Today’s tickers: C, XLV, GM & LVS
C – Citigroup, Inc. – Shares have continued to rally today and have gained 7% to stand at $1.80 following this week’s 77% overall increase in price. Option traders appear optimistic as evidenced by the rash of call buying taking place, where currently the call-to-put ratio is at 5.5, representing 5 calls traded for every put. In the near-term March contract some investors are hoping for an additional 40% rally in shares to $2.50 as some 15,000 calls have been purchased for 7 cents each. Optimism spread to the April contract where 8,000 calls were bought for 18 cents each at the 3.0 strike price. In order to profit from such positions, shares would need to jump by 76% from the current price in order to reach the breakeven point at $3.18 by expiration. One investor provided parameters for his bullishness on Citigroup by establishing a call spread in the June contract. At the June 4.0 strike price 7,100 calls were purchased for 20 cents apiece, while at the June 6.0 strike 7,100 calls were sold for 9 cents each. The net cost of the spread amounts to 11 cents and yields a maximum potential profit of 1.89 if shares can surge upward by 233% to $6.00 by expiration in June. By holding a short position at the 6.0 strike, this investor is effectively capping his bullishness at the upper strike. Most notably today, one investor has isolated himself from the masses of traders populating the near-term contracts by getting bullish in the January 2010 contract. This trader paid a hefty premium of 75 cents to purchase 14,000 calls at the January 2.5 strike price in a move that allows him time to watch how Citigroup fares over the next 10 months. It seems that if Citigroup can prove itself by jumping the $2.50 hurdle by next year, the investor would happily get long of the stock by exercising his options at expiration.
XLV – Health Care Select Sector SPDR – Shares of XLV have improved 1.75% to $23.75. The ETF edged onto our ‘most active by options volume’ market scanner early in the trading day after one investor made protective plays in the April contract. It looks like this trader sold 3,000 puts at the April 22 strike price for a premium of 47 cents apiece in order to close out an existing position given that open interest at that strike is approximately 3,000. Utilizing the 47 cent premium, this investor then purchased 7,500 puts at the higher April 23 strike for 82 cents each. Perhaps the rationale for rolling the protection up to the 23 strike stems from the fact that shares of the XLV traded below $23 for the past two weeks until the recent rallies of the past few days. It is possible that this investor is long the stock and wisely anticipating that gains made this week are subject to rapid reversal. Maybe protection is a good way to go as this recessionary period is nowhere near the light at the end of the tunnel as yet.
GM – General Motors – Despite the turnaround from positive to negative moves in financials today, shares of GM are still up 18% at $2.59. Option traders were observed getting bullish in the June contract, with about 12,000 calls purchased for 33 cents each. Shares will need to rally by another 28% from the current price in order to reach the breakeven point at $3.33 by expiration in June. Seemingly absurd optimism by one investor at the June 9.0 strike price came in the form of 5,000 calls purchased for 8 cents each. Either this trader is privy to information that GM has invented the first fuel-free flying car, or the plan is to bank gains on today’s purchase by selling surging premiums driven by a sizeable rally in the underlying share price over the next 3 months.
LVS – Las Vegas Sands Corp. – The owner and developer of casino resorts around the world has rallied 25% to $2.22, and it has received a vote of confidence by an analyst at Bernstein Research. According to a story released this morning, the current share price – which once touched the clouds at a high of $84.28 within the past 52-weeks – fails to capture LVS’s ability to survive the current economic depression. Bernstein’s analyst rates LVS at “outperform” and recommends an $8 price target, citing improving conditions in Las Vegas as well as other areas where LVS currently operates. Option traders reflected this ‘I Will Survive’ attitude by purchasing calls across various contracts. One investor hoping for a continued rally purchased 2,000 calls for 30 cents apiece at the March 2.5 strike price. Profits will amass if shares can rally by another 26% to $2.80 by next Friday. The most bullishness was seen in the April contract where investor scooped up over 3,000 calls at the 5.0 strike price for 25 cents each. These optimists must love the adrenaline rush gambling provides when the odds are clearly against them because the trade commands a delta indicating a 28% chance that these calls will land in-the-money by expiration. Calls were picked up as far out as the January 2011 contract where patient bulls picked up 1,300 lots for 1.19 apiece, and gave LVS just under two years to surpass the 2.5 strike price.
Andrew Wilkinson
Senior Market Analyst
ibanalyst@interactivebrokers.com
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