Option Activity Alert: GRA, BAC, XEC, UNT

GRA – W.R. Grace & Co. – Bearish activity in options covering the producer of specialty chemicals and materials today suggests shares in W.R. Grace & Co. may extend losses through the end of 2011, and into the New Year. GRA’s shares today trade 3.5% lower on the session at $34.26. The stock has fallen 34.7% since July 26, when shares were trading up at a more than 10-year high of $52.50. One options player expecting shares to continue to head south for the winter purchased a 530-lot Jan. 2012 $22.5/$32.5 put spread for a net premium of $2.95 per contract. The investor may be taking an outright bearish stance on the stock, or could be building up downside protection to hedge a long position in the underlying shares. The spread positions the trader to profit should GRA’s shares drop 13.75% from the current price of $34.26 to breach the effective breakeven point to the downside at $29.55 by January expiration. Maximum potential profits of $7.05 per contract pad the investor’s wallet if shares in W.R. Grace & Co. plunge 34.3% to trade below $22.50 at expiration in 2012. Options implied volatility on the stock is up 9.9% at 66.67% just before 12:20 pm ET. The company’s Senior VP and CFO, Hudson La Force, is scheduled to present at the 2011 KeyBanc Capital Markets Basic Materials & Packaging Conference in Boston tomorrow, as well as at the Credit Suisse Chemicals and Ag Science Conference in New York City on Thursday.

BAC – Bank of America Corp. – Shares in Bank of America Corp. rallied earlier in the session, perhaps signaling markets are eager to learn more about CEO Brian Moynihan’s Project New BAC. The stock turned negative in early-afternoon trade, but continues to outperform other financial names, trading just 0.15% lower on the day at $6.97 just before 12:30 pm ET. Although Bank of America may be trying to get back on track, a sizable bearish put spread initiated on the stock this morning suggests one options player is prepared to see BAC’s shares hit new multi-year lows in the next few months to December expiration. It looks like the investor responsible for the trade purchased 10,000 puts at the Dec. $7.0 strike for a premium of $1.14 each, and sold the same number of puts at the lower Dec. $4.0 strike for a premium of $0.27 apiece. Net premium paid to initiate the spread amounts to $0.87 each, thus positioning the trader to profit should BAC’s shares fall 12.05% from the current price of $6.97 to breach the effective breakeven point on the spread at $6.13 at expiration. The investor may walk away with maximum potential profits of $2.13 per contract in the event that Bank of America Corp.’s shares plummet 42.6% to trade below $4.00 by expiration day in December. BAC’s shares last traded below $4.00 back in March 2009.

XEC – Cimarex Energy Co. – The oil and gas exploration and production company popped up on our ‘hot by options volume’ market scanner in the first half of the trading session due to heavier-than-usual activity in December contract calls. Shares in Cimarex are currently down 1.5% to stand at $64.18 as of 11:50 am ET. Fresh trading in deep out-of-the-money calls suggest one strategist expects the price of the underlying to rise significantly before the end of the year. The trader initiated a debit call spread, buying 1,000 calls at the December $75 strike for a premium of $2.65 each, and selling the same number of calls up at the December $80 strike at a premium of $1.60 apiece. Net premium paid for the spread amounts to $1.05 per contract. The bullish player profits at expiration if shares in Cimarex Energy rally 18.5% to surpass the effective breakeven price of $76.05. Maximum potential profits of $3.95 per contract are available on the trade should XEC’s shares surge 24.6% in the next few months to trade above $80.00 at expiration in December. Shares in Cimarex last traded above $80.00 back on August 3.

UNT – Unit Corp. – Shares in the contract drilling company may rally more than 25.0% in the next six months, according to bullish activity in long-dated call options on Unit Corp. this morning. Unit’s shares are down 0.30% to stand at $45.10 as of 12:00 pm in New York. One or more options traders expecting Unit’s shares to rebound ahead of March expiration exchanged around 1,200 calls at the March 2012 $55 strike against open interest of just 29 contracts. It looks like most of the calls were purchased at an average premium of $2.51 a-pop. Call buyers make money at expiration if shares in Unit Corp. jump 27.5% to exceed the breakeven point on the upside at $57.51. UNT’s shares last traded above $57.51 back on August 3. Increased demand for Unit’s call options helped lift options implied volatility on the stock 4.7% to 56.4% in early-afternoon trade.

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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