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Bullish Player Takes Profits, Injects Fresh Optimism in Sanofi-Aventis Options

Posted on the 10 May 2011 by Phil's Stock World @philstockworld

Today’s tickers: SNY, DELL, HTZ & GT

SNY - Sanofi-Aventis – The French drug manufacturer popped up on our ‘hot by options volume’ market scanner this morning after one strategist extended bullish sentiment on the stock. Shares in Sanofi-Aventis rallied earlier in the session, but currently stand 0.35% lower on the day at $39.55 as of 11:30am in New York. The vaccines division of the pharmaceutical company, Sanofi Pasteur, said today it has received approval from the U.S. Food & Drug Administration (FDA) for its intradermal microinjection delivery system of its influenza vaccine, Fluzone. The vaccine was previously approved for intramuscular administration, but Sanofi said it plans to have the Fluzone Intradermal vaccine available to U.S. healthcare providers in time for the 2011-2012 influenza season. The bullish options trader responsible for nearly all of the day’s volume appears to be taking profits off the table on a previously established long call position. It looks like the investor originally purchased 2,000 calls at the May $37 strike for an average premium of $1.025 back on April 14 when shares in SNY were hovering around $37.54. Since the calls were purchased, shares in Sanofi rallied as much as 8.6% to touch a new 52-week high of $40.75 last Wednesday. Although shares are currently off last week’s high, the bullish trader was still able to rake in substantial profits on the long calls stance, selling all 2,000 of the May $37 strike calls this morning at a premium of $2.45 apiece. Net profits on the sale amount to $1.425 per contract. Next, the trader extended bullish sentiment on the drug maker, buying 2,000 fresh calls out at the June $40 strike for a premium of $0.40 per contract. The investor profits on the new batch of call options if shares in SNY increase 2.15% over the current price of $39.55 to surpass the effective breakeven point to the upside at $40.40 by expiration in June.

DELL - Dell, Inc. – Shares in Dell are up 0.95% to stand at $16.34, which is just 11 pennies off of the stock’s most recent 52-week high of $16.45 achieved this past Friday. The PC maker’s shares are up more than 26.0% since the end of January, but put activity in the January 2012 contract this morning suggests one trader expects the price of the underlying to reverse course by expiration next January. The trader appears to have initiated a debit put spread, buying 7,500 puts at the January 2012 $15 strike for a premium of $1.08 each, and selling the same number of puts at the lower January 2012 $11 strike at a premium of $0.22 apiece. Net premium paid to initiate the spread amounts to $0.86 per contract. The investor responsible for the transaction stands prepared to profit should Dell’s shares drop 13.5% from the current price of $16.34 to breach the effective breakeven point on the spread at $14.14 by expiration. Maximum potential profits of $3.14 per contract are available to the put spreader in the event that the price of the underlying stock plunges 32.7% to trade below $11.00 at expiration in 2012. Dell is scheduled to report first-quarter earnings after the final bell on May 17, 2011.

HTZ - Hertz Global Holdings, Inc. – The car and truck rental company raised its bid for Dollar Thrifty Automotive Group Inc. to $2.24 billion in cash and stock, besting an offer by Avis Budget Group Inc. Shares in Hertz Global Holdings, the largest publicly-traded rental-car company, slipped 1.2% in early-afternoon trade to stand at $16.48 as of 12:30pm. One options player expecting the price of the underlying stock to rally over the next several months took advantage of the dip in HTZ shares by initiating a bull call spread in the September contract. The trader purchased 2,500 in-the-money calls at the September $16 strike for an average premium of $1.775 apiece, and sold the same number of calls at the higher September $19 strike at a premium of $0.50 each. The investor paid an average net premium of $1.275 per contract on the spread. Thus, the position becomes profitable if shares in HTZ rally 4.8% over the current price of $16.48 to exceed the average breakeven point at $17.275 by September expiration. Maximum potential profits of $1.725 per contract are available to the bullish investor if shares in Hertz surge 15.3% to trade above $19.00 by expiration day. The selection of in-the-money calls at the lower-strike suggests this trader would like to be long the stock come expiration. The investor expects shares in HTZ to at least be trading above $16.00, and may be hoping to see the September $19 strike calls expire worthless in September. In this scenario, the call-spreader is long the stock and free to enjoy any upside movement in the rental-car company’s stock price in the absence of the $19.00 ceiling. Shares in HTZ hit a new 52-week high of $17.64 on Monday, and have not traded above $19.00 since November 2007.

GT - Goodyear Tire & Rubber Co. – Activity in Goodyear Tire & Rubber Co. call options today indicates some traders believe the rally in the price of the underlying stock has not yet reached its full potential. Shares in the tire manufacturer increased as much as 2.6% during the session to touch an intraday- and new 52-week high of $18.71. Investors positioning for the uptrend to continue in the near term purchased around 3,750 calls at the May $19 strike for an average premium of $0.33 each. More than 5,920 calls changed hands at that strike on open interest of 2,675 contracts. Call buyers make money if shares in GT rally another 3.3% over today’s new 52-week high of $18.71 to surpass the average breakeven price of $19.33 by May expiration. Bullish sentiment on Goodyear spread to the June $20 strike where at least 3,000 calls were picked up for an average premium of $0.44 a-pop. Investors long the calls stand prepared to profit in the event that GT’s shares surge 9.25% to exceed the average breakeven point on the upside at $20.44 at expiration next month. More than 1,100 calls changed hands at the higher June $21 strike today against previously existing open interest of just 72 contracts. It looks like the majority of the calls were snapped up by bullish players for an average premium of $0.25 each. Traders holding these contracts start making money if shares in the tire maker jump 13.6% in the next six weeks to trade above the average breakeven price of $21.25 by June expiration day. Call options on the stock are the clear favorite during the first half of the trading day, with investors exchanging around 4.3 calls on Goodyear for each single put option in play.

Andrew Wilkinson
Senior Market Analyst
ibanalyst@interactivebrokers.com

Caitlin Duffy
Equity Options Analyst

 


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