Option Activity Alert: Terremark, Boeing, JPMorgan Chase

TMRK – Terremark Worldwide, Inc. – Shares of the provider of managed IT infrastructure services shot up as much as 13.9% during the session to hit an intraday- and new 52-week high of $11.12. Terremark posted a narrower-than-expected second-quarter loss of $0.12 per share yesterday evening and raised its fiscal 2011 sales view and guidance for the third quarter. The sharp rally in the price of the underlying shares and the firm’s improved outlook going forward inspired one cautiously optimistic options strategist to initiate a delta neutral hedge. It looks like the investor purchased roughly 288,700 TMRK shares at $11.0615 each and picked up 8,750 puts on an approximate delta of 0.33 at the April 2011 $10 strike for a premium of 1.05 per contract. This transaction positions the investor to benefit from continued appreciation in the price of Terremark’s shares, but also protects him in case shares should reverse course in the next six months to expiration. The overall reading of options implied volatility on TMRK plunged 19.1% to 47.71% following earnings.

BA – Boeing Co. – The jetliner manufacturer upped its forecast for commercial aircraft demand in China over a 20 year period to $480 billion from $400 billion and said world air-cargo traffic is likely to return to its 2007 peak this year and subsequently grow at 5.9% annually over the next two decades. Despite the positive reports from the Chicago-based firm, shares of the world’s largest aerospace company are down 1.1% to stand at $69.69 as of 1:30 pm. One long-term bullish options trader reacted to Boeing’s rosier outlook for global aircraft demand by purchasing a plain-vanilla debit call spread in the January 2013 contract. The investor picked up 3,000 in-the-money calls at the January 2013 $65 strike for a premium of $14.25 per contract, and sold the same number of calls at the higher January 2013 $75 strike at a premium of $9.60 apiece. Net premium paid to initiate the spread amounts to $4.65 per contract. The trader stands prepared to make money should Boeing’s shares exceed the effective breakeven price of $69.65 through expiration day in January 2013. Maximum potential profits of $5.35 per contract are available to the options trader if BA’s shares surge 7.6% over the current price of $69.69 and trade above $75.00 by expiration.

JPM – JPMorgan Chase & Co. – A short strangle initiated in JPMorgan’s December contract this morning indicates one options trader expects the price of the underlying stock to remain range-bound through expiration day in the final month of 2010. Shares of the financial services firm are currently down 0.95% to arrive at $37.06 as of as of 12:00 pm in New York trading. It appears the strangle-strategist sold approximately 10,000 puts at the December $36 strike for an average premium of $1.16 each in combination with the sale of roughly the same number of calls at the higher December $39 strike at an average premium of $0.79 a-pop. Gross premium pocketed by the seller amounts to an average of $1.95 per contract. The trader keeps the full premium received on the sale as long as JPM’s shares trade within the confines of the strike prices described through expiration day next month. But, this strategy is not without its risks. The investor will start to absorb losses in the event that, at expiration, JPMorgan’s shares are trading above the upper breakeven price of $40.95 or beneath the lower breakeven point at $34.05. Shares in JPMorgan Chase & Co. have traded above $34.05 for more than one year, but exceeded the upper breakeven price of $40.95 as recently as September 21, 2010.

About Andrew Wilkinson 1023 Articles

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.

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