Financial Select Sector SPDR (XLF: 14.51 0.00 0.00%) - A bearish three-legged options combination play initiated on the XLF, an exchange-traded fund designed to provide investment results that correspond to the price and yield performance of the Financial Select Sector of the S&P 500 Index, indicates one big options player expects shares of the underlying fund to decline ahead of August expiration. Shares of the ETF are currently down 0.55% to stand at $14.49 with just under 30 minutes remaining before the closing bell. The pessimistic options strategist appears to have sold call options in order to partially offset the cost of buying a debit put spread. The investor sold 17,500 calls at the August $16 strike for a premium of $0.18 each, purchased 17,500 puts at the lower August $14 strike for a premium of $0.52 per contract, and finally sold 17,500 puts at the August $12 strike for a premium of $0.14 apiece. The net cost of the transaction is reduced to just $0.20 per contract. Thus, the bearish trader is poised to profit if shares of the XLF fall another 4.75% from the current price of $14.49 to breach the effective breakeven price of $13.80 by August expiration. The investor walks away with maximum potential profits of $1.80 per contract - for total gains of $3.150 million - if the price of the underlying fund plummets 17.2% to trade at or below $12.00 by expiration day in August.
Vale S.A. (VALE: 27.38 0.00 0.00%) - Two-opposite minded options strategists initiated spreads on the iron-ore producer today. One of the investors displayed bearish sentiment on the stock by purchasing a plain-vanilla debit put spread, while the other options player put forth an optimistic stance on Vale by enacting a bullish risk reversal. Vale’s shares are up 0.70% to stand at $27.40 as of 3:40 pm (ET). The Vale-bear initiated a debit put spread, buying 7,500 lots at the September $25 strike for a premium of $1.36 apiece, and selling the same number of puts at the lower September $20 strike for $0.40 in premium per contract. The net cost of the transaction amounts to $0.96 per contract and prepares the investor to profit if Vale’s shares fall 12.25% from the current price to breach the effective breakeven point on the spread at $24.04. The put-spreader pockets maximum potential profits of $4.04 per contract if the iron ore producer’s shares plunge 27% to trade below $20.00 by expiration day in September. In contrast to the bearish trade in the September contract, an investor touting a rosier outlook enacted a bullish risk reversal by selling 11,000 puts at the August $25 strike for $1.00 each, and by purchasing the same number of calls at the higher August $29 strike for $0.95 apiece. The risk reversal strategy in this case yields a net credit of $0.05 per contract to the responsible party, who keeps the full credit received as long as Vale’s shares exceed $25.00 through August expiration day. Additional profits are available to the risk reversal player if VALE’s shares rally more than 5.8% to surpass $29.00 by expiration.
Microsoft Corp. (MSFT: 25.308 0.00 0.00%) - The software giant could not escape the wrath of bearish options players today with its shares falling 1.60% to trade at $25.36 ahead of the final bell. Pessimistic investors expecting Microsoft’s shares to continue to decline ahead of August expiration sold call options and purchased puts. Options traders shed 3,100 calls at the August $29 strike for a premium of $0.13 apiece, and sold another 1,200 calls at the lower August $28 strike for an average premium of $0.27 each. Call selling spread to the August $27 strike where another 3,400 contracts were sold for an average premium of $0.85 a-pop. Investors may be throwing in the towel on MSFT, that is selling-to-close previously established long call positions, or traders may be selling the calls outright to pocket available premium. If the latter is true, call sellers keep the full premium received today if MSFT’s shares fail to rally above the strike prices described through August expiration day. Finally, traders anticipating continued erosion in the price of the underlying stock purchased 3,500 puts at the August $23 strike for an average premium of $0.49 per contract. Put buyers make money if the software maker’s shares drop 11.2% lower to trade beneath the average breakeven point to the downside at $22.51 by expiration day.
