of them whenever the MSM needs a quote for the morning.  People don’t seem to notice it’s the same thing over and over and over again so why even bother with the pretense?  Speaking of pretense - I mentioned in the Weekend Wrap-Up that we expected this nonsense this morning but, had I realized that Greenspan AND Cramer were going to be on Meet the Press yesterday, I would have gone more bullish as those are the two biggest market hypers GE could have used for this week’s quotes.

Europe seems happy enough with Asia’s recovery and all the bull*** commentary (that’s bullISH - what were you thinking?) and they are up about a point ahead of our open DESPITE the FACT that Q3 euro area employment is down 0.5%, the fifth straight quarter of contraction.  All sectors reported declines, except public services, health and education.  October euro area industrial output was also down 0.6%, the first contraction since March.  Production was down 11.1% vs. a year ago.  Yes - 11.1% WORSE than last year.  Economists, however, expected a steeper 0.8% decline so yay - I guess…

As we usually do on a Monday, we have to plan to switch off our brains and simply watch our levels.  Other than the silly Dow, we are no closer to making new highs than we were last Monday.  There is little change to our level watch in general as we still need to see those 27.5% levels broken to call this anything but a range top and the NYSE is STILL not even over the 25% line, nor are the Transports, who are still below their retrace level.

No wonder our plays from 2 weeks ago performed so well last week - NOTHING HAPPENED!  Since most of our trades are the selling of premium, we love it when an entire week goes by the market doesn’t move.  Sure it can go up 500 and down 500 - we don’t care - as long as it ends up in the same spot and last Monday morning we were at Dow 10,388, S&P 1,105, Nas 2,194, NYSE 7,182 and Russell 602.  So it was a big, fat nothing for the week last week but today they’ve got the hype machine cranked up all over again because 67,200 brand new suckers were born over the past 7 days and Cramer, Greenspan, Goldman and all the other carnival barkers are going to do whatever it takes to bring ‘em into the tent.

XOM pitched in this morning with a $31Bn deal to by natural gas giant XTO and that’s boosting the entire energy sector but it’s an all stock deal, which is kind of like you buying 20% of your neighbor’s house at an inflated value by pledging to give him 20% of your house at the same inflated value and then holding a press conference to tell investors: "Look how valuable our houses are!"  Once again, at a birth rate of 6 suckers a minute, you can do stupid crap like this and make it work…

As a bullish hedge, I was struck by the still very high premiums in the Russell Index Futures that we can take advantage of as they sit right on the 600 line.  You can buy the Dec $590 calls for $14 and sell the $600 calls for $7.50 and sell the Jan $560 puts for $7.50 which is a net $1 credit and you collect $10 more if the Russell holds 600 through expiration, at which point you can set a stop on buying back the puts or just ride them out for an additional gain if we stay bullish.  I’ll be making a similar play on IWM and other ETFs for members in chat this morning as we need some upside covers but it’s likely to be more of a watch and wait day as we see how high they can push it.

Be careful out there.

Once again the market has staged a spectacular recovery on virtually no volume and mixed news.  While we went into last weekend just a little bit bearish (about 55%), this Friday the market topped out about 150 points higher than last Friday, closer to the top of our range so we went much more bearish on Friday, perhaps too bearish considering this was the best Friday finish since Nov 6th and we haven’t had a down Monday since October 26th.

Our plays this week turned very bearish to balance out the more bullish set we took in the first week of the month (see last week’s Wrap-Up).  Almost all of our bullish trade ideas have already made 20% and some are way over our goals as we were able to cash out a lot more winning bullish plays and press our bearish plays, turning the $100K Portfolio extremely bearish and twice as invested as last week.  Big winners from the last wrap-up included:

