Option Activity Alert: MON, EBAY, ELX, PMCS

MON – Monsanto Co. – Bulls are grazing on Monsanto Company options today with shares of the seed manufacturer rising as much as 3.5% during the session to hit an intraday- and 10-month high of $75.09 by 12:35pm in New York. Shares of the maker of agricultural products are up nearly 60% since October 5, 2010. Options traders initiated diverse tactics to position for further upside movement in the price of the underlying stock. One investor harvested substantial profits today by selling call options purchased in December. It looks like the trader purchased some 2,500 calls at the February $70 strike for as much as $1.82 apiece in the final week of 2010. Today the investor sold the now in-the-money calls at that strike 2,500 times for a hefty premium of $5.50 per contract to pocket net profits of around $3.68 each. Next, the trader extended bullish sentiment on the stock, augmenting his exposure to the upside by purchasing 6,000 fresh calls out at the April $85 strike for a premium of $1.25 a-pop. The new bullish stance on the stock positions the investor to make money should the St. Louis, MO-based company’s shares surge 14.9% over today’s high of $75.09 to exceed the effective breakeven price of $86.25 by expiration day in April. Shares in MON last traded above $86.25 back on January 11, 2010. Elsewhere on the Monsanto options field, we observed bullish players engaging in plain-vanilla call buying to position for continued near-term appreciation in the price of the underlying. Investors picked up roughly 1,500 calls at the January $80 strike for an average premium of $0.14 each this morning. Notable traffic in out-of-the-money calls expiring in February is another sign of optimism on the seed maker this afternoon. Options implied volatility on Monsanto is higher by 6.1% to arrive at 30.30% just before 1:00pm.

EBAY – eBay, Inc. – A near-term bullish transaction combining stock and options on eBay caught our eye this morning. Shares of the operator of online marketplaces are up 0.80% in early afternoon trade to stand at $28.58. EBAY is slated to report earnings for the fourth quarter after the market closes on January 19. The options strategist enacted a delta neutral position by selling a strangle and buying shares of the underlying stock. It looks like the investor purchased 180,000 shares at around $28.67 each, sold 6,000 calls at the January $32 strike for a premium of $0.10 per contract, and sold 6,000 puts at the January $28 strike for a premium of $0.69 apiece, on a 0.30 delta. The expiration-based risk profile of this transaction suggests the trader will make money given limited bullish movement in EBAY’s shares ahead of January expiration. The short strangle, in isolation, signals that this investor sees the stock trading within the range of the strike prices outlined. The long stock position is beneficial as long as shares continue to climb, but the short calls, which represent a substantial obligation to deliver 600,000 shares at $32.00 in the event that the contracts are exercised at expiration, are a risk this investor is apparently willing to take. Selling the strangle suggests the investor expects shares to trade above $28.00 but below $32.00 through expiration next week. The firm’s earnings report could move shares substantially in either direction and create adverse circumstances for the trader should he maintain the position through the release, but it will also likely result in declines in the reading of options implied volatility on the stock which would work in his favor. Meanwhile, another trader initiated huge prints in put options on the stock. It looks like the investor sold 20,000 January $29 strike puts for a premium of $1.23 each in order to put the same number of July $26 strike puts at a premium of $1.54 apiece. The transaction was tied to $28.45 stock.

ELX – Emulex Corp. – Call options on the provider of network convergence solutions are in high demand today with shares in the name rallying as much as 5.5% to secure an intraday high of $12.82. Investors appear to be initiating bullish positions on Emulex ahead of the firm’s second-quarter earnings report, which is slated for release after the market closes on January 20, 2011. Options traders purchased at least 2,700 calls at the February $13 strike for an average premium of $0.45 each. More than 4,500 calls changed hands at the February $13 strike on open interest of just 89 contracts. Call buyers at this strike are prepared to make money should shares in Emulex increase another 4.9% over today’s high of $12.82 to surpass the average breakeven price of $13.45 by February expiration. Optimism spread to the April $13 strike where 2,000 calls were picked up at an average premium of $0.70 apiece. Traders hoping to see Emulex shares rally to a new 52-week high purchased more than 2,500 calls at the higher April $14 strike for an average premium of $0.41 a-pop. Investors long the higher strike call options are poised to profit should shares jump 12.4% in the next few months to surpass the average breakeven price of $14.41 by April expiration day. Call buying was also initiated in July $13 strike calls where some 2,000 contracts were purchased for a premium of $1.25 each. The surge in demand for call options on Emulex Corp. helped lift the stock’s overall reading of options implied volatility 10.3% to 40.18% by 12:30pm in New York.

PMCS – PMC-Sierra, Inc. – The 2.15% increase in the price of PMC-Sierra’s shares to an intraday high of $9.00 spurred demand for call options on the stock today. Near-term bulls bought approximately 2,000 call options at the January $9.0 strike for an average premium of $0.20 each. Call buyers at this strike make money if PMCS shares rally another 2.2% to surpass the average breakeven point on the upside at $9.20 by expiration day next week. Bullish sentiment on PMC-Sierra spread to the higher January $10 strike where some 1,600 call options were picked up at an average premium of $0.05 a-pop. Traders holding these contracts profit if shares surge 11.7% to first break through the current 52-week high of $9.73, and ultimately trade above the average breakeven price of $10.05 by January expiration. Options implied volatility on the stock jumped 9.3% this afternoon to 40.54% by 1:45pm 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.

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.

Visit: Interactive Brokers

Be the first to comment

Leave a Reply

Your email address will not be published.