Option Activity for Tuesday, June 01, 2010

Members of S.O.M.E. have made the most of the movements within the following companies to capitalize on the options.

BP Plc (BP) BP hits a new 52-week low of $36.90 Tuesday morning and was recently down $4.79 to $38.19 after the oil giant said its operation Top Kill to stem the oil leak in the Gulf spill was not successful. In the options market, trading remained brisk, with another 80,000 calls and 52,000 puts traded in the first hour. Implied volatility is up another 21 percent to 61 and a new 52-week high. Meanwhile, the top options trade of the day is a block of 5330 Jan 35 calls sold at $6.20. It was likely tied to a block of 533K shares at $37.26. So, like last week, some strategists seem to view the share price weakness and elevated options premiums as an opportunity for buy-writes on the battered BP.

Apple Computer (AAPL)

Apple Computer (AAPL) is up $8.73 to $265.62 and seeing relative strength after reporting that it sold 2 million iPad tablets since the product was launched two months ago. Shares are moving to session highs and options volume includes 151,000 calls along with 67,000 puts. The top trade of the day is a block of 1630 Jun 300 calls on the 48 cent bid, which looks like an AAPL Jun 290 – 300 – 310 call fly, bought at 47 cents, 815X. Meanwhile, implied volatility in AAPL is up 5.5 percent to 39.

In the call butterfly spread, the strategist is selling June 300 calls for the body of the fly and buying half as many of the 290s and 310s for the wings. As we can see from the graphic, the trade was repeated more than once Tuesday morning. It’s an aggressive play because the body of the fly is almost $35 or 13 percent above current market levels. Therefore, it is relatively cheap at only 47 cents. The upside breakeven is $290.47 and the max pay-off (excluding commissions) is $9.53 if shares settle at $300 at the expiration. The upside breakeven is $309.53. Therefore, the range of profitability is between $290.47 and $309.53, with the debit at risk if shares fail to move beyond $290 or if AAPL settles above $310 at the June expiration (17 days).

Anadarko Petroleum Corporation (APC)

Anadarko Pete (APC), which owns 25 percent of the Deepwater Horizon rig that sunk and triggered the Gulf spill, is down $7.94 to $44.40 and implied volatility is rising along with the oil driller’s credit default swaps. 5-year CDS rose by 38 percent to 347 basis points Tuesday amid concerns about an out-of-control oil spill. In the options market, 27,000 calls and 18,000 puts traded in APC, or 6X normal for the first two hours. Trading was scattered across June, July, Aug, and Jan puts and calls. Meanwhile, implied volatility is up about 37 percent to 70 and a new 52-week high.

Mariner Energy (ME)

Mariner Energy (ME), a Houston, Texas based oil driller, is down $1.03 to $20.35 and the Aug 12.5 – 17.5 put spread trades at 90 cents, 2000 times on AMEX. Looks like a buyer opening a new position and bracing for additional losses in ME during the weeks ahead. It’s probably a play on the Gulf spill and the subsequent decline in drilling activity in the area. Implied volatility is up 7 percent to 76, a new 52-week high for ME. Keep an eye on this one.

Flextronics International Ltd (FLEX)

Flextronic shares are flat at $6.56 but option volume is 6x the daily average driven by activity in the Jan11 $7.50 calls which saw 3,900 trades at the 60c ask (total of 5,300 trades last time I looked) in what looks like opening purchase. This could be potentially tied to stock. Another to keep an eye on for future plays.


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