Seagate Technology (STX: 13.66 0.00 0.00%) - Reports of “excess channel inventory” plaguing hard disk drive manufacturers pushed rigid disk drive maker Seagate Technology’s shares down as much as 7.00% during the trading session to an intraday low of $13.31. Seagate’s shares are off 4.40% to arrive at $13.68 with roughly 20 minutes remaining in the trading day. One trader was properly prepared for the sharp reduction in Seagate’s share price, and appears to have rolled a previously established long put position down to a lower strike price today. It looks like the investor sold 10,000 deep in-the-money puts at the September $20 strike for a premium of $6.24 apiece in order to get long 10,000 in-the-money puts at the lower September $15 strike for an average premium of $1.98 each. It is difficult to tell how much the trader originally paid to buy the September $20 strike puts. But, after examining put open interest at that strike, it looks like the investor likely purchased the put options back around February 18, 2010, for approximately $2.65 in premium per contract, when shares of the underlying stock were trading at a volume-weighted average price of $20.37. Seagate’s shares are currently down more than 32.8% since February 18. If the investor did in fact purchase the September $20 strike put options at an average premium of $2.65 apiece back in February, today’s sale of the contracts at a premium of $6.24 each results in approximate net profits of $3.59 per contract. The subsequent purchase of 10,000 puts for a premium of $1.98 each at the lower September $15 strike today indicates the investor expects Seagate’s shares to continue to decline ahead of September expiration. Profits on the new long put position at the September $15 strike price accumulate if shares of the disk drive manufacturer decline another 4.8% from the current price of $13.68 to breach the average breakeven point to the downside at $13.02 by expiration day in September. Options implied volatility on STX is up 8.9% to 47.77% as of 3:50 pm (ET).
Microsoft Corp. (MSFT: 25.00 0.00 0.00%) - Options players populating Microsoft Corp. today initiated bearish strategies on the stock with the software maker’s shares edging down 1.15% to trade at $25.02 with 40 minutes remaining before the closing bell. One pessimistic trader enacted a ratio put spread in the January 2010 contract to position for continued erosion in the price of the underlying shares through expiration. The investor purchased 5,000 puts at the January 2010 $25 strike for a premium of $2.25 each, and sold 10,000 puts at the lower January 2010 $20 strike for a premium of $0.74 apiece. The net cost of the transaction amounts to $0.77 per contract. Thus, the trader is poised to profit if MSFT’s shares decline another 3.15% to breach the effective breakeven price of $24.23 by expiration day. Maximum potential profits of $4.23 per contract are available to the investor if the software giant’s shares fall 20% from the current price of $25.02 to settle at $20.00 at expiration. The overall reading of options implied volatility on the stock is up 5.2% to 29.07%.
Websense, Inc. (WBSN: 20.02 0.00 0.00%) - Shares of the provider of web filtering and security, data loss prevention and email and anti-spam and security solutions fell 4.00% to $20.14 as of 3:30 pm (ET). Contrarian options players expecting shares of Websense to rebound sharply ahead of August expiration initiated plain-vanilla call buying on the stock. Investors picked up roughly 3,300 calls at the August $20 strike for an average premium of $1.46 per contract. Call buyers at this strike price make money if shares of the underlying rally 6.55% to surpass the average breakeven price of $21.46 by expiration day in August.
Bristol-Myers Squibb Co. (BMY: 25.35 0.00 0.00%) - Near-term bullish options activity on the biopharmaceutical company today indicates some investors are confident that Bristol-Myers Squibb’s shares are likely to trade above $24.00 through July expiration. BMY’s shares are currently up 0.75% to trade at $25.43 just after 1:50 pm (ET). Optimistic traders sold approximately 4,200 puts at the July $24 strike to pocket an average premium of $0.27 per contract. Put sellers keep the full premium received today as long as BMY’s shares trade above $24.00 through expiration day next month. Investors short the put options are apparently happy to have shares of the underlying stock put to them at an effective price of $23.73 should the puts land in-the-money at expiration. Traders selling the put options start to incur losses if the biopharmaceutical firm’s shares decline 6.7% from the current price of $25.43 to trade under $23.73 by expiration day in August.
