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Bullish Bias To Options On UltraShort 20+ Year Treasury ETF

Posted on the 05 October 2011 by Phil's Stock World @philstockworld

Today’s tickers: TBT, RIMM & CE

TBT - ProShares UltraShort 20+ Year Treasury ETF – The huge run-up in bonds with greater than 20 years remaining to maturity may pull back by the end of the year, by the looks of a massive bullish options position on the TBT today. The TBT, an exchange-traded fund that corresponds to twice the inverse of the daily performance of the Barclays Capital 20+ Year U.S. Treasury Bond Index, rose 1.7% in early-afternoon trade to $19.12 perhaps on the release of some much-needed scraps of positive economic data out today. A number of large blocks of call options changed hands on the TBT this morning across multiple expiries. The traders responsible for the prints mostly purchased the contracts to position for shares in the TBT to rise, and bonds to fall. The largest transaction on the fund today was the purchase of a massive call butterfly spread in the December contract. The call ‘fly involved the purchase of 15,500 calls at the Dec. $22 and $28 strikes, combined with the sale of 31,000 calls at the Dec. $25 strike, all for a net premium of $0.26 per contract. The spread positions the investor to pocket maximum potential profits of $2.74 per contract in the event that shares in the TBT surge 30.75% over the current price of $19.12 to settle at $25.00 at expiration in December. The investor starts making money if the price of the underlying tops the effective breakeven price of $22.26 by expiration day. The rise in the TBT to $25.00 would roughly correspond to an 11.0% move lower in the TLT, which mirrors the daily performance of the same underlying Index of 20+ Year U.S. Treasury Bonds, to $108.00. Shares in the TBT last traded around $25.00 on August 31.

RIMM - Research In Motion, Ltd. – Heavy trading traffic in RIMM options noted in our commentary on Tuesday accelerated Wednesday on rumors Vodafone may have its eye on the BlackBerry maker. Shares in RIMM are off their highs of the session, but continue to trade more than 13.25% higher on the day at $23.79 as of 1:00 pm in New York. Many-a-speculator snapped up call options that expire at the end of this week. Volume in the weeklies is heaviest at the Oct. ’07 $24 strike, where more than 7,400 calls have changed hands thus far. The majority of the calls appear to have been purchased for an average premium of $0.55 a-pop. Traders long the calls may benefit from further bullish movement in the price of the underlying, as well as from increases in implied volatility on the stock, which currently stands 16.2% higher at 95.0%. Though calls are trading at a pace of roughly 2 contracts to each single put option in action, not all of the trading in weeklies is bullish. It looks like some investors are preparing for the stock to surrender gains should rumors ultimately be dispelled at some point before the weekend. Put buyers picked up roughly 2,000 contracts at the Oct. $23 strike for an average premium of $0.67 each, and another 1,800 puts at the Oct. $22 strike at an average premium of $0.26 apiece. Investors populating RIMM options have exchanged just fewer than 190,000 contracts on the stock as of 1:15 pm EDT.

CE - Celanese Corp. – The producer of specialty materials and chemical products popped up on our ‘hot by options volume’ market scanner this morning after large blocks of puts changed hands in the December contract. Shares in Celanese Corp., which reports third-quarter earnings on October 25 ahead of the open, rallied 4.45% in early-afternoon trade to stand at $32.89. The investor responsible for sizable put spread purchased 2,500 puts at the Dec. $30 strike for a premium of $3.40 each, and sold the same number of puts at the lower Dec. $25 strike at a premium of $1.55 apiece. Net premium paid to initiate the spread amounts to $1.85 per contract, thus position the trader to profit should shares in CE drop 14.4% from the current price to breach the effective breakeven point on the downside at $28.15 at expiration. The investor may walk away with maximum potential profits of $3.15 per contract if the price of the underlying drops 24.0% to $25.00 at expiration day in December. Shares in Celanese last traded below $25.00 back in August 2010. The stock has dropped nearly 45.0% in the past couple of months.

Caitlin Duffy
Equity Options Analyst

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