Analyst Upgrade Fuels Bullish Option Plays on Iron-Ore Giant Vale
by Andrew Wilkinson - January 19th, 2010 4:36 pm
Today’s tickers: VALE, MBT, FXI, NWL, CSE, VZ, XLV, CBY, HSY & SYMC
VALE – Vale S.A. – Shares of the world’s largest producer of iron-ore surged 2.75% in afternoon trading to stand at $31.18 after the firm received an upgrade to ‘overweight’ from ‘equal weight’ with a target share price of $39.00 at Barclays Capital. Indications of like-minded optimism are apparent in today’s option trading patterns on the stock. It looks like one investor initiated a put credit spread in the March contract. The bullish transaction involved the sale of 5,000 puts at the March $31 strike for a premium of $1.67 apiece, spread against the purchase of 5,000 puts at the lower March $28 strike for an average premium of $0.66 each. The credit spread results in a net credit of 1.01 per contract to the investor, who keeps the full premium received if VALE’s shares trade above $31.00 through expiration in March. The width of the spread indicates maximum potential losses on the trade of $1.99 per contract if shares of the iron-ore maker slump to $28.00 ahead of expiration.
MBT – Mobile Telesystems OJSC – The Russian provider of wireless communication services appeared on our ‘hot by options volume’ market scanner this afternoon due to near-term bullish options activity. Optimistic option plays fit neatly with the current 3.5% rally in shares of the underlying to $52.25 today. Traders sold 2,500 puts at the February $47.5 strike for a premium of $0.70 per contract, while the same number of calls were purchased at the higher February $55 strike for about $1.05 apiece. Another chunk of 2,500 puts were shed at the March $40 strike for approximately $0.33 each. All three transactions indicate bullish sentiment on Mobile Telesystems. If the trades are perhaps the work of one individual, the three-legged combination creates a clear directional play. In such a case, the investor will have paid a net $0.02 per contract for the calls by selling short the put options as described above. The long call stance positions the trader – in this example – to accrue profits if shares of MBT rally another 5.30% to surpass the effective breakeven price of $55.02 by expiration next month. We note that shares of the firm traded as high as $55.71 on October 21, 2009.
FXI – iShares FTSE/Xinhua China 25 Index Fund – Shares of the FXI, which invests assets…
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Iron-Ore Bull Excavates Massive Credit Spread on Vale S.A.
by Andrew Wilkinson - December 8th, 2009 4:08 pm
Today’s tickers: VALE, ANF, ARIA, GCI, S, KR, SYY, AZO, TLB & RAI
VALE – Vale S.A. – Option volume on iron-ore producer, Vale, exploded this afternoon after one investor exchanged 102,200 puts in the June 2010 contract. The put activity actually implies bullish sentiment on Vale despite the 3% decline in shares this afternoon to $27.36. It appears the contrarian trader sold 51,100 in-the-money puts at the June 29 strike for a premium of 4.45 each, and purchased 51,100 puts at the lower June 23 strike for 1.75 apiece. The iron-bull receives a net credit of 2.70 per contract on the trade, which he keeps if VALE’s shares rally above $29.00 by expiration in June. Shares closed at $29.40 just last week on December 2, 2009. The investor is exposed to losses to the downside if shares decline through the breakeven price of $26.30. Maximum potential losses of 3.30 per contract accumulate for the trader if the stock sinks 16% from the current price to $23.00 by June’s expiration day.
ANF – Abercrombie & Fitch Co. – A number of large-volume put transactions on fashion retail store operator, Abercrombie & Fitch, indicates investor pessimism on the stock through expiration in January 2010. Abercrombie’s shares slipped 1.5% during afternoon trading to $35.11. Perhaps bearish option traders were dismayed by the firm’s weaker-than-expected November sales report. ANF posted a 17% decline in same-store sales for the month, which was far worse than the 9.3% decline anticipated by analysts. It appears one investor initiated a four-legged combination play aimed at protecting against near-term declines in the value of ANF shares. First the investor established a ratio put spread by purchasing 15,000 puts at the January 35 strike for 2.10 apiece, marked against the sale of 30,000 puts at the lower January 32 strike for 95 cents each. The net cost of the ratio spread amounts to 20 cents per contract. Next, the trader effectively created an uneven butterfly spread by rolling a previously established put position in the January 2010 contract up to a higher strike price. It seems the trader originally purchased 15,000 puts at the January 29 strike for roughly 2.50 apiece on October 2, 2009. Today the individual took a loss on that position by selling the puts for 40 cents apiece to buy the same number of put options at the higher January 31 strike for 80 cents…
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Option Trader Irons Out Bullish Risk Reversal on Vale
by Andrew Wilkinson - November 25th, 2009 10:06 pm
Today’s tickers: VALE, GLD, BKC, VIX, IYR, GPS, CTXS, JPM, JCG, BKC, & TIF
VALE – Vale S.A. – Iron ore producer, Vale, experienced a more than 2.5% rally in shares during the trading session to arrive at a new 52-week high of $29.64. A bullish risk reversal in the March 2010 contract today indicates at least one investor is positioning for continued upward movement in the price of VALE shares by expiration. The trader sold approximately 3,300 puts at the March 26 strike for an average premium of 1.29 apiece in order to finance the purchase of roughly 3,300 calls at the higher March 32 strike for 1.59 each. The net cost of the transaction amounts to 30 cents per contract and positions the investor to amass profits if shares surpass the breakeven price of $32.30 by expiration. Shares must jump at least 9% from the current price to breach the effective breakeven point on the trade.