Financial Select Sector SPDR (XLF: 14.25 0.00 0.00%) - With the deadline to finish financial reform negotiations by today, pessimistic options players are franticly establishing bearish positions 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, with shares of the fund down 1.65% to $14.27 as of 12:15 pm (ET). One big bearish trader initiated a massive ratio put spread utilizing a total of 210,000 put options in the August contract. The investor purchased 70,000 puts at the August $14 strike for a premium of $0.69 apiece, and sold 140,000 puts at the lower August $13 strike for a premium of $0.37 each. The ratio spread yields a net credit of $0.05 per contract to the trader. The put player may be establishing the spread to protect the value of an enormous position in the underlying shares. In this scenario, downside protection kicks in if the XLF’s shares fall 1.9% to trade below $14.00 ahead of August expiration. The parameters of the spread suggest the investor does not expect shares of the financials ETF to trade much below $13.00 because of the risk inherent in holding twice as many short puts. The trader faces losses if shares of the XLF plunge 16.25% from the current price of $14.27 to trade below the effective lower breakeven point at $11.95 by expiration day. Options investors exchanged more than 468,000 contracts on the fund by 12:30 pm (ET) with more than 15 put options changing hands for each single call options in play thus far today.
Vivus, Inc. (VVUS: 9.50 0.00 0.00%) - The biopharmaceutical company attracted a number of bearish options investors in the first half of the trading day with the price of its shares lower by 1.45% to $9.54 as of 12:50 pm (ET). The bearish strategies employed on Vivus today are perhaps the work of investors bracing for share price erosion if the firm’s obesity drug, Qnexa, fails to garner approval from the Food and Drug Administration. The FDA is slated to release a preliminary report of its findings on July 13, 2010, ahead of its final decision scheduled for October 28, 2010. One investor purchased a ratio put spread in the July contract, which will yield significant profits if shares of the biopharmaceutical company fall ahead of July expiration. The trader is perhaps hedging the possibility of a less-than stellar preliminary report in July, which would likely send VVUS shares reeling. The options strategist purchased 2,500 puts at the July $9.0 strike at an average premium of $2.42 each, and sold 5,000 puts at the lower July $5.0 strike for a premium of $0.45 apiece. The net cost of the bearish play amounts to $1.52 per contract, thus positioning the investor to make money if Vivus’s shares decline 21.6% from the current price to breach the average breakeven point on the spread at $7.48 by July expiration day. The trader walks away with maximum potential profits of $2.48 per contract if VVUS shares plummet 58% to settle at $4.00 at expiration. Another pessimist initiated a longer-term bearish bet on VVUS by purchasing a 2,000-lot plain-vanilla debit put spread at the September $9.0/$4.0 strikes at a net cost of $2.50 per contract. The transaction yields maximum potential profits of $2.50 per contract if shares fall 58% to trade at or below $4.00 by expiration day in September. Options implied volatility on Vivus is up 7.2% to 263.98% as of 1:05 pm (ET).
Potash Corp. of Saskatchewan, Inc. (POT: 95.20 0.00 0.00%) - Shares of the potash producer are down 1.75% to stand at $96.04 as of 12:35 pm (ET), but the actions of one bearish investor suggests the price of the underlying stock could decline more significantly ahead of expiration day in September. The pessimistic player purchased 7,500 puts at the September $90 strike for a premium of $4.30 each, and sold the same number of puts at the lower September $75 strike for $1.12 in premium apiece. Net premium paid to establish the spread amounts to $3.18 per contract. Thus, the trader is positioned to make money if POT’s shares fall another 9.6% to trade beneath the effective breakeven price of $86.82 by expiration day in September. The investor stands ready to amass maximum potential profits of $11.82 per contract - for total potential gains of $8.865 million - should shares of the underlying stock plunge 21.9% from the current price to trade at or below $75.00 by expiration. POT’s shares have not traded below the breakeven price of $86.82 since October 5, 2009, and the price of the underlying has not dipped below $75.00 since March of 2009.