• DIA $104 puts sold at $2.25, now $.55 - up 75%
• DIA $103 puts sold at $1.65, now .30 - up 81% 
• SONC Jan $10 puts sold for .85, now .55 - up 35%
• DIA $104 puts sold at $2.55, now $55 - up 78%
• BAX artificial buy/write (too complicated to summarize) - over goal already!
• AMZN Dec $150 calls sold at $4, now .10 - up 98%
• USO Dec $39 puts at .82, now $3.50 - up 326%
• FXP Dec $8 puts sold for .70, up 64%
• OIH Dec $120 calls sold at $3.25, now .27 - up 92%
• AMZN Jan $140/135 bear put spread at $2, now $3.60 - up 80%
• IWM $60 puts sold for $1.30, now .72 - up 44%
• NSH June buy/write at $18/20.25, now $25.86 - ahead of goal  
• AMZN Dec $145 puts sold at $5 (average), now .25  - up 85%
• AMZN Dec $150 calls sold at $3, now .10 - up 96%
• TBT June $42/26 bull call spread at $1.80, now $2.60 - up 44%
• TBT June $42 puts sold for $2.15, now $1.30 - up 40% (pair trade)
• SRS Dec $8 puts sold for .42, now .17 - up 60%
• FXP Jan $6 calls at $1.40, now $2.10 - up 50%
• IYR Dec $46 calls sold for .85, now .20 - up 76%
• USD Dec $30 calls sold for $1.80, still $1.80 - up 43%
• DIA Dec $104 puts sold at $1.60, now .55 - up 65%

Of course we had a few trades from that week that went bad too as well as many that are still in progress.  Our big misses were:

• SRS at $8.50, now $8.14 - down 4%
• X Dec $45 calls sold for $1.86, now $2.50 - up 34%
• AGU Dec $60 calls sold at $1.85, now $3.40 - down  83%
• VIX Dec $22.50/24 bull call spread at .45, now .25 - down 44%
• UGL Dec $49/50 bull call spread at .45, now .20 - down 55%

So, what did we do right and what did we do wrong?  Keep in mind we’re ignoring the use of sensible stops when we do these reviews to simply track the performance of the pick.  The key is having balance and we try to keep a variety of bullish and bearish trade ideas so we don’t get blown out one side or the other.  Shorting AMZN multiple times was our play of that week as we took advantage of a Cramer pump, something we did again this week, shorting RTH but no big payoff yet. 

I wouldn’t call SRS a loser but we only had a few so I listed them.  It was one of our few stock plays and we do like them long-term so we wait patiently.  X really took off on us despite (or maybe becuase of) the tarrif war with China and the collapse of other commodities.  AGU was bad to us last week but much better behaved this week, where we shorted them again at $65.  UGL was, of course, a counter to our very gold-bearish GLL plays, which worked out  just fine. 

This week, we onced again mixed it up nicely but had far fewer trades than the 80 of the previous two weeks, as we got less and less confident with what the market is doing and more and more interested in sticking with cash in this very silly market:

Monday Market Movement

We started this week off in confusion as I said, right at the top of Monday’s post, that we could go either way from the middle of our range.  As it turns out, we went both ways - down to or 10,250 target for the Dow (25% up from the July base) and back to the top of our range at 10,500 at Friday’s peak.  The other 25% watch levels I set up in Monday’s post were S&P 1,100, Nas 2,187, NYSE 7,200 and Russell 600 were all broken on Wednesday and all but the NYSE have recovered on Friday.  This Monday will be easy as we can just reuse all of last week’s levels. 

What we expected for the week is pretty much what happened, as I said at the close of Monday’s morning post: "Volume should be light so anything can happen but we’ll be watching copper at the $3.20 line and oil at $75 to see if things are really breaking down from a demand perspective.  As discussed in the Wrap-Up, we went into the weekend still loaded for bear but, if the levels do hold - we’re going to have to respect that and we’ll add some more upside plays, mainly to cover as we’re not flipping until we have clear break-outs."  Obviously, not much has changed.

