JPM – JPMorgan Chase & Co. – Put butterfly spreads on JPMorgan suggest shares in the banking institution may end the year substantially lower than their current level. The stock fell as much as 2.4% during the first half of the trading session to secure a new 52-week low of $33.54, but some options players appear to be positioning for the stock to drop another 31.0% before the end of 2011. Weekly options covering JPM are also gloomy, with traders selling calls at the August $35, $36 and $37 strikes ahead of expiration and Ben Bernanke’s speech on Friday. Investors dabbling in deep out-of-the-money put options expiring in December may be employing put butterfly spreads to either reduce the cost of taking an outright bearish stance on JPM, or to hedge positions in the underlying shares should the stock continue to slide in the months to come. It looks like investors picked up 4,709 puts at the December $28 strike for a premium of $1.59 each, sold 9,418 puts at the December $23 strike for a premium of $0.82 per contract, and purchased 4,709 puts at the December $18 strike at a premium of $0.44 apiece. The spreads cost an average net premium of $0.39 per contract. Bears buying butterfly spreads stand prepared to profit should JPM’s shares plunge 17.7% to breach the upper breakeven point at $27.61 by December expiration. Maximum potential profits of $4.61 per contract are available on the strategy in the event that JPMorgan’s shares surrender 31.4% of their value to settle at $23.00 at expiration in a few months. Shares in the financial services provider last traded around $23.00 back in March 2009. The stock has already lost roughly 31.0% since reaching its 2011 peak of $48.36 in February.
BMC – BMC Software, Inc. – Software vendor, BMC Software, popped up on our scanners today due to greater-than-usual activity in its put options. Shares in the Houston, TX-based company are up 0.95% to stand at $37.84 in early-afternoon trade, but options players are bracing for the stock to pull back by the start of 2012. Investors exchanged more than 2,500 puts at the Jan. 2012 $35 strike against previously existing open interest of 153 contracts. It looks like traders purchased most of the puts for an average premium of $2.51 a-pop. Put buyers at this strike profit if shares in BMC fall 14.1% from the current price of $37.84 to breach the average breakeven point at $32.49 by January expiration day. Bears also took to the Jan. 2012 $32.5 strike put where another 600 contracts were purchased for an average premium of $1.85 each. Traders long the lower-strike put profit should shares in the software vendor drop 19.0% to trade below $30.65 at expiration next year. Shares in BMC, which were rated new ‘Buy’ at Jefferies with a 12-month target share price of $53.00 on Friday, have traded above $30.65 since early-2009.
LNCR – Lincare Holdings Inc. – Shares in Lincare Holdings fell 2.7% to $20.33 this morning after a number of analysts lowered their share price targets for the Clearwater, FL-based company as regulators seek to require that durable medical equipment suppliers bid in order to sell to Medicare beneficiaries. Put activity in the front month suggests traders expect shares in Lincare to continue to decline in the next four weeks. Investors picked up more than 1,400 in-the-money puts at the September $21 strike for an average premium of $1.10 per contract. Buyers of the options stand prepared to profit should shares in LNCR slip 2.1% to breach the average breakeven price of $19.90 by expiration day next month. Bearish sentiment spread to the lower September $20 strike where more than 1,900 puts changed hands against previously existing open interest of just 23 contracts. It looks like most of the puts were purchased for an average premium of $0.65 a-pop. Traders long the put options profit should shares in Lincare Holdings drop 4.8% to trade beneath the breakeven point on the downside at $19.35 at expiration. The rise in demand for put options on the stock helped lift implied volatility on LNCR 6.1% to 45.89% by 11:30 am ET.
PSS – Collective Brands, Inc. – Options on Collective Brands are more active than usual ahead of the company’s second-quarter earnings report after the final bell on Wednesday. Shares in the holding company, whose subsidiaries engage in the wholesale and retail of footwear and related accessories, are off 0.10% to arrive at $9.50 as of 12:35 pm on the East Coast. Options traders appear to be selling volatility on Collective Brands, which currently stands 16.3% lower on the session at 69.74%. Fresh prints in both call and put options in the front month attracted sellers this morning. It looks like some 2,275 of the September $10 strike calls were sold for an average premium of $0.59 each, while around 2,000 of the September $8.0 strike sold for an average premium of $0.17 apiece. Sellers of the calls keep the full amount of premium received as long as shares fail to rally above $10.00 by expiration. Meanwhile, put sellers walk away with their $0.17 per contract in premium should shares resist above $8.00 through expiration day next month. Both strategies are winning propositions if shares stagnate between $8.00 and $10.00 over the next four weeks, but sellers of the options could lose out if the stock moves against them or volatility increases.