WFC - Wells Fargo & Co. –
A popular option strategy frequently employed on Wells Fargo, the ratio
put spread, appeared once again in the January 2010 contract. The
bearish play was initiated despite the more than 2% rally in shares
during the trading session to $28.75. The ratio spread involved the
purchase of 7,500 puts at the January 27.5 strike for an average
premium of 1.60 apiece, marked against the sale of 15,000 puts at the
lower January 24 strike for 67 cents each. The net cost of the
protective play amounts to 26 cents per contract. Thus, downside
protection will kick in if shares decline beneath the breakeven price
of $27.24 by expiration in January.
AMR - AMR Corp. –
American Airlines operator, AMR Corp., attracted a large bullish play
by one investor targeting the January 2010 contract. Shares of AMR are
up more than 4% to $5.83 with just under one hour remaining in the
trading day. An AMR-optimist initiated a call spread by purchasing
15,000 calls at the January 7.5 strike for an average premium of 35
cents each, marked against the sale of 15,000 calls at the higher
January 9.0 strike for 10 cents premium apiece. The net cost of the
bullish transaction amounts to 25 cents per contract. Profits are
available to the call-spreader if shares of AMR rally at least 33% to
breach the breakeven point at $7.75 by expiration. Maximum potential
profits of 1.25 per contract for a total of $1.875 million are attained
by the trader if shares surge 54% to $9.00.
PG - The Proctor & Gamble Co. –
Options activity in the January 2011 contract on the consumer products
company today indicates one investor expects little fluctuation in
shares over the next 14 months. Shares of PG are slightly up by less
than 0.25% to stand at $61.90. The trader initiated a sold strangle by
selling 2,000 puts at the January 60 strike for 5.73 each, and by
selling 2,000 calls at the higher January 65 strike for a premium of
3.82 apiece. The gross premium pocketed on the sale amounts to 9.55 per
contract. The strangle-seller retains the full premium if shares of PG
remain ‘strangled' within the parameters of the strike prices
described. The investor will benefit from lower option implied
volatility on the stock, as well as from the inevitable erosion of
extrinsic value (time decay) over the life of the option contracts.
DRYS - DryShips, Inc.
