COG – Cabot Oil & Gas Corp. – The oil and gas company appeared on our ‘hot by options volume’ market scanner after a ratio call spread was established in the September contract. Broad market declines did not spare COG today as shares fell nearly 4% to stand to the current price of $33.75. The bullish investor responsible for the spread looked to the deep in-the-money September 30 strike price to purchase 3,000 calls for an average premium of 4.15 apiece. The long calls were marked against the short sale of 6,000 calls at the higher September 35 strike for 1.15 per contract. Thus, the net cost of the spread amounts to 1.85 and yields maximum potential profits of 3.15 if COG rallies up to $35.00 by expiration next month. The investor has already realized profits on the transaction because shares are currently higher than the breakeven point at $31.85. But, the ratio of 2 short calls for each long call leaves the trader vulnerable to potentially unlimited losses in the event that shares of COG surge higher than $38.15 by expiration.
HPQ – Hewlett-Packard Co. – The global technology company has experienced a more than 1.5% decline in shares today to $43.26 ahead of its third-quarter earnings release, which is scheduled to follow the closing bell on Tuesday afternoon. At least one investor was seen bracing for bad news or at least for continued declines in the price of the underlying. The trader established a ratio put position by purchasing 5,000 puts at the August 42.5 strike for approximately 89 cents apiece, spread against the sale of 10,000 puts at the lower August 40 strike for 25 cents per contract. The net cost of the bearish transaction amounts to 39 cents and yields maximum potential profits of 2.11 if the stock slips to $40.00 by expiration this Friday. Shares must fall about 3% from the current price in order for the trader to begin to amass profits beneath the breakeven point at $42.11. Maximum profits of $1,055,000 will be retained by the investor if the stock falls to $40.00 and the lower strike puts remain out-of-the-money. If shares were to slip lower than $40.00, the trader may have shares of the underlying put to him at expiration given the ratio of 2 short put options to each long contract in his possession. Investor uncertainty has marched steadily higher throughout the day from 33% this morning to the current reading of 37% -- a sign of building tension ahead of the firm’s third-quarter profit report.
ALGN – Align Technology, Inc. – Investors in the maker of the Invisalign system are surely all smiles today as shares have exploded more than 30.5% higher to $13.20. The manufacturer of Invisalign, which is a proprietary method for correcting the misalignment of teeth, has nearly breached its 52-week high of $13.74 on today’s rally. Positive news regarding a settlement over patent litigation involving ALGN and Danaher Corp.’s Ormco unit, prompted one analyst at Northcoast Research to raise the stock to ‘neutral’ from ‘sell’. Bullish traders, hoping for continued gains in the stock, purchased approximately 1,000 calls at the September 15 strike price for an average premium of 23 cents apiece. Shares of ALGN must climb an additional 15% in order for call-buyers to begin to amass profits at the breakeven price of $15.23. Additional near-term optimism was observed at the August 10 strike price where traders shed 1,000 puts for 21 cents each. Other investors appeared to be banking gains on the rally by selling about 2,000 calls at the now in-the-money August 12.5 strike for a premium of about 80 cents. We note that 15,656 option contracts exchanged hands on Align Technology during the trading session, which comprises more than 53% of the existing open interest on the stock of 29,119 lots.
0 comments:
Post a Comment