Option Activity Alert: F, MSFT, ZQK

F – Ford Motor Co. – The automaker’s shares are up 0.55% at $16.78 heading into the close this afternoon after earlier rising as much as 0.95% to an intraday high of $16.85. Bullish options traders expecting Ford’s shares to continue to rally higher over the next six months sold in-the-money put options in the June 2011 contract today. Bank of America/Merrill Lynch reiterated their ‘buy’ rating on the stock, upped their target share price on Ford Motor Co. to $24.00 from $20.00, and revised higher earnings estimates for 2011 and 2012 for the automaker. Optimistic options investors looked to the June 2011 $17 strike to sell some 16,000 in-the-money puts to receive premium of $1.92 per contract. Put sellers keep the hefty chunk of change received on the transaction as long as Ford’s shares exceed $17.00 ahead of expiration day next year. The sale of the contracts suggests traders are more than happy to have shares of the underlying stock put to them at an effective price of $15.08 each should shares fail to rally sufficiently, and the put options trade in-the-money at expiration.

MSFT – Microsoft Corp. – Bullish risk reversals initiated using Microsoft call and put options expiring in July 2011 are signs of investor optimism on the software company. Microsoft’s shares started out the session in the black but have slipped lower in the final hour of trading, losing 0.70% to stand at $27.04 as of 3:10 pm. One options strategist is positioning for shares in MSFT to rebound sharply ahead of July expiration by selling a total of 15,000 puts at the July 2011 $23 strike for a premium of $0.83 each, in order to buy the same number of calls at the higher July 2011 $30 strike at a premium of $0.97 apiece. The net cost of the risk reversal amounts to $0.14 per contract, providing relatively cheap upside exposure should Microsoft’s shares take off in 2011. Shares of the software developer must rally 11.5% over the current price of $27.04 in order for the stock to exceed the effective breakeven price of $30.14 on the calls by expiration day.

ZQK – Quicksilver, Inc. – Call options on the California-based maker of clothing for the skateboard and surfing enthusiast are in fashion with options traders today on reports the company may be the target of a takeover. Shares in Quicksilver surged 22.25% this afternoon to touch an intraday high of $5.66. Rumors that Paris-based PPR SA, a luxury goods group touting high-end brands such as Balenciaga, Bottega Veneta and Stella McCartney, may be interested in buying Quicksilver sent speculators straight to the options playing field. Investors picked up in- and out-of-the-money calls across multiple expiries, driving options volume on ZQK above 4,380 by 2:55 pm, which is nearing the overall level of open interest on the stock of 5,641 contracts. Options traders purchased more than 920 in-the-money calls at the December $5.0 strike for an average premium of $0.32 each. Bullish players also scooped up more than 910 calls at the higher February 2011 $6.0 strike for an average premium of $0.29 apiece. More than 1,150 calls changed hands at that strike thus far in the session versus paltry previously existing open interest of just 139 contracts. Call buyers at this strike are prepared to make money should shares in Quicksilver jump 11.1% over today’s high of $5.66 to surpass the average breakeven price of $6.29 by expiration day in February. Options implied volatility is higher by 8.1% to arrive at 61.33% as of 3:00 pm in New York.

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.

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