Option Activity Alert: SLM, LYB, SRZ, AUY

SLM – SLM Corp. – A barrage of bullish options traders targeted the student loan provider today perhaps on news SLM Corp. will continue to downsize and increase the number of company-wide layoffs to 2,500 by the end of next year. Shares in Sallie Mae rallied as much as 3.4% today to touch an intraday high of $12.28, with shares currently trading 2.35% high on the day at $12.16 just before 12:30 pm. Plain-vanilla call buyers expecting bullish movement in the price of the underlying shares to continue picked up 1,500 in-the-money calls at the December $12 strike for an average premium of $0.36 each. Call buying spread to the higher December $13 strike where more than 4,700 call options were purchased for an average premium of $0.14 a-pop. Investors holding the December $13 strike contracts are prepared to make money should SLM Corp.’s shares surge 8.05% over the current price of $12.16 to exceed the average breakeven point at $13.14 by expiration day this month. Bulls also targeted longer-dated put and call options to gain upside exposure on the stock. It looks like one strategist sold 10,000 puts at the January 2011 $11 strike for a premium of $0.22 each, in order to purchase the same number of April 2011 $15 strike calls at a premium of $0.22 apiece. The investor responsible for the transaction seems to be predicting a sharp recovery in SLM Corp. shares by April of next year. Shares in Sallie Mae would need to rally at least 23.35% for the trader to start to make money above the effective breakeven share price of $15.00. The sale of January 2011 $11 strike puts indicates the investor expects shares will exceed that price level through expiration day. But, also suggests the trader is willing to have 1,000,000 shares of the underlying stock put to him at $11.00 apiece should the puts land in-the-money ahead of January expiration. The sharp rise in demand for options on the student lending giant lifted the stock’s overall reading of options implied volatility 11.9% to 39.07% by 12:35 pm in New York.

LYB – Lyondellbasell Industries NV – Large prints in call options on Lyondellbasell Industries appear to be the work of one strategist extending bullish sentiment on the chemical producer. Shares in Lyondellbasell are up 0.50% to stand at $31.24 as of 11:20 am in New York, but rallied as much as 2.15% earlier in the session to hit an intraday- and new 52-week high of $31.75. On Friday, December 3, Mad Money host Jim Cramer put out a bullish call on LYB. Yesterday, analysts at Jeffries upped their price target on the Rotterdam-based firm to $36 from $33 and maintained a ‘buy’ rating on the chemical company. It looks like the bullish options trader originally purchased at least 15,000 calls at the December $30 strike for an average premium of $0.90 each back on December 1, 2010, when shares in LYB were trading around $29.90. The subsequent rise in the price of the underlying shares lifted premium on the calls, allowing the investor to sell 15,000 December $30 strike calls today at an average premium of $1.725 apiece. Net profits of the sale amount to $0.825 per contract. Next, the investor once again positioned for the chemical maker’s shares to climb higher by purchasing 15,000 fresh calls at the January 2011 $32.5 strike for a premium of $1.25 a-pop. The call buyer starts to make money on the new position if shares in LYB rally another 8.0% over the current price of $31.24 to surpass the effective breakeven point at $33.75 by January expiration.

SRZ – Sunrise Senior Living, Inc. – Long-dated call options on the provider of personalized senior living services are flying off the shelves today with shares rising 1.9% to $4.26 in early afternoon trade. Bulls are active on news that Ventas Inc., a healthcare REIT, completed its previously announced acquisition of 100% of Sunrise’s 79 senior living communities. Investors expecting Sunrise Senior Living’s shares to rise substantially ahead of July 2011 expiration generated significant volume in call options. It looks like bulls purchased approximately 4,000 calls at the July 2011 $5.0 strike for an average premium of $0.55 apiece. Call buyers make money if SRZ shares jump 30.3% to trade above the effective breakeven price of $5.55 by expiration day in July. Investors exchanged 4,170 calls at the July 2011 $5.0 strike thus far in the session versus zero previously existing open interest at that strike. The 4,170 call options represent volume that is more than 3.1 times greater than overall previously existing open interest on the stock of 1,337 contracts. News of Ventas’ completed acquisition of the facilities sent Sunrise’s reading of options implied volatility 9.6% lower to 78.59% by 12:50 pm.

AUY – Yamana Gold, Inc. – Shares of the gold mining company increased as much as 3.5% at the start of the trading session to secure an intraday- and new 52-week high of $13.13 after the firm was raised to ‘outperform’ from ‘sector perform’ with a 12-month target share price of $18.00 at RBC Capital Markets. Yamana’s shares have cooled substantially by 11:10 am, and currently stand 0.30% higher on the day at $12.73. The sharp increase in shares earlier today spurred long-term bullish activity in April 2011 contract call options. It looks like investor purchased more than 8,300 calls at the April 2011 $15 strike for an average premium of $0.60 apiece. Call buyers are poised to profit should shares in Yamana Gold surge 22.5% over the current price of $12.73 to surpass the average breakeven point to the upside at $15.60 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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