GLD – SPDR Gold Trust ETF – Shares of the gold exchange-traded fund, which replicates the performance of the price of gold bullion, rose 1.5% today to yet another all-time high of $116.43. We observed bullish activity in the June 2010 contract by one investor who initiated a call spread on the fund. It appears the trader purchased 13,265 calls at the June 125 strike for an average premium of 5.95 each, spread against the sale of the same number of calls at the higher June 150 strike for 2.10 apiece. The net cost of the gold-spread amounts to 3.85 per contract. The investor responsible for the trade accumulates profits if shares rally 11% from the current price and surpass the breakeven point at $128.85. Maximum potential profits of 21.15 per contract are available to the trader in the event that shares of the GLD surge 29% to $150.00 by expiration day in June of 2010.
BKC – Burger King Holdings, Inc. – Burger King-bulls bought nearly 4,700 calls at the in-the-money December 17.5 strike for an average premium of 50 cents apiece. Such activity suggests investors expect shares to rally through $18.00 – the breakeven point on the calls – by expiration in December. Bullish sentiment on the flame-broiled burger maker is perhaps inspired by strength in the fast-food restaurant sector. Cash-strapped consumers, wary of the 10.2% unemployment rate, are likely trading down from moderately priced eateries to cheaper nosh provided…
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Caterpillar Sees Sizeable Options Activity
by Andrew Wilkinson - October 22nd, 2009 7:32 am
Today’s tickers: CAT, EEM, FITB, VALE, SLM, EXPE, SNDK, SLM & YHOO
CAT – Caterpillar, Inc. – A long-term bullish play on the world’s largest maker of bulldozers and excavators proved highly profitable for one investor who banked hefty gains in the January 2010 contract this afternoon. Shares of CAT are currently up less than 0.5% to $59.80 on an upgrade to ‘neutral’ from ‘sell’ at Goldman Sachs. It appears the trader originally purchased 15,000 calls at the January 55 strike for 3.50 apiece, and 20,000 calls at the higher January 60 strike for 1.95 each, back on September 25, 2009. Today the investor sold the January 55 strike calls for 6.90 and the January 60 strike calls for 3.85 per contract. Net profits to the trader amount to $8.9 million. Elsewhere, it seems a large bullish call position was partially financed through the sale of put options. It looks like a chunk of 25,000 put options sold for 68 cents apiece at the December 50 strike at the same exact moment 40,000 call options were purchased for 1.50 each at the February 70 strike. The investor responsible for the trade likely expects shares of CAT to remain above $50.00 through expiration in December. This short sale partially offsets the cost of taking a massive bullish stance through expiration in February.
EEM – iShares MSCI Emerging Markets Index ETF – Shares of the emerging markets exchange-traded fund are trading more than 1% higher today to stand at the current price of $41.45. A 100,000-lot straddle caught our attention in the November contract this afternoon. It appears one investor has taken advantage of lower volatility on the EEM by purchasing a long straddle. The transaction involved the purchase of 50,000 calls at the November 41 strike for 1.53 apiece, and the purchase of 50,000 puts at the same strike for 1.21 each. The net cost of the trade amounts to 2.74 per contract. Volatility on the EEM has fallen to 27%, the lowest reading on the fund since August of 2008. Perhaps the long-straddle player expects volatility to jump higher before the options expire in November. The nature of the strategy is such that he will benefit given a sufficient shift in the price of the EEM in either direction. Profits are available if shares swing either above the breakeven point to the upside at $43.74, or if shares dip beneath…
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Brazilian Stocks Capture Option Traders’ Imagination
by Andrew Wilkinson - October 15th, 2009 2:25 am
Today’s tickers: VALE, EWZ, NYX, PFE, HOG, XRT, S & ROVI
VALE – Vale S.A. – Rio de Janeiro-based mining company, Vale S.A., experienced a 6.25% surge in shares today to $26.57. Perhaps the jump in shares is due to unconfirmed news the company plans to invest $5.8 billion to expand projects in the Brazilian state of Minas Gerais. In options-land one investor took a bullish stance by selling puts to buy calls. It appears the risk reversal involved the sale of 4,000 puts at the November 23 strike for 45 cents apiece, spread against the purchase of 4,000 calls at the higher November 28 strike for 38 cents premium each. The investor receives a net credit of 7 pennies per contract on the trade. He will retain the full credit as long as shares of VALE remain higher than $23.00 through expiration day. To add to profits shares must climb 5% higher to surpass the breakeven price of $28.00.
