IP – International Paper Company – Shares of the paper maker are up 0.45% to stand at $22.49 as of 12:10 p.m., but earlier surged as much as 3.25% to touch an intraday high of $23.12. The rally in its shares this morning enticed a number of bullish options strategists to position for the stock to extend gains. Investors engaged in plain-vanilla call buying at the October $23 strike where it looks like some 6,600 calls were purchased at an average premium of $0.26 apiece. Call buyers make money if International Paper’s shares exceed the average breakeven price of $23.26 through expiration on Friday. Optimism spread to the November contract where other bulls established call spreads. Traders picked up approximately 1,500 calls at the November $24 strike at an average premium of $0.74 each, and sold about the same number of calls at the higher November $26 strike for an average premium of $0.29 apiece. The average net cost faced by call spreaders amounts to $0.45 a-pop. Investors are poised to profit should IP’s shares rally 8.7% over the current price of $22.49 to surpass the average breakeven point to the upside at $23.45 by expiration day next month. Maximum potential profits of $1.55 per contract are available to traders if the paper maker’s shares surge 15.6% to trade above $26.00 by November expiration. The sharp increase in demand for IP calls helped lift the stock’s overall reading of options implied volatility 16.8% to 48.03% by 12:20 p.m.
SFD – Smithfield Foods, Inc. – The hog producer and pork processor popped up on our ‘most active by options volume’ market scanner this morning after one options strategist initiated what appears to be a bullish ratio risk reversal in the November contract. Smithfield’s shares are up 2.90% at $15.60 in early afternoon trading, but earlier increased as much as 4.485% to secure an intraday high of $15.84. The optimistic player sold 4,000 puts at the November $15 strike for an average premium of $0.56 each in order to purchase 2,000 calls at the higher November $16 strike at an average premium of $0.55 apiece. The investor pockets a net credit of $0.57 per contract on the risk reversal, and keeps the full amount as long as the meat maker’s shares exceed $15.00 through November expiration. Additional profits start to accumulate should SFD shares rally above $16.00 by expiration next month. Selling 4,000 puts at the November $15 strike indicates the trader is willing to have 400,000 shares of the underlying stock put to him at an effective price of $14.43 each in the event that the puts land in-the-money at expiration.
CHS – Chico’s FAS, Inc. – Options traders touting bullish views of the retailer are shopping around for call options today with the price of the underlying stock rallying as much as 4.00% in the first half of the session to an intraday high of $11.38. CHS was rated new ‘market perform’ by analysts at Raymond James this morning. Investors picked up roughly 4,200 now in-the-money calls at the October $11 strike for an average premium of $0.31 each. Call buyers at this strike make money if the clothing retailer’s shares trade above the average breakeven price of $11.31 through expiration on Friday. Near-term bulls looked to the higher October $12 strike where another 1,175 calls were purchased at an average premium of $0.10 a-pop. Optimism spread to the November contract where traders scooped up 1,500 in-the-money calls at the $10 strike for an average premium of $1.25 apiece. Roughly 3,000 in-the-money calls were picked up at the November $11 strike at a premium of $0.90 each, while 2,200 calls were purchased at the November $12 strike for an average premium of $0.40 apiece. Calls buyers are well-positioned to benefit should shares of the retailer continue to rally through expiration. Additionally, the company is slated to report third-quarter earnings ahead of the opening bell on November 17, 2010. Options implied volatility on CHS is up 13.00% at 63.10% as of 12:30 p.m. in New York.