PFE – Pfizer, Inc. – Shares of the global pharmaceuticals firm are up 3.00% to $15.36 as of 12:22 pm (ET), but earlier rallied as much as 4.1% to secure an intraday high of $15.52 on news the company ended a trial of an experimental blood thinner after a panel revealed it decreased stroke risk in certain patients. Options traders populating Pfizer today initiated a number of bullish transactions to position for continued appreciation in the price of the underlying stock. Near-term optimists picked up 3,800 calls at the June $16 strike for an average premium of $0.07 each. Investors long the calls make money only if Pfizer’s shares increase another 4.6% to exceed the average breakeven price of $16.07 by expiration next Friday. Bulls meandering about the July contract sold approximately 3,300 puts at the July $14 strike to receive an average premium of $0.16 apiece, and shed another 1,500 puts at the higher July $15 strike for an average premium of $0.41 each. Put sellers may be ditching downside protection because they do not expect shares to reverse course ahead of July expiration. Otherwise, traders may be initiating outright bullish bets by selling the puts in order to pocket available premium. If the latter is true, investors keep the full premium received as long as shares exceed the strike prices described through expiration day next month. Bulls hankering for a rally picked up 2,100 calls at the July $16 strike for an average premium of $0.29 apiece. Pfizer’s shares must rise 6.05% in order for July $16 strike call buyers to make money above the average breakeven price of $16.29. The higher July $17 strike enticed optimistic individuals to shell out an average of $0.10 in premium to take ownership of some 3,200 call options. Higher-strike call buyers expect to profit if shares surge 11.3% over the current price of $15.36 to exceed $17.10 by July expiration. Finally, it looks like one long-term bullish player purchased a plain-vanilla debit call spread, buying 1,500 calls at the January 2011 $17.5 strike for $0.52 each, and selling the same number of calls at the higher January 2011 $20 strike for an average premium of $0.15 a-pop. Net premium paid for the transaction amounts to $0.37 per contract, thus positioning the investor to make money as long as shares jump 16.3% higher to surpass the effective breakeven point at $17.87. Maximum potential profits of $2.13 per contract pad the investor’s wallet if Pfizer’s shares add 30.2% to trade above $20.00 by January 2011 expiration.
Affiliation: Interactive Brokers
Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.
Interactive Brokers: Interactive Brokers offers direct market access to around 80 electronic global markets from a single account. Successful traders and investors understand that superior technology and lower trading costs can result in greater returns. For 32 years we have been building direct access trading technology that delivers real advantages to professionals worldwide. With consolidated equity capital of US $4.4 billion, IB and its affiliates exceed 1,000,000 trades per day. In addition, our prudent and conservative risk policies make Interactive Brokers a safe haven for your money. Discover some of the reasons why IB, the largest independent US broker/dealer, is the professional traders' and investors' choice.
Visit: Interactive Brokers