• IYT Dec $73 puts at .80, now .45 - down 44%
• ABX Jan $37.50 puts sold short at $1.15, now $1.45 - down 26%
• PWR 2011 $12.50/Feb $17.50 (1/2 cover) at net $6, now $6.30 - up 5%
• POT Dec $125/120 bear puts spread at $2.50, now $3.70 - up 48%
• DIA $103 puts at .70, closed at .95 - up 36%
• CEPH 2011 $60/Jan $60 (2/3 cover) at net $6.35, now $7.10 - up 12%
• BAC 2011 $10/17.50 bull call spread at net $4.30, now $3.35 - up 22%

It was a flat day for the markets, the worst Monday we had had in some time but still green.  We went into the close fairly neutral and missed some of the fun of the next day’s drop but we had so many bearish positions already, it wasn’t time to get too daring.  Based on the stick-save into the close, we expected a boost in the futures but my 3:44 comment to Members was: "not expecting a major global meltdown tomorrow (but, then again, we never actually expect them do we?)."

Test Tuesday - Things Start To Go Wrong

100 people in Baghdad were killed in a car bombing and German Industrial Production numbers missed and fears of Dubai ran rampant while Moody’s said both the US and the UK were in danger of losing their Aaa ratings on the same day Fitch dropped Greece to BBB+.  All this Bernanke summarized in his speech at the Washington Economic Club as "formidable headwinds." 

I predicted we’d open at 10,320 and we did but we bounced right of 10,250 so we couldn’t get too bearish despite MCD reporting a 0.6% drop in sales in November and the ICSC Retail Sales Report shoing a 1.3% drop for the prior week. 

• SRS at $8, now $8.14 - up 2%
• NYX 2012 $25/Mar $25 at net $3.30, still $3.30 - even
• BA 2012 $50/65 bull call spread at $6, now $5.85 - down 3%
• BA 2012 $40 puts sold for $5, now $5.20 - down 4% (pair trade)
• DIA $103 puts sold at $1.30, now .30 - up 77%
• ABX Jan $37.50s sold at $1.20, now $1.45, down 20%
• DIA Dec $103 calls at $1.12, now $2.25 - up 100%
• SRS Jan $8 puts sold at .62, now .57 - up 8%
• TIVO artificial buy/write (too complicated to summarize) - on target
• USU Apr buy/write at $2.75/3.38 - on track
• UGL Jan $44/47 bull call spread at $1.40, now $1.20 - down 14%

Here’s where we made our big mistake for the week.  We expected a bounce off the 2.5% market drop to Dow 10,285, S&P 1,090, Nas 2,158, NYSE 7,095 and RUT 590 and at 2:30 I said to Members "I think this is the blow-off bottom of the W that takes us higher" and at 3:09 I said "It’s really just a percentage game.  We’ve held these levels since early November and I’m not convinced that we have enough bad news to make today the day we break it.   Today makes 4 out of 5 down days (and yesterday was hardly an up one) and that hasn’t happened since 10/30 (where we gapped up the next day) and before that 10/1 - also the bottom of a sell-off  Between that, the 2.5% rule and the 25% lines, the odds are very much in Mr Stick’s favor - if not today then tomorrow."  So we should have played it perfectly but we didn’t.  

Which Way Wednesday - Hedging for Disaster

While we did expect a bounce for the day it was starting to feel like it was time to start hedging for some real downside.  I pointed out that last time we felt the need for disaster hedges (last October) our levels were: Dow 10,650, S&P 1,135, Nasdaq 2,000, NYSE 7,400 and Russell 700 and our hedges worked out very well then, this time we went for 4 new ones to start with:

• DXD Apr $26/33 bull call spread at $2.40, now $2.50 - up 4%
• FAZ July $20/35 bull call spread at $2.90, now $2.90 - even
• SDS March $38/50 bull call spread at $2.10, now $1.75 - down 17%
• SMN Apr $11 calls at $1, now $1.15 - up 15%

We identified SDS as the riskiest trade at the time but it also has the biggest pay-off at 6:1 if we hit it.  Notice that the DXD and FAZ are both doing their job, holding onto their value despite an almost 300-point run off Wednesday’s open.  Oddly enough, setting up disaster protection like this is step one in preparing us to go a bit more bullish IF we finally break over our levels but, at the moment, we are watching this chart of investor sentiment as my theory is we are currenly in the spot marked "Denial," where it will take very little to change that 87% bullish sentiment to "Fear," which may be followed by "Desperation, Panic, Capitulation and Depression." 

