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Options Intelligence Report: Louisiana-Pacific Corp. (LPX) & Cisco Systems, Inc. (CSCO)

LPX – Louisiana-Pacific Corp.
It looks like a couple of different options trading strategies were employed on the manufacturer of building products today. A large short straddle enacted in earlier trading suggests one individual expects decreased volatility in the price of the underlying going forward, while plain-vanilla call buying indicates bullish sentiment by another investor. Louisiana-Pacific’s shares are currently up more than 2% to $7.26. All notable options trading activity on LPX took place at the January 2011 $7.5 strike. One investor sold 10,000 calls at the January 2011 $7.5 strike for a premium of $1.25 each in combination with the sale of 10,000 in-the-money put options at the same strike for an average premium of $1.60 apiece. The gross premium pocketed by the straddle-seller amounts to $2.85 per contract. The investor keeps the full premium if LPX’s shares settle at $7.50 by expiration next January.

As always, short straddle players are exposed to potentially devastating losses outside of the effective breakeven points, throughout the life of the option contracts. In this case, the trader experiences losses if shares of the underlying rally above the upper breakeven price of $10.35, or if shares decline beneath the lower breakeven point at $4.65 in the next eleven months. Finally, traders looking for further upside movement in the price of the underlying stock purchased 2,000 calls at the January 2011 $7.5 strike for a premium of $1.40 per contract. Investors long the calls stand ready to accrue profits if shares of LPX increase above the breakeven price of $8.90 ahead of expiration. Option volume of 22,055 contracts generated during the session exceeds total existing open interest on the stock of 17,297 lots.

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CSCO – Cisco Systems, Inc.
The manufacturer of switches and routers was upgraded to ‘buy’ from ‘hold’ at Signal Hill today and its share price improved 0.40% to $22.56. Perhaps still feeling sore from last week’s pullback in technology stocks, one investor initiated a put spread in the July contract today. The trader purchased 5,000 puts at the now in-the-money July $23 strike for a premium of $2.04 each, marked against the sale of 5,000 puts at the lower July $19 strike for $0.70 apiece. The net cost of the bearish spread amounts to $1.34 per contract. Therefore, downside protection provided by the transaction kicks in if Cisco’s shares fall back down through the breakeven price of $21.66 ahead of expiration in July.

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