Option Activity Alert: INTC, JPM, MRVL, YRCW

INTC – Intel Corp. – Large-volume bearish positions cropped up in options on the chip giant this morning ahead of the firm’s much anticipated fourth-quarter earnings release after the final bell ends trading for the session. Intel’s shares are down slightly by 0.30% to stand at $21.24 as of 11:55am in New York. Investors placing outright bearish bets on the stock ahead of the earnings report utilized 60,000 January contract put options to construct a ratio put spread. Ratio put-spreaders purchased 20,000 of the January $21 strike puts for an average premium of $0.34 per contract, and sold 40,000 puts at the lower January $20 strike at an average premium of $0.10 each. The net cost of the transaction amounts to $0.14 per contract. The spread positions players to make money if the chip maker’s shares fall 1.8% from the current price of $21.24 to breach the effective breakeven point on the downside at $20.86 by expiration day. Maximum potential profits of $0.86 per contract are available should shares in Intel Corp. decline 5.8% to settle at $20.00 at expiration. The sale of twice as many lower strike puts is a sign that traders do not anticipate an all-out collapse in the price of the underlying. The position will start to work against investors in the event that shares in Intel fall 9.9% from the current value to trade below the effective breakeven price of $19.14 before the contracts expire next week. Bearish sentiment on the stock is also evident at the February $20 strike where around 20,000 puts were purchased for an average premium of $0.31 a-pop. Investors buying the put options make money if INTC shares drop 7.3% to slip beneath the average breakeven price of $19.69 by expiration day in February. Nearly 265,000 option contracts have changed hands on Intel Corp. as of 12:10pm.

JPM – JPMorgan Chase & Co. – Options traders are initiating bullish stances on the financial services firm today in the final session remaining before JPMorgan is scheduled to reveal earnings for the fourth quarter. Shares in the name are up 0.35% in early afternoon trade to arrive at $44.86 as of 12:15pm. Investors are buying call spreads as well as engaging ratio call spreads to prepare for a rally in the price of the underlying shares. One options optimist picked up 4,800 calls at the February $45 strike for a premium of $1.45 each, and sold 9,600 calls at the higher February $48 strike at a premium of $0.42 apiece. Net premium required to put on the spread amounts to $0.61 per contract. The investor responsible for the transaction is therefore poised to profit should shares in JPMorgan rally 1.7% to trade above the effective breakeven price of $45.61 ahead of expiration day in February. Maximum potential profits of $2.39 per contract pad the investor’s wallet in the event that the stock gains 7.0% to settle at $48.00 at expiration. Selling twice as many of the upper strike calls significantly reduced the cost of taking a directional stance on JPM, but could work against the trader if shares explode to the upside. Losses on the position start to accumulate should shares in JPMorgan surge 12.3% to exceed the upper breakeven price of $50.39 before the calls expire next month. Finally, another bullish player paid a net $1.07 in premium to buy a 9,000-lot March $46/$50 call spread. The trader starts to amass profits if shares rally 4.9% to surpass the effective breakeven price of $47.07, and could walk away with maximum potential profits of $2.93 per contract if the stock rises 11.5% in the next couple of months to trade above $50.00 by March expiration. Options investors have traded upwards of 160,000 contracts on the stock thus far in the session, and are exchanging more than 3.8 call options on JPM for each single put being traded as of 12:30pm in New York.

MRVL – Marvell Technology Group, Ltd. – The semiconductor company popped up on our scanners this morning due to bullish activity in February contract call options. Marvell Technology Group’s shares increased as much as 1.7% during the session to secure an intraday high of $21.35. Investors expecting shares in the name to trend higher in the near-term initiated debit call spreads on the stock. It looks like roughly 3,000 now in-the-money calls were picked up at the February $21 strike for an average premium of $0.87 each, and marked against the sale of about the same number of calls at the higher February $23 strike at an average premium of $0.22 a-pop. Investors buying the spread paid an average net premium of $0.65 per contract and stand ready to make money if Marvell’s shares rally 1.4% over the current price of $21.35 to exceed the average breakeven point on the spread at $21.65 by expiration day next month. Call-spreaders could walk away with maximum potential profits of $1.35 per contract in the event that MRVL shares surge 7.7% to trade at new 52-week high of $23.00 or greater before expiration in February. The current 52-week high on the stock is $22.87, attained back on April 15, 2010. The February contract call options expire ahead of the firm’s fourth-quarter earnings report on March 3, 2011.

YRCW – YRC Worldwide, Inc. – A large bearish transaction involving April contract call options on the trucking company caught our eye this morning. It looks like one strategist expects shares in the name to remain bogged down in the first few months of the year. YRC Worldwide’s shares are currently down 1.4% on the session to stand at $3.47 as of 1:35pm. The pessimistic player appears to have initiated a large-volume credit spread, selling 15,000 calls at the April $3.5 strike for a premium of $0.45 each, and buying the same number of calls up at the April $5.0 strike at a premium of $0.18 apiece. The trader pockets a net credit of $0.27 per contract on the spread and keeps the full amount as long as the calls fail to land in-the-money by April expiration. The purchase of the higher-strike calls reduces the amount of premium received on the sale of the closer-to-the-money contracts, but also limits the risk of loss on the position should YRCW shares rally. The investor will start to lose money on the spread if shares increase 8.6% over the current price of $3.47 to trade above the effective breakeven point to the upside at $3.77 ahead of expiration day. The options strategist could wind up absorbing maximum potential losses of $1.23 per contract on the transaction should shares surge 44.1% to trade above $5.00 before the options expire in April.

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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