Others may insist we are only in the early stages of coming out of "Depression" since March and that the better than 60% gains in the past 9 months are the beginning of a rally, not the top of one.  I figure if we are really only half-way to the top, then we won’t miss too much by being a little cautious here, at what just MIGHT be a top.  As I said in the morning post: "Keep in mind that this morning we are playing for our bounces but by no means bullish overall.  Goldman’s market goose of the day is to announce that there will be no Fed hike until 2012 so all aboard the free money express.  Of course, someone should tell GS that the money train left the station a long time ago and, unless the Fed is going to start paying us to borrow money, rates aren’t going any lower."

• DIA Dec $103 calls at $1, stopped at $1.15 - up 15%
• AGU Dec $65 calls sold at $1, now .65 - up 35%
• ORCL artificial buy/write (too complicated to summarize) - on target
• BAC/2012 $10/Jan $16 spread at $6.49, now $6.45 - down 1%
• FTR artificial buy/write (too complicated to summarize) - on target
• AGU Dec 65 calls sold at $1.70, now .65, up 62%

That was it for the day.  We had a big stick save into the close which seemed fake and we didn’t top our bounce levels so, although our official stance was to 1/2 cover into the close (just 55% bearish), I went more aggressive on the $100K Portfolio and left it very bearish, which was a shame becuase we got the gap up we expected Wednesday morning the next day…

Foreclosure Thursday - The Stealth Stimulus

This is what threw me for the week.  Jobless claims were UP 17,000 to 474,000, completely defying the supposed -11,000 NFP number for November we heard last week.  Jobless claims have not gone below 450,000 for an entire year yet we are supposed to believe that 2M people must be GETTING jobs to offset the declines.  I’ve spoken to a lot of people and I’ve read the ADP reports and not one person has talked about all the new people that they are training at work but that doesn’t stop the market from going up on nothing in particular.

Aside from that, we were once again back up on a huge futures spike, and the Dow would be up 200 points over Wednesday’s lows by by 9:35.  I said to members at 10:55: "So I’m looking over positions and I’m not so bearish as I want to cash in short puts I’ve sold so I guess I’m thinking we do hold around 10,200 through next week - just hopefully at the lower end of the 10,200 to 10,500 range.  We may not get a proper breakdown until January unless there is a huge catalyst.  Look how JPM negates oil, Soros negates UK and Greece in one press release and Pimco negates Dubai buy spending 0.001% of their funds on some bonds.  With 83% bullish sentiment, any idiocy is treated like great news."  I decided to go for it (very bearish) in the $100KP but, of course, the regular member picks were more sensibly mixed: 

• DIA Dec $103 puts at .50, now .30 - down 40%
• AGU Dec $65 puts sold at $1.70, now .65 - up 62% (can’t say I didn’t mention them enough!)
• FCX $75 puts at .90, gave up at .90 - even
• VZ 2012 $30/40 bull call spread at $3.50, still $3.50 - even
• C 2011 $5 calls at .48, now .50 - up 4%
• RTH Jan $90 puts sold for $1, now .80 - down 20%
• OIH Dec $115 calls sold at $2.05, now $1.60 - up 22%
• RIMM artificial buy/write (too complicated to summarize) - on target
• USO Dec $36 puts at $1.10, now .95 - down 16%
• IWM Dec $59 calls at $1.40, now $1.55 - up 11%
• FCX Dec $75 puts at .70, done at .90 - up 29%
• TBT 2011 $45/55 bull call spread at $3.30, now $3.95 - up 21%
• TBT June $44 puts sold at $2.10, now $1.95 - up 7% (pair trade)

So, not a terrible day but more downs than usual as we thought we’d get a turn down that didn’t come.  The 30-year note auction at 1pm went terribly, with rates flying up to 4.52%, a huge move from the previous week and interest was very light.  Once upon a time, this by itself would have sent the market down 300 points but we barely dipped below 10,400 before going back up and then again we were saved from that line into the close.  