Prologis (PLD: 10.59 0.00 0.00%) - Shares of Prologis, a REIT that owns industrial properties in North America, Europe and Asia, are down 4.00% to $10.82 just after 1:00 pm (ET). Despite the sharp shift lower in PLD’s shares today, one optimistic trader opted to sell short 5,000 puts at the August $10 strike for a premium of $0.50 per contract. The put seller keeps the full $0.50 premium pocketed on the sale as long as shares of the underlying exceed $10.00 through August expiration day. The short stance in the puts implies the investor is willing to have Prologis shares put to him at an effective price of $9.50 each should the puts land in-the-money at expiration. An opposite-minded trader populating PLD options today took a longer-term bearish stance on the stock by purchasing 2,000 puts at the January 2010 $10 strike for a premium of $1.41 per contract. The put buyer in this case is positioned to make money as long as the REIT’s shares plummet 20.6% from the current price to breach the effective breakeven point to the downside at $8.59 by expiration day in January 2010.
SPDR S&P Retail ETF (XRT: 37.18 0.00 0.00%) - A large-volume bearish ratio put spread enacted on the XRT, an exchange-traded fund designed to replicate the performance of the S&P Retail Select Industry Index, suggests one pessimistic options strategist is bracing for near-term erosion in the price of the underlying fund through July expiration. Shares of the ETF are down 2.5% to stand at $37.13 as of 10:50 am (ET). The retail-bear purchased 20,000 puts at the July $37 strike for an average premium of $0.93 per contract, and sold 40,000 puts at the lower July $34 strike for an average premium of $0.295 apiece. Average net premium paid for the spread amounts to $0.635 per contract. The investor responsible for the transaction is poised to profit if shares of the XRT decline another 2.05% from the current price to breach the average breakeven point on the spread at $36.365 by expiration day next month. Maximum potential profits of $2.365 per contract are available to the ratio-spreader should shares of the retail fund fall 8.4% to settle at $34.00 by July expiration. The greater proportion of short puts at the lower strike price indicate the trader, while certainly near-term bearish on the fund, is not expecting the XRT’s shares to collapse in the next several weeks to expiration day.
Bed Bath & Beyond, Inc. (BBBY: 39.12 0.00 0.00%) - Shares of the home furnishings retailer are down 4.15% to $39.74 in morning trading, recovering slightly since the start of the session when the stock slumped 5.7% to an intraday low of $39.10. Positive news that BBBY reported better-than-expected first-quarter profits of $0.52 per share versus average analyst estimates of $0.48 a share was overshadowed by a weaker-than-expected second-quarter forecast from the company. Bed Bath & Beyond said it expects to earn between $0.59 and $0.63 per share in the second quarter, which underwhelmed the consensus view for net income of $0.64 a share. One disappointed options investor has apparently had enough and today opted to throw in the towel on the retailer by unraveling a previously established debit call spread in the July contract. It looks like the trader initially purchased 1,000 calls at the July $42 strike for a premium of $1.25 each, and sold the same number of calls at the higher July $45 strike at a premium of $0.30 apiece. The net cost of the original transaction was $0.95 per contract. The subsequent slide in the price of the underlying shares has dragged premium on the calls sharply lower in the days elapsed since the spread was purchased on June 22, 2010, when BBBY was trading at a volume-weighted average price of $40.98. The options investor ditched the spread today by selling the July $42 strike calls for a premium of $0.49 apiece, and buying the July $45 strike calls for a premium of $0.09 each. By closing out the position today the investor suffers a net loss of $0.55 per contract. The overall reading of options implied volatility on Bed Bath & Beyond is lower by 12.8% to 35.24% following earnings.
Tyco International Ltd. (TYC: 36.73 0.00 0.00%) - Manufacturing and service company, Tyco International Ltd., enticed bullish options players to the July contract even though the price of its shares are down 2.3% to $36.99 as of 11:00 am (ET). Investors expecting Tyco’s shares to rebound ahead of expiration next month purchased approximately 3,600 calls at the July $37 strike at an average premium of $1.40 per contract. Call buyers at this strike price make money if the price of the underlying stock increases 3.8% to surpass the average breakeven price of $38.40 by July expiration. The jump in demand for call options on Tyco International Ltd. helped lift the stock’s overall reading of options implied volatility 14.9% to 30.70% in the first half of the trading session.