Option Activity Alert: F, NKE, TSRA

F – Ford Motor Co. – A couple of large-volume spreads initiated in longer-dated call and put options on the automaker caught our eye this afternoon. Shares in Ford Motor Company increased 0.90% this afternoon to stand at $17.00 in the final minutes of the trading day. It looks like one bullish player employed the use of a debit call spread in the April 2011 contract while a more cautious investor utilized a ratio put spread expiring in June of 2011. The options optimist picked up 10,000 calls at the April 2011 $17 strike for a premium of $1.25 each, and sold the same number of calls at the higher April 2011 $20 strike at a premium of $0.29 apiece, in order to position for continued bullish movement in the price of the car manufacturer’s shares. The trader paid a net premium of $0.96 per contract for the spread, and is positioned to make money should Ford’s shares rally another 5.6% over the current price of $17.00 to exceed the effective breakeven point at $17.96 by expiration day in April. Maximum potential profits of $2.04 per contract are available to the call-spreader if Ford’s shares jump 17.6% to first surpass the current 52-week high of $17.42 on the stock, and ultimately trade above $20.00 ahead of expiration. Further along in the June 2011 contract, another strategist dabbled in put options, perhaps as a way to hedge a long position in the underlying shares through the first half of 2011, or alternatively to bet on a pullback in Ford’s shares. It looks like the investor picked up 12,500 puts at the June $17 strike at a premium of $1.63 each, and sold 25,000 puts at the lower June 2011 $14 strike for a premium of $0.54 a-pop. The trader paid a net $0.55 per contract for the ratio spread and starts making money if Ford’s shares slip beneath the effective breakeven price of $16.45 ahead of June expiration. The investor may walk away with maximum potential profits of $2.45 per contract in the event that the automaker’s shares plunge 17.6% to settle at $14.00 at expiration day. Selling twice as many lower strike puts exposes the trader to losses should shares plummet 32.05% from the current price of $17.00 to breach the lower breakeven point at $11.55 by June expiration. Ford is scheduled to report U.S. sales for the month of December on January 4, 2011.

NKE – Nike, Inc. – Options on the world’s largest seller of athletic apparel are active ahead of the release of the firm’s second-quarter earnings report after the closing bell this afternoon. Shares in Nike, Inc. are up 2.22% in the final hour of the trading session to secure an intraday- and new 52-week high of $92.27. The impending earnings announcement and increased demand for options on the sneaker-seller lifted Nike’s overall reading of options implied volatility 10.5% to 25.02% as of 3:30pm in New York. Investors taking a bullish stance on Nike scooped up more than 2,400 now in-the-money calls at the January 2011 $90 strike for an average premium of $3.19 apiece. Call buyers are prepared to make money should Nike’s shares rise 1.0% to surpass the average breakeven point to the upside at $93.19 by January expiration. More than 8,500 calls changed hands at the January 2011 $95 strike versus previously existing open interest of 5,750 contracts. It looks like some 3,800 of the calls traded on the ask for an average premium of $1.13 each. Higher-strike call coveters profit if shares surge 4.2% to trade above $96.13 by expiration day.

TSRA – Tessera Technologies, Inc. – Shares in Tessera Technologies increased as much as 8.04% during the session to trade at $22.30, the highest in more than seven months, on news the firm won an appeal in a patent case against companies such as Qualcomm Inc., regarding chip packaging. The U.S. Court of Appeals for the Federal Circuit agreed with the International Trade Commission’s original ruling that found a number of companies had infringed on Tessera’s patents. The verdict sent shares in Tessera Technologies higher and spurred demand for January 2011 contract call options on the stock. Investors expecting TSRA to extend gains through expiration next month picked up roughly 1,000 now in-the-money calls at the January 2011 $21 strike for an average premium of $0.88 each. Bullish sentiment spread to the higher January 2011 $22.5 strike where more than 2,000 calls were purchased at an average premium of $0.46 per contract. Investors holding these contracts are prepared to make money should Tessera’s shares rally another 2.95% over today’s high of $22.30 to surpass the average breakeven price of $22.96 by expiration day. Trading traffic in TSRA calls is heaviest at the January 2011 $24 strike, where more than 5,390 calls have changed hands as of 2:45pm. While some of the contracts were purchased, it looks like the majority of these options were sold for an average premium of $0.16 each. Call sellers walk away with the full $0.16 in premium received on the sale of each call option as long as shares fail to rally above $24.00 and the contracts expire worthless at expiration. Investors pocketing premium appear to be suggesting that they do not expect to see Tessera’s shares gain another 7.6% by expiration day. Traders selling uncovered calls run the risk of absorbing losses in the event that TSRA’s shares jump 8.3% to trade above the upper breakeven price of $24.16 before the options expire next year.

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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