Option Activity Alert: Xerox, Momenta Pharma, Chevron

XRX – Xerox Corp. – It looks like one big options player is betting that the value of Xerox’s shares will trade within a certain range through expiration in April 2011 by selling a large-volume strangle on the stock today. Shares of the maker of electronic office equipment are up nearly 1.40% to stand at $11.10 as of 12:10 pm ET. The trader appears to have sold approximately 40,000 puts at the April 2011 $9.0 strike at a premium of $0.42 each, and shed the same number of calls at the higher April 2011 $12 strike for a premium of $0.71 apiece. Gross premium pocketed by the investor amounts to $1.13 per contract. The trader keeps the full premium received on the short strangle as long as shares in Xerox exceed $9.00 and trade below $12.00 through expiration day in April. Short stances in both call and put options expose the investor to losses in the event that XRX’s shares rally above the upper breakeven price of $13.13, or if shares slip beneath the lower breakeven point at $7.87, by April expiration. Xerox’s shares are currently trading $0.62 below the current 52-week high of $11.72, attained back on April 23, 2010.

MNTA – Momenta Pharmaceuticals, Inc. – The biotechnology company popped up on our scanners this morning after one investor dabbled in near-term put options. Momenta’s shares are down 0.07% at $14.13 as of 11:25 am ET. It looks like the investor is likely rolling a 4,000-lot long put stance in the October contract forward to the November contract, trading in the single-legged position for a debit put spread in the longer-dated expiry. The trader sold 4,000 puts at the October $14 strike for a premium of $0.50 each in order to buy the same number of puts at the November $14 strike at a premium of $1.50 apiece. Additionally, the investor sold 4,000 puts at the lower November $10 strike for a premium of $0.20 a-pop. The net cost of the transaction, in isolation, amounts to $0.80 per contract and positions the investor to profit, or realize downside protection should he hold a long position in MNTA shares, if Momenta’s shares fall 6.6% to trade below the breakeven price of $13.20 by November expiration. Maximum potential profits of $3.20 per contract are available to the investor if shares plunge 29.2% lower to trade below $10.00 by expiration day next month.

CVX – Chevron Corp. – One bearish options strategist expecting Chevron’s shares to trend lower ahead of expiration in January 2011 initiated a ratio put spread on the stock in the first 30 minutes of the trading session. Shares of the oil and gas company are currently down 0.30% to stand at $83.68 as of 11:15 am ET. The investor picked up 3,500 puts at the January 2011 $80 strike at a premium of $2.77 each, and sold 7,000 puts at the lower January 2011 $72.5 strike for a premium of $1.20 apiece. Net premium paid to establish the spread reduces to $0.37 per contract. Thus, the trader is prepared to profit should Chevron’s shares slide 4.8% lower to breach the effective breakeven price of $79.63 by expiration day next year. Maximum potential profits of $7.13 per contract are available to the investor if the price of the underlying stock plummets 13.4% from the current price to settle at $72.50. The overall reading of options implied volatility on CVX is up 5.00% at 20.00% as of 11:20 am ET.

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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