Familiar Friday Morning - Deja Vu All Over Again!

We’ve certainly been here before - the relentless toppy market, looking like it may break out any moment and maybe one day it will but there just wasn’t enough volume in the market thrust to give us confidence they can keep it up.  As I said above, it’s scary to short the market over the weekend but, faced with a poorly constructed rally, it seemed worth the chance.   

Maybe it is possible to cobble together a breakout with nothing but pre-market pumps in the futures, stick saves in the afternoon and MSM hucksterism, celebraing every mediocre data-point as if it was as important as Marco Polo opening a new spice route or Posh Spice playing polo on a Segway (which isn’t actually important but does make for fun word-play).  So we layered on the bearish plays and hoped for sanity to return over the weekend but, if not, we’ll be adding some bullish plays (we’re certainly well covered to the downside now!).

• RTH Jan $90 puts at .75, now .80 - up 7%
• IYT Jan $71 puts at $1.35, now $1.20 - down 11%
• ADCT artificial buy/write (too complicated to summarize) - on target
• FDX Jan $85 calls at $5.50, now $5.25 - down 5%

We didn’t hit our target on selling the DIA put put covers and that put us into a very bearish stance into the weekend.  I’m more worried this weekend than last as we’re more committed to the downside than we were before and the market is closer to a break-out than it was before. Bullish sentiment is at a frenzy but it’s all going to be about the Retail numbers over the next couple of weeks, which is where we really think there’s going to be a weak spot. 

We’ll be watching our levels, as usual, for the signal to switch of our brains and BUYBUYBUY on the breakout but we haven’t gotten it yet in a month’s worth of attempts so we’ll just have to wait and see.  On Tuesday we get PPI data along with the Empire Manufacturing Survey and Industrial Production.  Wednesday we see Building Permits and Housing Starts along with the CPI Report and a Fed decision.  Thursday gives us the usual Jobless Claims, Leading Economic Indicators and the Philly Fed Report so no shortage of data but how the market will react is anyone’s guess these days. 

Just 14 shopping days to Christmas!

At the beginning proceed with caution – or – FOR GOD”S SAKE DON”T DO WHAT I DID!

If you’re reading this article, understand that I’ve walked in your shoes. Like you I was a new member to Phil’s Stock World, arriving on the site looking for companionship and education on my options journey.   Probably like you, I had read a few books on options, dabbled in some trades, made and lost some money, but I was still looking for a system, as well as a teacher.

Having read Phil’s daily posts on Seeking Alpha, I was both amused and intrigued, here was someone who spoke plain English, obviously had some education, a passion for the markets, and an opinion on most everything! He also wrote on the importance of “being the house” – of being the on the side of the odds, and being consistent in an approach to investing.  All these things appealed and made sense to me, and after reading the article Phil wrote on “How to Buy Stock for a 15-20% Discount” I decided to jump in with both feet. Being a quick study, I took the plunge in late 2008, just in time to have a single, very successful month in December.

Wow – 10-15% gains in my first month! It was a great Christmas Season! I was going to retire early! Obama took office with great promise, and I was keenly optimistic for 2009. I invested heavily, in a variety of sectors, across the board. I sold lots of premium, and things were looking good.

Well, you know what happened next, things went bad, then worse, and then downright scary!  I had a number of sleepless nights, and the more I read, both on Phil’s favorites as well as the main street media, the worse things looked.  I did my best, but on a number of issues, I pulled the plug and panicked.  Not understanding how to roll down, I just sold, generally exactly when I should have been buying.  In my first three months of trading, I probably lost 30% of my holdings.

