Option Activity Alert: WMB, CLWR, KO, ALTR

WMB – Williams Companies, Inc. – Bulls flocked to Williams Companies during the first half of the trading session and used both call and put options to position for near-term share price appreciation. Williams’ shares increased as much as 2.3% this morning to hit an intraday high of $24.27, but currently stand 0.75% higher on the day at $23.89 as of 12:10 pm. Large numbers of January 2011 contract calls changed hands on WMB within the first 30 minutes of trading today. It looks like one investor initiated a debit call spread, buying 22,000 calls at the January 2011 $25 strike at a premium of $0.66 each, and selling the same number of calls at the higher January 2011 $27 strike for a premium of $0.22 a-pop. The net cost of the transaction amounts to $0.44 per contract, and positions the bullish player to make money if shares in Williams Cos. rise 6.5% over the current price of $23.89 to surpass the effective breakeven point at $25.44 by January expiration. Maximum potential profits of $1.56 per contract pad the investor’s wallet should shares surge 13.0% to trade above $27.00 by expiration day next year. Shares of the natural gas company reached a 52-week high of $24.67 back on April 26, 2010. Another optimistic investor targeted December contract put options. The trader appears to have initiated a credit spread, selling 2,500 lots at the December $23 strike for a premium of $0.24 each, and buying the same number of puts at the lower December $22 strike at a premium of $0.11 apiece. The investor keeps the full net credit of $0.13 per contract received on the spread as long as WMB shares exceed $23.00 through December expiration. Adverse movements in the price of the underlying shares could result in losses of up to $0.87 per contract for the put credit-spreader. But, shares would need to fall 7.9% from the current price of $23.89 to trade below $22.00 for the investor to absorb maximum potential losses on the position. Options implied volatility on WMB is higher by 8.7% to arrive at 33.63% as of 12:25 pm.

CLWR – Clearwire Corp. – The provider of wireless networks popped up on our scanners this morning after a sizeable ratio put spread was initiated in the June 2011 contract. Shares in Clearwire are currently up 2.00% to stand at $6.15 just after 11:00 am in New York trading. Clearwire Corp. was cut to ‘add’ from ‘strong buy’ with a 12-month target share price of $8.00 at Citadel Securities today. The put player scooped up 5,000 contracts at the June 2011 $5.0 strike for a premium of $0.70 each, and sold 10,000 puts at the lower June 2011 $4.0 strike at a premium of $0.30 apiece. The net cost of putting on the spread amounts to $0.10 per contract. Thus, the investor is positioned to profit if CLWR shares decline 20.3% from the current price of $6.15 to breach the effective breakeven point to the downside at $4.90 ahead of June expiration. Maximum potential profits of $0.90 per contract are available to the trader should shares in Clearwire Corp. plunge 34.95% lower to settle at $4.00 at expiration next year. The ratio of twice as many short puts exposes the put player to losses in the event that Clearwire’s shares plummet 49.6% to trade below the lower breakeven price of $3.10 ahead of June expiration. The spread may be an outright bearish bet that shares in CLWR will fall sharply, or could be the work of a cautiously optimistic investor building up protection on a long position in the underlying shares. The sharp rise in demand for puts on the stock helped lift Clearwire’s overall reading of options implied volatility 7.5% to 69.59% by 11:15 am.

KO – Coca-Cola Co. – One options strategist utilized Coke call options in order to take a bearish stance on beverage maker Coca-Cola Co. this morning. Shares in Coca-Cola are currently lower by 0.60% to arrive at $64.12 as of 11:55 am. The pessimistic player enacted a credit spread, selling some 22,000 calls at the January 2011 $65 strike for a premium of $1.10 each, and buying the same number of calls at the higher January 2011 $67.5 strike at a premium of $0.35 apiece. The investor pockets a net credit of $0.75 per contract on the transaction, and keeps the full amount of premium received as long as KO shares fail to rally above $65.00 through January expiration. The spread suggests the trader does not expect Coca-Cola’s shares to break above the current 52-week high of $64.96, attained this past Thursday on December 2, 2010. The parameters of the trade expose the investor to maximum potential losses of $1.75 per contract in the event that the price of the underlying stock jumps more than 5.25% over the current price of $64.12 to exceed $67.50 ahead of January expiration day. Losses on the spread start to accumulate should shares of the beverage manufacturer rally above the effective breakeven price of $65.75 before the contracts expire next year.

ALTR – Altera Corp. – Shares of the semiconductor company fell as much as 1.6% today to hit an intraday low of $37.10, but have recovered somewhat, and currently stand 0.65% lower on the day at $37.47 as of 12:40 pm in New York. Altera’s shares reached a new 52-week high of $37.81 on Friday, December 3, 2010. One option trader looked to the December contract to purchase a plain-vanilla put spread in case shares in Altera Corp. continue to decline ahead of expiration in a couple of weeks. The investor picked up 1,250 puts at the December $37 strike at a premium of $0.75 each, and sold the same number of put options at the lower December $35 strike for a premium of $0.20 apiece. Net premium paid to initiate the spread amounts to $0.55 per contract. Thus, the trader stands prepared to make money in the event that Altera’s shares fall another 2.7% from the current price of $37.47 to breach the effective breakeven point to the downside at $36.45. Maximum potential profits of $1.45 per contract are available to the trader should shares plunge 6.6% lower to trade below $35.00 ahead of December expiration day. The spread could be the work of either an outright bearish player expecting to reel in profits if shares slide lower, or an investor protecting the value of a long position in the underlying shares through expiration. Options implied volatility on Altera Corp. is up 5.2% at 31.32% as of 12:50 pm.

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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