Option Activity Alert: VLO, MRVL, CHS, MU

VLO – Valero Energy Corp. – Traders flocked to the options playing field on Valero Energy Corp. this morning after the operator of refineries was raised to ‘Top Pick’ from ‘Sector Perform’ with a 12-month target share price of $35.00 at RBC Capital Markets. Shares in Valero are up 3.35% to stand at $29.40 just after 11:40am in New York. Earlier in the session the price of the underlying increased as much as 4.1% to $29.61, the highest Valero’s shares have traded since October of 2008. Near- as well as long-term bulls made their mark in VLO call options in the first half of the session. Investors expecting Valero to extend gains through expiration next month scooped up more than 2,300 calls at the March $31 strike for an average premium of $0.71 apiece. Call buyers at this strike stand prepared to make money should shares in the oil refiner rally another 7.1% over today’s high of $29.61 to surpass the average breakeven price of $31.71 by expiration day in March. Investors eyeing longer-term and more substantial gains in Valero’s shares purchased approximately 10,200 calls out at the January 2012 $35 strike for an average premium of $1.73 a-pop, on previously existing open interest of 3,126 contracts at that strike. Traders long the calls profit in the event that VLO’s shares jump 24.05% to exceed the breakeven at $36.73 within the next eleven months to expiration in 2012. Valero Energy Corp.’s shares last traded above $36.73 back in early July of 2008.

MRVL – Marvell Technology Group, Ltd. – Options strategists itching for a substantial near-term rally in chipmaker Marvell Technology Group are buying call spreads in the March contract this morning. Shares in the name are up slightly by 0.10% to stand at $18.80 at 10:55am, after earlier rising around 1.05% to touch an intraday high of $18.98. It looks like investor picked up approximately 6,000 calls at the March $20 strike for an average premium of $0.44 each, and sold about the same number of calls up at the March $22 strike at an average premium of $0.10 apiece. Net premium paid for the bullish spreads amount to $0.34 per contract. Thus, traders employing this strategy stand prepared to make money should Marvell’s shares surge 8.2% over the current price of $18.80 to surpass the average breakeven point to the upside at $20.34 by March expiration. Maximum potential profits of $1.66 per contract are available to call spreaders in the event that MRVL shares jump 17.0% to trade above $22.00 ahead of expiration next month. Investors may be taking bullish stances on the stock ahead of its fourth-quarter earnings report, scheduled for release after the close on March 3, 2011.

CHS – Chico’s FAS, Inc. – Call options on the specialty retailer of women’s clothing and accessories are once again on trend with investors positioning for a near-term rally in the price of the underlying shares. Shares in the operator of Chico’s and White House | Black Market brands increased as much as 4.9% during the session to touch an intraday high of $12.63. The Fort Myers, FL-based clothing company reports fourth-quarter earnings next week before the market opens on February 23, 2011. Shares in CHS may have popped up on renewed takeover rumors and speculation. Investors placing bullish bets on the stock ahead of earnings purchased more than 1,700 calls at the March $13 strike for an average premium of $0.53 each. Traders holding these contracts start making money if shares in Chico’s rise 7.1% to trade above the average breakeven price of $13.53 by March expiration. Bulls positioning for a more substantial rally scooped up more than 2,000 calls at the higher March $14 strike for an average premium of $0.31 apiece. Call buyers at this strike profit in the event that the retailer’s shares surge 13.3% to surpass the average breakeven point at $14.31 by expiration next month. Unconfirmed takeover rumors and the rise in demand for call options on the stock helped lift Chico’s overall reading of options implied volatility during the session. Implied volatility currently stands 5.1% higher on the day at 53.64% as of 12:40pm.

MU – Micron Technology, Inc. – Shares in Micron Technology have surrendered slight gains enjoyed at the start of the session, and are currently trading 0.60% lower on the day at $11.60 as of 12:05pm in New York. The maker of semiconductor devices was the target of medium-term bullish activity in April contract call options within 15 minutes of the opening bell. It looks like investors expecting shares to hit new multi-year highs in the coming months bulked up on debit call spreads to partially offset the cost of taking directional bets in the name. Traders picked up around 16,000 calls at the April $13 strike for an average premium of $0.43 each, and sold the same number of calls at the higher April $15 strike at an average premium of $0.11 apiece. The average net cost to strategists amounts to $0.32 per contract, and prepares investors to profit if Micron’s shares climb 14.8% to trade above the breakeven price of $13.32 before the calls expire in April. Call spreaders could walk away with maximum potential profits of $1.68 per contract if shares in Micron Technology jump 29.3% in the next couple of months to top $15.00 by April expiration day.

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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