Fortunately, I have some background (martial arts training) that taught perseverance, and I didn’t bail out on my new education altogether.  I don’t expect you to understand from a martial arts perspective – but there’s a great summary on lifelong learning called “Mastery” by George Leonard – a former editor at Esquire.   If you’d read this book, I think it will help your options mastery education a great deal.  I was down, but not out.   Convinced that I’d found not only a good teacher, but a good community of fellow investors, I pressed on.   I started to actually read what sufficed for the beginners guide, I read the older posts, and I started to join the daily chat.  I asked my dumb questions, got Phil’s generally patient answers, and learned.  I remember when I first understood what it meant to “double down” – which was like a revelation for me.  I started to actually practice more patient, often smaller, and more successful trades (see “The Man Who Planted Trees”).  Its taken several months, but my losses have all turned around, and I’m now comfortably in the black.

So – learn from my mistakes - the first thing that I would encourage you as a beginner to do is to NOT invest anything until you have read the site – both the daily articles and the chat – for at least two-three months.  Ideally, I’d say that it would be useful to read the site both during market open hours, as well as re-reading the days chat after hours, when you can go back and understand the approach as well as the language.  Phil has his own jargon, and he’s not going to change it for you, so you’ll need to develop a lexicon as well as an understanding of the approach, so it will take some time.

Second, and after you’ve read the site for a few months, you should select a few stocks that you like, and begin to execute some small trades with the accompanying option plays.  I’d recommend a couple that you may take from Phil’s many suggestions, and a couple on your own (we all learn better from our own mistakes – as there’s no-one else to blame).  At the beginning, it would be beneficial to start with just 100 shares of each position, and for reasoning on that I’ll refer you to the strategy section here.  Your objective at this stage is not to make money, and of course its also not to lose money – you’re objective is to learn how to trade in a system – selling premium.

So my young paduan, with that all said, I’m going to wrap up the first chapter with a quick summary of your homework:

1. Read for a few months the articles and the daily chat.
2. Read Mastery
3. Watch “The Man Who Planted Trees”
4. Then…and only then… start to make some small investments based on Phil’s approach

This is the first in a series of articles aimed at Members new to Options Trading. 

EWJ - iShares MSCI Japan Index Fund – Shares of the Japan exchange-traded fund rose 0.3% today to $9.92. The roughly 125,000 contracts exchanged on the fund today is likely the work of one investor adjusting previously established positions. The trader may be unraveling a portion of a bearish risk reversal established back in late-September. It appears 62,500 puts were sold at the March 10 strike for 53 cents apiece, spread against the purchase of the same number of calls at the January 2011 12 strike for 24 cents premium each. The technically bullish direction of the risk reversal play is possibly a closing transaction given the large levels of existing open interest at each strike described above.

RX - IMS Health, Inc. – Shares of the provider of prescription information to the pharmaceutical and healthcare industries plummeted 14% to $18.34 at the start of the trading session. The stock collapsed on news senate democrats proposed an amendment to restrict data-mining practices. Investor uncertainty, as measured by option implied volatility, exploded today on fears the proposed ban may hurt RX’s recent $5.2 billion sale to TPG Inc. and the CPP Investment Board. IMS Health’s shares recovered significantly by midday (EDT) with the stock down a lesser 7.5% to $19.77. Frenzied option traders vied for both calls and puts in the December and January contracts. Investors exchanged nearly 100,000 contracts on the stock in the first three hours of the trading day. Today’s volume blew right past the previous existing open interest on RX of 73,386 contracts. Heavy trading volume and rising investor uncertainty launched option implied volatility up as much as 401.72% to a one-year high of 70.55%. Some traders appear to be selling call options to buy puts in the December contract, while other investors initiated plain-vanilla put buying strategies. Bearish individuals shed more than 6,000 calls at the December 20 strike for an average premium of 46 cents apiece. Traders keep the premium received on the sale if shares of RX remain below $20.00 through expiration. Put buyers favored the December 17.5 strike where roughly 10,000 puts were picked up for about 46 cents each. Some of the puts were spread against the sale of higher strike call options, while other contracts were purchased outright. Roughly 5,000 puts were purchased at the lower December 15 strike where investors paid an average of 18 cents to buy 5,000 lots. Similar call selling and put buying activity was observed in the January 2010 contract, as well.