Frontier Oil Corp. (FTO: 14.52 0.00 0.00%) - Shares of the independent energy company engaged in crude oil refining and wholesale marketing of refined petroleum products are up nearly 3.25% to $14.38 this afternoon. The rally in the price of the underlying stock inspired bullish options traders to purchase out-of-the-money call options in the August contract. Investors expecting to see continued appreciation in the price of Frontier’s shares in the next couple of months looked to the August $15 strike to pick up roughly 1,700 calls at an average premium of $0.66 apiece. Call buyers at this strike price make money if FTO’s shares surge 8.90% over the current price of $14.38 to trade above the average breakeven point to the upside at $15.66 by August expiration. Frontier Oil Corp.’s shares last traded above $15.66 on May 13, 2010, when the stock touched an intraday high of $15.70.
Fifth Third Bancorp. (FITB: 13.51 0.00 0.00%) - One bearish options investor purchased a large put spread on Fifth Third Bancorp this morning in order to prepare for potential erosion in the price of the underlying stock through July expiration. FITB’s shares rallied slightly earlier in the session, but are currently flat on the day at $13.51 just before 12:00 pm (ET). The put strategist appears to have purchased 11,750 puts at the July $13 strike for an average premium of $0.37 apiece, spread against the sale of 11,750 puts at the lower July $12 strike for a premium of $0.13 each. The average net cost of establishing the bearish spread amounts to $0.24 per contract, thus positioning the responsible party to profit should FITB’s shares slip beneath the average breakeven point to the downside at $12.76 by expiration day. Maximum potential profits of $0.76 per contract pad the investor’s wallet if Fifth Third’s shares fall 11.2% from the current price of $13.51 to trade at or below $12.00 by expiration day next month.
Berkshire Hathaway Inc. (BRK-A: 118305.00 0.00 0.00%) (BRK-B: 79.140.00 0.00%) - Shares of the holding company, which owns subsidiaries engaged in diverse business activities such as property and casualty insurance and reinsurance, slipped slightly lower by 0.30% to stand at $79.29 just before 11:30 am (ET). Bearish options activity on the stock today suggests at least one investor is bracing for continued erosion in the price of the underlying shares through August expiration. The put player appears to have purchased approximately 1,300 puts at the August $75 strike for an average premium of $2.14 apiece, spread against the sale of 2,600 puts at the lower August $70 strike for an average premium of $1.03 each. The average net cost of the ratio spread amounts to just $0.08 per contract. The transaction prepares the responsible party to make money should Berkshire’s shares decline 5.5% from the current price to breach the effective breakeven point to the downside at $74.92 ahead of expiration day in August. Maximum potential profits of $4.92 per contract are available to the put spreader if shares of the underlying stock plummet 11.7% to settle at $70.00 at expiration.
PPL Corp. (PPL: 24.90 0.00 0.00%) - Options traders fired off bullish signals on PPL Corp. today with shares of the energy and utility holding company rallying 2.10% to $24.75 by 12:12 pm (ET). PPL was raised to ‘buy’ from ‘hold’ and given a 12-month target share price of $29.00 at Soleil Securities this morning. Investors expecting shares to continue to appreciate through July expiration ditched approximately 4,000 in-the-money puts at the July $25 strike to receive an average premium of $0.90 per contract. If traders are selling short the put contracts they keep the full premium pocketed on the transaction as long as PPL’s shares exceed $25.00 by expiration day. Investors could, however, be taking profits by selling-to-close previously established long put positions given previously existing open interest of 9,063 put contracts at the July $25 strike. The overall reading of options implied volatility on PPL Corp. shrank 15.2% to 24.43% by 12:18 pm (ET).
Gannet Co., Inc. (GCI: 15.88 0.00 0.00%) - The international news and information company popped up on our ‘hot by options volume’ market scanner this morning after one pessimistic options player purchased a plain-vanilla debit put spread in the August contract. The USA Today publisher’s shares are currently down 2.7% to stand at $15.90 as of 11:35 am (ET). The bearish spread involved the purchase of 1,250 now in-the-money puts at the August $16 strike for a premium of $1.20 each, marked against the sale of the same number of puts at the lower August $14 strike for a premium of $0.50 apiece. The net cost of the transaction amounts to $0.70 per contract. Thus, the investor responsible for the put play is prepared to make money as long as Gannet’s shares slip beneath the effective breakeven price of $15.30 ahead of expiration day. The trader walks away with maximum potential profits of $1.30 per contract if shares of the underlying stock plunge 11.95% from the current price to breach the $14.00-level by August expiration.