Option Activity Alert: Manitowoc, Valero Energy

MTW – Manitowoc Company, Inc. – Call options on the maker of cranes, industrial refrigerators and freezers are in high demand this afternoon with shares in Manitowac trading sharply higher by as much as 8.6% today to secure an intraday high of $12.96. More than 20,500 option contracts have changed hands on Manitowac with 15 minutes remaining before the final bell. The vast majority of options traded are calls, with more than 4.3 calls exchanged for each single put option in action today. Bullish players positioning for MTW shares to rise ahead of expiration day next month picked up more than 3,900 now in-the-money calls at the January 2011 $12.5 strike for an average premium of $0.86 each. Optimism spread to the higher January 2011 $14 strike where another 3,100 calls were purchased at an average premium of $0.36 a-pop. Investors holding the higher-strike contracts are prepared to profit should shares in Manitowac Company rally another 10.8% over today’s high of $12.96 to surpass the effective breakeven price of $14.36 by January expiration. The sharp rise in demand for call options on the stock helped lift Manitowac’s overall reading of options implied volatility 15% to 48.29% in the final minutes of the session.

VLO – Valero Energy Corp. – A diagonal spread initiated on the operator of refineries within the first ten minute of the trading session suggests one options trader expects the price of the underlying stock to extend gains over the next several months. Shares in Valero Corp. are up 0.30% at $21.14 as of 1:55 pm in New York, which is a scant $0.35 below the stock’s 52-week high of $21.49. It looks like the investor purchased 6,000 calls at the January 2011 $22.5 strike for a premium of $0.50 each, and sold the same number of calls at the March 2011 $25 strike at a premium of $0.40 apiece. The net cost of getting long the nearer-term January 2011 strike contracts amounts to $0.10 per contract. The trader has locked into the right to purchase shares in Valero Energy Corp. at $22.50 each if the calls land in-the-money by January 2011 expiration day. VLO’s shares must rise at least 6.4% over the current price of $21.14 in order to trade above $22.50. If this occurs, the investor may decide to take ownership of the shares at an effective price of $22.60 each, given the $0.10 net premium per contract paid to purchase the spread today. Profits start to accumulate for the trade should Valero’s shares rally 6.9% over the current price of $21.14 to exceed the breakeven price of $22.60. The short position in calls at the March 2011 $25 strike suggests the investor is willing to have the shares called from him at that price should the options land in-the-money at expiration. If the shares are called from him at $25.00 each, the trader will have managed to walk away with gains of 10.6% on the value of VLO’s shares.

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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