By Andrew Wilkinson on August 24, 2009
Dell, Inc. (DELL: 14.78 +0.29 +2.00%) - The second-largest maker of personal computers attracted bullish attention this morning amid a more than 4% rally in shares to $15.07. The stock surged when it received an upgrade to ‘buy’ at Broadpoint AmTech. Investors itching for further upward momentum on DELL purchased approximately 8,000 calls at the now in-the-money September 15 strike price for an average premium of 69 cents apiece. Traders long the calls will begin to amass profits if shares rise 4% from the current price to surpass the breakeven point at $15.69 by expiration next month. Option implied volatility jumped 11% higher from Friday’s closing value of 41% to the current reading of 45.5%.
WellPoint, Inc. (WLP: 54.76 +0.12 +0.22%) - Option bears trudged around the health benefits company today and enacted pessimistic plays in the September and October contracts. Shares have edged less than 0.5% lower during the session to arrive at the current price of $54.62. Plain-vanilla put buying occurred at the near-term September 55 strike price where traders picked up about 2,600 in-the-money puts for 2.35 each. Finally, a large bearish reversal play was initiated by an investor who shed calls to fund downside protection. The reversal involved the sale of 10,000 calls at the October 60 strike price for a premium of 1.35 apiece spread against the purchase of 10,000 puts at the lower October 50 strike for 1.55 per contract. The net cost of the transaction amounts to 20 cents. Shares must fall approximately 9% lower by expiration in order for the trader to begin to accumulate profits beneath the breakeven point to the downside at $49.80.
Lockheed Martin Corp. (LMT: 74.71 -0.21 -0.28%) - The defense contractor’s shares were falling sharply in earlier trade despite a stronger open and before an option trader appeared to place an order banking on a rally for its share price before September expiration. Its shares reached $73.75 when one trader appears to have sold put options at the 70 strike in order to get long of calls at the 75 strike. The net of the two premiums leaves the investor facing a lower cost to get long the stock of just 55 cents. The trade has lifted a few eyebrows and clearly created some waves as some investors were forced to take the tone of the trade and buy into a brief rebound. The share price has been trapped between $73.11 and $77.16 for the past four weeks despite the recovery for the broader market. The stance taken today by one investor appears to be a smart move as he’s buying towards the bottom of this range while at the same time would benefit above a breakeven point at $75.55 within the next month in the event that investors were tempted to test the top of the channel. Implied options volatility was a little higher at 27% today.
Fannie Mae (FNM: 1.70 +0.50 +41.67%) - Shares of the largest U.S. home funding company have sky-rocketed this morning, gaining more than 50% at times, and reaching an intra-day high of approximately $1.83. Bullish investors came out of the woodwork to covet near-term calls in the September contract. More than 16,000 calls were picked up at the September 2.0 strike for a premium of 23 cents apiece. The breakeven point on the transaction at $2.23 mandates that the stock climb another 22% before investors begin to amass profits. Bullish sentiment spread to the higher September 3.0 strike where some 5,000 calls were coveted for an average premium of 8 cents per contract. Shares would need to climb a whopping 68%, or 1.25 higher, for investors to realize profits by expiration. Signs of extraordinary movements in the underlying were evident last week as volatility on the stock jumped. Option implied volatility on FNM surged 36% higher from the opening reading of 147%, to reach an intra-day high of 200%.
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