EWZ – iShares MSCI Brazil Index ETF – Bullish call action in the March contract today certainly jives with the 3.25% rally in shares of the exchange-traded fund to $75.18. An investor hoping for further upward movement in the price of EWZ shares enacted a call spread. The trader bought 2,500 calls at the now in-the-money March 73 strike for an average premium of 7.00 each, and simultaneously sold 2,500 calls at the higher March 78 strike for 4.54 apiece. The net cost of the bullish play amounts to 2.46 per contract. Thus, the investor stands to accumulate maximum potential profits of 2.54 if shares rise to $78.00 by expiration in March. Profits start to accumulate if shares break through $75.46, which is just 28 cents above the current price per share. But, the stock must climb 4% to $78.00 for the investor to revel in maximum available profits of $635,000.
NYX – NYSE Euronext, Inc. – Bullish call buying this afternoon pushed New York Stock Exchange operator, NYSE Euronext, onto our ‘most active by options volume’ market scanner. Shares of NYX are currently trading 5% higher to stand at $29.81. Investors expecting continued upward movement in the stock scooped up call options in the November contract. The November 30 strike had 2,100 calls purchased for an average premium of 1.13 each, while the November 31 strike had 1,200 calls coveted for 82 cents premium apiece. Finally, super-bullish traders…
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Vale Options Bulls Continue to Charge as Shares Slumber
by Andrew Wilkinson - October 7th, 2009 6:48 pm
Today’s tickers: VALE, AMZN, TAP, FDO, SYMC, MON, MFA & TLB
VALE - Option traders set up long-term bullish trades across several contracts on the world’s largest iron-ore producer. Shares edged 0.25% lower this afternoon to $23.82 despite the upgrade to ‘buy’ from ‘neutral’ and the increase in target price to $31.00 from $25.00, at Goldman Sachs Group, Inc. One investor reeled in profits by closing out an existing short put position. He originally sold 6,500 puts at the March 23 strike for a premium of 3.35 apiece. Today he made a closing purchase of all the contracts for 2.40 each. Net profits on the transaction amount to 95 cents each or total gains of $617,500. Next, it seems the same investor initiated a new bullish stance on the stock by employing the same short-put strategy at the January 2011 22.5 strike where he sold 6,500 puts for 4.00 per contract. The next optimistic transaction today was a bullish risk reversal. One investor shed 10,000 puts at the January 2011 20 strike for 2.87 each in order to partially finance the purchase of 10,000 calls at the January 25 strike for 4.00 per contract. The net cost of the reversal amounts to 1.13. Thus, profits are available on the trade if VALE’s shares rally a minimum of 10% by expiration, to surpass the breakeven price of $26.13. – Vale S.A. –
AMZN - Shares of e-tailer, Amazon.com, are up 3% to $93.61. A bullish risk reversal in the November contract today suggests at least one option trader expects to see significant near-term gains in the stock by expiration. The reversal involved the sale of 5,000 puts at the November 80 strike for an average premium of 1.80 apiece. The short sale of the put options partially financed the purchase of 5,000 calls at the November 105 strike for 2.30 each. The net cost of the trade amounts to 50 cents per contract. If the investor is to accumulate profits by expiration, shares of AMZN must add at least 13% to the current price to breach the breakeven point at $105.50. – Amazon.com, Inc. –
TAP - The beer brewing company appeared on our ‘hot by options volume’ market scanner due to bearish options action in the January 2011 contract. Shares edged 0.5% higher during the trading session to $49.52. The investor responsible for the trade sold 5,000 calls at the January 55…
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Railroad Bulls Expect CSX Recovery on Track
by Andrew Wilkinson - October 5th, 2009 4:11 pm
Today’s tickers: CSX, VALE, ERTS, JNPR, BRCD & ORCL
CSX - The supplier of rail-based transportation services attracted option optimists to the November contract today amid a 2.5% rally in shares to $42.68. Bullishness was expressed through put selling as investors appear to expect CSX to continue to thrive through expiration in November. Approximately 7,300 puts were sold short at the November 40 strike for an average premium of 2.03 apiece. Traders selling these contracts retain the full credit as long as shares of CSX remain higher than $40.00 through expiration next month. Investors shorting the puts pocket the 2.03 credit in exchange for bearing the risk that shares decline beneath $40.00. If the puts land in-the-money by expiration, traders short the puts will have shares of the underlying stock put to them at price of $40.00 apiece. Therefore, losses begin to accumulate if shares fall 11% from the current price and breach the breakeven point to the downside at $37.97. – CSX Corp. –
