Option Activity Alert: SLB, MON, NDAQ, WGO

SLB – Schlumberger, Ltd. – A four-legged transaction on the oil services company today appears to be the work of an investor positioning for the price of the underlying stock to rise ahead of May 2011 expiration. Schlumberger’s shares are up 0.10% to arrive at $80.80 as of 12:30pm. The options strategist initiated a short strangle in order to partially finance the purchase of in- and out-of-the-money calls. It looks like the investor sold 7,500 calls at the May 2011 $95 strike for a premium of $1.63 each in combination with the sale of 7,500 puts at the lower May 2011 $65 strike at a premium of $1.61 apiece. The trader received approximately $2,662,500.00 on the sale of the strangle. Next, he picked up 2,500 in-the-money calls at the May 2011 $80 strike for a premium of $6.74 each, and purchased 2,500 calls at the higher May 2011 $85 strike at a premium of $4.52 a-pop. Applying the premium received on the sale of the strangle to the $2,810,000.00 paid to purchase the call options reduces the investor’s net cost for the four-legged trade to roughly $147,500.00. The transaction positions the investor to benefit handsomely from continued bullish movement in the price of Schlumberger’s shares through May expiration. The May 2011 $65/95 short strangle also signals a price range in which this investor sees SLB’s shares trading going forward.

MON – Monsanto Co. – Long-term bulls have been planting debit call spreads in the April 2011 contract throughout the trading week, and continued sowing the seeds of optimism on Monsanto this morning. Investors employing call spreads may enjoy a bountiful harvest by April expiration should the price of MON’s shares grow substantially in the next four months. Shares of the seed maker are currently up 1.55% to stand at $61.45 as of 11:45am. It looks like traders populating the options field this morning scooped up some 3,000 calls at the April 2011 $62.5 strike for an average premium of $3.58 each, and sold the same number of calls at the higher April 2011 $72.5 strike at an average premium of $0.97 apiece. The average net cost of the spread amounts to $2.61 per contract. Thus, bullish players are prepared to profit in the event that MON’s shares surge 5.95% over the current price of $61.45 to surpass the average breakeven point to the upside at $65.11 by April expiration day. Investors may accumulate maximum potential profits of $7.39 per contract if Monsanto’s shares jump 18.0% to trade above $72.50 ahead of expiration next year. Shares in Monsanto Company last traded above $72.50 back on March 25, 2010.

NDAQ – NASDAQ OMX Group, Inc. – Shares of the global exchange group increased as much as 7.3% this morning to hit an intraday- and new 52-week high of $24.18 after Nasdaq said it will repurchase approximately 22.8 million common shares from Borse Dubai for $21.82. News that Investor AB intends to increase its stake in NDAQ to 9.7% also helped shares higher today. Options traders were quick to assume bullish positions in the name today, buying more than 2,375 calls at the January 2011 $25 strike for an average premium of $0.38 apiece. Call buyers are prepared to make money should NDAQ’s shares rally another 5.0% over today’s high of $24.18 to surpass the average breakeven price of $25.38 by expiration day next month. The rise in demand for calls on Nasdaq pushed up the stock’s overall reading of options implied volatility 17.4% to 30.55% by 11:35am in New York.

WGO – Winnebago Industries, Inc. – Shares of the motor homes manufacturer shot up 14.6% today to secure an intraday- and 6-month high of $15.00 after Winnebago posted better-than-expected earnings for the first quarter before the opening bell this morning. Winnebago earned $0.13 a share in the first quarter versus a loss of $0.05 a share in the same period last year. The stock is currently up 13.2% to arrive at $14.82 as of 1:20pm in New York. The Forest City, Iowa-based firm popped up on our scanners at the start of the session due to heavier than usual trading in call options. More than 2,180 calls changed hands at the January 2011 $15 strike, which had previously existing open interest of just 156 contracts. It looks like bulls purchased at least 1,000 of the calls at that strike for an average premium of $0.45 apiece. Call buyers stand ready to make money should shares in Winnebago rise 4.25% over the current price of $14.82 to exceed the average breakeven price of $15.45 ahead of expiration day next month. Options implied volatility on WGO fell 16.6% to 46.42% in early afternoon trading.

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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