XOM – Exxon Mobil Corp. – A large bearish options play on the world’s largest corporation indicates one strategist is positioned for shares in Exxon Mobil to fall ahead of August expiration. The investor responsible for the sizable ratio put spread on the oil and gas company may be taking an outright bearish stance on the stock, or could be hedging a long position in the underlying ahead of XOM’s July 28 second-quarter earnings report. Exxon Mobil’s shares are currently up 1.3% to stand at $80.75 just before 11:45am in New York. It looks like the options trader picked up 7,500 puts at the August $77.5 strike for a premium of $1.79 each, and sold 15,000 puts at the lower August $72.5 strike at a premium of $0.78 apiece. The net cost of the ratio spread reduces to $0.23 per contract, thus positioning the investor to profit if shares in XOM decline 4.3% in the next couple of months to breach the effective breakeven price of $77.27 at expiration. Maximum potential profits of $4.77 per contract are available to the trader should shares plunge 10.2% to settle at $72.50 at expiration in August. The ratio of twice as many short puts suggests the investor sees limited bearish movement in the price of the underlying stock. More significant share price erosion than the put player expects could result in losses on the position in the event that shares in Exxon Mobil drop 16.1% in the next nine weeks to slip beneath the lower breakeven price of $67.73 by expiration day in August. Other signs of investor pessimism on XOM cropped up in the August $85 strike call where is appears some 2,600 contracts sold for an average premium of $0.70 a-pop. Options implied volatility on the stock is off its lows of the session, but remains 8.5% lower on the day at 18.73% as of 11:55am.
CCL – Carnival Corp. – Shares in the cruise operator surged 4.5% during the first half of the trading day to $37.35 after the company reported better-than-expected earnings and higher-than-estimated revenue for the second quarter. Some investors initiated bullish positions on Carnival Corp. today in the expectation that shares in the cruise and vacation company will remain buoyant ahead of August expiration. Traders exchanged more than 3,400 puts at the August $36 strike against previously existing open interest of 49 contracts. It looks like most of the put options were sold for an average premium of $1.55 each. Put sellers keep the full amount of premium received on the transaction as long as shares in Carnival exceed $36.00 through expiration day. Investors short the puts could lose money on the position if Carnival’s shares fall 7.8% from the current price of $37.35 to breach the average breakeven point on the downside at $34.45. It seems traders are happy to walk away with the $1.55 in premium per contract at expiration if shares in CCL exceed $36.00, but are also willing to take delivery of the stock at an effective price of $34.45 should the puts land in-the-money at expiration. Shares in Carnival Corp. had dropped nearly 30% since the start of 2011 from $48.14 in January to a six-month low of $34.21 last week. Perhaps put sellers believe shares in Carnival have bottomed out for the time being and as such are willing to get long the stock around that price point if shares are put to them at expiration. Carnival’s overall reading of options implied volatility is down 16.0% post-earnings to stand at 31.05% as of 12:15pm on the East Coast.
WYN – Wyndham Worldwide, Inc. – Options activity on the hospitality company with hotel brands such as Days Inn and Ramada suggests one strategist sees shares in Wyndham Worldwide remaining range-bound through August expiration. Goldman Sachs reportedly lowered 12-month share price targets on a number of lodging names yesterday, including WYN, on concerns of flagging global growth. Wyndham’s shares are currently up 2.4% in early-afternoon trade to stand at $32.70. It looks like the options player initiated a short straddle on WYN, selling 4,000 in-the-money calls at the August $32 strike for a premium of $2.10 each, and selling 4,000 puts at the same strike for a premium of $1.35 apiece. The straddle-seller keeps the full $3.45 in premium per contract on the transaction if WYN’s shares settle at $32.00 at expiration. Some portion of the premium is safe in the investor’s wallet unless shares shift substantially in either direction away from the designated strike price. The trader may lose money on the position if shares surge 8.4% to exceed the upper breakeven price of $35.45, or if the price of the underlying drops 12.7% to breach the lower breakeven point at $28.55, by August expiration day. The investor responsible for the transaction may benefit from subsiding levels of implied volatility on the stock, which today is lower by 10.5% to arrive at 28.84% as of 1:15pm in New York. The erosion of time value will also work to the trader’s advantage heading into expiration in a couple of months. Wyndham Worldwide is slated to report second-quarter earnings ahead of the opening bell on July 27.
VRSN – VeriSign, Inc. – Bullish investors flocked to VeriSign options this morning with shares in the provider of internet infrastructure services rising as much as 3.2% to $33.65. July contract calls attracted the most interest, with traders scooping up in- and out-of-the-money contracts to position for VeriSign’s shares to extend gains through expiration next month. It looks like investors purchased around 400 in-the-money calls at the July $32 strike for an average premium of $1.45 apiece, and picked up roughly 1,000 in-the-money calls at the higher July $33 strike at an average premium of $0.88 each. Bulls coveted more than 350 call options up at the July $34 strike for an average premium of $0.47 a-pop, while some 700 calls were purchased at an average of $0.26 in premium per contract at the July $35 strike. Volume generated at each of these strikes today trumps the number of open positions handily in each case. Roughly equal numbers of the 1,000 calls exchanged at the July $36 strike were bought and sold by investors paying/receiving $0.15 per contract. July contract call options expire ahead of VRSN’s second-quarter earnings report on August 4, but investors dabbling in the August $34 strike call this afternoon may benefit from a positive earnings surprise, or suffer the consequences of an earnings miss ahead of expiration in August. Traders exchange some 1,400 calls at the August $34 strike for an average premium of $1.30 apiece. The majority of the calls at that strike traded to the middle of the market, and may have been purchased or sold.