VALE - Investors in the Brazilian metals and mining company enjoyed a more than 3% rally in shares to $23.63. The current share price represents a new 52-week high for the stock, which is one nickel greater than the previous 52-week high of $23.58, attained back on September 23, 2009. We observed bullish sentiment in the November contract where one investor established a risk reversal by shorting puts to finance the purchase of calls. The optimistic play involved the sale of 8,000 puts at the November 21 strike for a premium of 60 cents apiece, spread against the purchase of 8,000 calls at the higher November 25 strike for an average premium of 71 cents per contract. The net cost of assuming a long call position amounts to 11 pennies apiece. Shares of Vale must rise another 6% by expiration for the investor to begin to accumulate profits above the breakeven point at $25.11. – Vale SA –
ERTS - Shares at the game-maker are higher by 3% at $18.89 today making the options action a little curious. An investor appears to be writing nearby in-the-money puts in exchange for buying those at out-of-the-money strikes at later expiries. An investor sold 13,700 November puts at the 19 strike for a 1.50 premium, meaning he’d have shares put to him if they remain below the strike in seven weeks time. In the meantime he insures worried ERTS traders…
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General Electric Sees Bears Jump to Options Defense
by Andrew Wilkinson - September 24th, 2009 4:32 pm
Today’s tickers: GE, EEM, SLV, F, VALE, FCX, M, ABX & C
GE - The more than 3% decline in shares of GE today inspired bearish options activity to unfold in the November contract. One investor chose to employ a put spread by purchasing 5,500 puts at the November 16 strike for 67 cents apiece, spread against the sale of the same number of contracts at the lower November 13 strike for 14 cents each. The net cost of the pessimistic play amounts to 53 cents per contract. If the investor is long shares of the underlying stock, downside protection on the put play will kick in if shares decline beneath the breakeven price of $15.47 by expiration day. The strike prices selected by the trader indicate that while he is bracing for further declines in the stock, he does not expect GE to decline much beneath $13.00 in the next few months. – General Electric –
EEM - The EEM jumped higher on our ‘most active by options volume’ market scanner following bullish options action in the January contract. Shares of the ETF are currently down 2% to $37.85. The investor responsible for the transaction looked to the January 38 strike to purchase 6,500 calls for an average premium of 2.78 apiece. The calls were spread against the sale of 6,500 in-the-money puts at the same strike for which the trader received 2.91 each. The risk reversal results in a net credit of 13 cents to the investor. The credit is retained by the trader if shares settle at $38.00 by expiration day. Additional profits will accumulate if shares of the ETF rally through $38.00. – iShares MSCI Emerging Markets Index –
SLV - Large-volume chunks of calls traded on the silver exchange-traded fund today by one investor who appears to be taking a bullish stance in the face of a more than 3.5% decline in shares to $15.96. The trader looked to the near-term October 16 strike to purchase 30,000 calls for an average premium of 65 cents apiece. The purchase was spread against the sale of the same number of calls at the January 2011 18 strike for a premium of 2.35 each. The transaction results in a net credit of 1.70 to the investor. Perhaps this individual expects the near-term calls to land in-the-money by expiration. If this occurs, he may exercise the options and take delivery of…
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Elan Reversals Indicate Bearish Sentiment
by Andrew Wilkinson - June 30th, 2009 4:03 pm
Today’s tickers: ELN, NOK, WYE, ELX, GERN, VALE, NVDA & EXC
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Bullish Option Play at State Street Despite Weaker Shares
by Andrew Wilkinson - May 27th, 2009 4:51 pm
Today’s tickers: STT, HPQ, AMAT, PBR, BYD, AMD, VALE & ITUB
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
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