FLEX – Flextronics International, Ltd. – A sizeable short straddle initiated on Singapore-based Flextronics International this morning indicates one options player expects to see limited fluctuations in the price of the underlying shares through January 2011 expiration. Shares in Flextronics, which manufactures thousands of electronic devices, are up 0.45% at $6.90 as of 12:05 pm after Singapore reported a surge in exports in the month of October. The straddler sold 10,000 calls at the January 2011 $7.5 strike for a premium of $0.26 each in combination with the sale of 10,000 puts at the same strike for a premium of $0.81 a-pop. Gross premium pocketed on the straddle amounts to $1.07 per contract. The investor keeps the full amount of premium received if FLEX shares settle at $7.50 at expiration. Short positions taken in both call and put options expose the trader to losses in the event that shares shift significantly away from the selected strike price. Losses start to amass if shares rally above the upper breakeven price of $8.57, or if shares slip beneath the lower breakeven point at $6.43 ahead of expiration. Flextronics’ overall reading of options implied volatility is up 8.3% at 41.57% as of 12:10 pm.
NXY – Nexen, Inc. – Contrarian trading in longer-dated call options on the Canadian oil and natural gas company appears to be the work of an optimistic strategist expecting Nexen’s shares to rebound ahead of June 2011 expiration. Nexen’s shares are currently down 5.4% to stand at $21.00 as of 11:35 am in New York. At an investor conference this morning the firm’s CEO said Nexen will likely focus on developing existing holdings rather than pursuing additional acquisitions. Yesterday Nexen revealed plans to spend roughly $2.4 to $2.7 billion next year to promote projects domestically as well as abroad. NXY popped up on our ‘hot by options volume’ market scanner after one player scooped up 3,875 in-the-money calls at the June 2011 $20 strike for a premium of $3.25 apiece. The call buyer stands is poised to profit should Nexen’s shares rally 10.7% over the current price of $21.00 to surpass the effective breakeven point to the upside at $23.25 by June expiration. The Calgary-based company’s shares last exceeded $23.25 back on May 5, 2010.
XRT – SPDR S&P Retail ETF – The Retail SPDR popped onto our ‘most active by options volume’ market scanner today after a large chunk of call options changed hands in the June 2011 contract. It looks like the calls are likely tied to stock as part of a substantial buy-write strategy. Shares of the XRT, an exchange-traded fund designed to replicate the performance of the S&P Retail Select Industry Index, slipped 0.70% lower this afternoon to $44.19 as of 12:50 pm. The investor appears to have purchased 980,000 XRT shares for $44.35 each, marked against the sale of 20,000 June 2011 $45 strike call options for a premium of $3.15 apiece on a 0.49 delta. The transaction is an efficient way to cheapen the cost of getting long the stock to around $41.20 a share and provides an effective exit strategy for the investor if the price of the underlying fund rallies sufficiently ahead of expiration day. The investor may enjoy maximum potential gains of 9.22% on the position if shares exceed $45.00 and the underlying shares are called from him ahead of expiration in June.
HON – Honeywell International, Inc. – Shares of the diversified technology and manufacturing firm increased as much as 4.01% at the start of the trading session to hit an intraday- and new 52-week high of $49.50. The firm announced it is changing its pension accounting to a mark-to-market method and revealed a commitment to have its pension plan fully funded by 2015. Additionally, the firm won a $100 million contract with Vietnam airlines for a fleet of 36 new and 22 existing Airbus A321 aircraft. HON’s shares pared much of the earlier gains, but are still up 1.45% at $48.28 as of 12:25 pm in New York trading. Bullish options players positioning for shares to hit new highs by the end of the year dominated trading activity in Honeywell options today. It looks like investors picked up more than 1,400 calls at the November $50 strike for an average premium of $0.22 apiece. Call buyers at this strike make money if Honeywell’s shares exceed the effective breakeven price of $50.22 ahead of expiration on Friday. Optimism spread to the December $50 strike where another 1,400 call options were purchased for an average premium of $0.70 per contract. Investors holding these contracts make money if HON shares surge 5.0% over the current price of $48.28 to surpass the average breakeven point at $50.70 by December expiration. The stock’s overall reading of options implied volatility is up 11.0% at 26.11% in early afternoon trading.