UUP - PowerShares DB US Dollar Bullish Fund – Massive bullish positioning on the US Dollar bullish exchange-traded fund suggests investors expect shares of the UUP to increase. Shares of the fund rallied nearly 1% during the session to $22.71 following strong retail sales data that suggests consumers have already loosened their purse strings at the start of the holiday season. One investor appears to have purchased a staggering 220,000 calls at the March 23 strike for 55 cents per contract. The transaction itself cost a whopping $12,100,000 to enact. The dollar-bull responsible for the purchase is positioned to accrue profits above the breakeven price of $23.55. Shares of the UUP must rally at least 3.7% before the trader breaks even on the transaction. Additional call-buying activity was observed as high up as the January 24 strike where it looks like 10,600 calls were picked up for an average premium of 10 cents per contract.

DRI - Darden Restaurants, Inc. – A pair of long strangles on the restaurant operators suggests increased volatility in DRI shares through December’s expiration day. Shares at owner of the Olive Garden increased 1% to $32.47 during the session. The narrower of the two transactions involved the purchase of 1,000 calls at the December 33 strike for 66 cents each tied to the purchase of the same number of put options at the December 32 strike for 65 cents apiece. The net cost of the trade amounts to 1.31 per contract. The investor profits if shares swing above the upper breakeven point at $34.31, or if shares slip beneath the lower breakeven price of $30.69, by expiration on Friday. The wider strangle implies a more drastic movement in the price of the underlying within the next seven days. The investor responsible for the trade bought 1,000 calls at the December 35 strike for 18 cents each along with 1,000 puts at the December 30 strike for 23 cents premium apiece. The transaction cost a total of 41 cents per contract and positions the volatility trader to accrue profits if DRI trades above/below the effective $35.41/$29.59 breakeven points. Option implied volatility jumped 5.7% from an intraday low of 36.29% to a high of 38.35%.

IMAX - Imax Corp. – Shares of the large-format film presentation company jumped 5% to a new 52-week high of $12.39 this morning. Bullish option traders scooped up call options at the March 15 strike price, exchanging more than 5,000 lots at that strike by 10:30 am (EDT). It appears the majority of the call options were purchased by investors expecting further gains in the stock by expiration in March 2010. The increased demand for calls lifted option implied volatility on IMAX 22.81% over yesterday’s closing reading of 50.75% to an intraday high of 62.33%.

SFD - Smithfield Foods, Inc. – Early-bird investors populated the December contract on hog producer and pork processor, Smithfield Foods, Inc. today. Shares edged 1.25% higher to $16.53 as of 10:35 am (EDT). It appears traders purchased roughly 10,000 calls at the December 17.5 strike for about 10 cents premium apiece. Perhaps call-buyers expect SFD’s shares to jump significantly ahead of expiration day next Friday. Option implied volatility on the stock slipped 5.37% lower to 44.52% during the session.

AET - Aetna, Inc. – Option players appear to be unraveling previously established call positions on the health care benefits firm. Shares are currently trading flat on the day at $32.05. It looks like one trader sold 10,000 calls at the now in-the-money January 30 strike for 3.00 apiece. The open interest level at that strike suggests the investor could be closing out a position to bank profits on the rise in Aetna’s shares. Another chunk of 4,000 calls at the higher January 33 strike were purchased for 1.30 apiece at the same time as the other transaction. Perhaps the investor is unraveling a previously established spread. Alternatively, it is possible the activity represents fresh bullish positioning at the higher strike price.