Option Activity Alert: JPMorgan Chase, Western Refining

JPM – JPMorgan Chase & Co. – Shares of the financial services firm fell 0.85% to $40.59 late in the trading session, but earlier today one cautiously optimistic investor initiated a delta neutral hedge using longer-dated put options in the June 2011 contract. It looks like the investor picked up 6,790 puts at the June 2011 $39 strike for a premium of $3.24 each to cover the 271,600 shares purchased at $40.70 on a 0.40 delta. The long position in JPM shares suggests the trader is expecting JPMorgan’s shares to rise over the next 8 months. The put options serve to protect the value of the position in case the price of the underlying stock should falter rather than rally during that time period. More than 8,320 puts changed hands at the June $39 strike today versus paltry previously existing open interest of just 596 contracts.

WNR – Western Refining, Inc. – The crude oil refiner popped up on our scanners this morning after one investor first took profits off the table by closing out a previously established long call position, and next extended bullish sentiment on Western Refining. Shares of the El Paso, Texas-based firm increased as much as 1.6% thus far in the session to touch an intraday- and new 52-week high of $8.28. The optimistic player was well positioned to benefit from the rally in shares. It looks like the investor originally bought 2,300 in-the-money calls at the December $6.0 strike for a premium of $1.35 each back on November 4, when shares were trading at around $7.34. The subsequent rise in the price of the underlying stock lifted premium on the calls, allowing him to sell all 2,300 calls at that strike for a premium of $2.20 apiece. Net profits enjoyed on the sale amount to $0.85 per contract. Next, the options player initiated a fresh bullish stance on Western Refining, buying up 5,000 fresh calls out at the January 2011 $9.0 strike for an average premium of $0.425 per contract. The new position is nearly twice as large as the original, and is a profitable acquisition for the trader if WNR’s shares jump 13.8% over today’s high of $8.28 to surpass the effective breakeven price of $9.425 by expiration day in January.

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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