Options Intelligence Report: Williams Companies, Inc. (WMB) & ConAgra Foods, Inc. (CAG)
Long Strangle Player Targets Williams Companies, Inc.
WMB ñ Williams Companies, Inc.
A large-volume long strangle initiated natural gas producer, Williams Companies, suggests one options strategist is expecting the price of the underlying stock to shift significantly head of expiration in January 2011. Williamsí shares are down 4.00% to arrive at $18.34 as of 11:45 am ET.
The stock has been volatile throughout the morning, falling as much as 5.025% to an intraday low of $18.14 at the start of the session, and later recovering the majority of earlier losses to touch an intraday high of $18.74, before sliding back down to the current price of $18.34. Shares of the third-largest U.S. pipeline operator by market value slipped after the firm cut its profit forecasts for the next three years, citing lower-than-expected prices for natural gas and petroleum goods.
The strangle-strategy selected by the options player suggests he is positioning for increased volatility in WMB shares as well as inflated options implied volatility. The investor picked up 10,000 calls at the January 2011 $20 strike for premium of $0.90 each, and purchased 10,000 puts at the January 2011 $17.5 strike for premium of $1.10 apiece. Net premium paid to establish the long strangle amounts to $2.00 per contract.
Thus, the trader is prepared to make money if Williamsí shares rally above the upper breakeven price of $22.00, or should shares trade below the breakeven point to the downside at $15.50, by expiration day in January 2011. We note the investor may also walk away with profits if he is able to sell-to-close the strangle for more than $2.00 per contract at some point before the contracts expire next year.
CAG ñ ConAgra Foods, Inc.
The food company with well-known brands such as Hebrew National, Chef Boyardee and Huntís, popped up on our ëhot by options volumeí market scanner this morning after one options player sold a strangle in the January 2011 contract. ConAgraís shares fell 1.75% to $21.92 as of 12:00 pm ET. On Tuesday, Citigroup analysts cut their price target on ConAgra by $1.00 to $30.00.
The strangle-player sold 2,000 calls at the January 2011 $24 strike for a premium of $0.30 each and shed 2,000 puts at the January 2011 $21 strike for premium of $0.70 apiece. Gross premium pocketed on the transaction amounts to $1.00 per contract. The investor keeps the full premium of $1.00 per contract, or $200,000.00, if CAG shares trade above $21.00 but below $24.00 through expiration.
Premium received starts to erode at any price outside of the range described and gives way to potentially devastating losses should shares rally above the upper breakeven price of $25.00, or if shares trade below the lower breakeven point at $20.00, at expiration day in January. The strangle-seller is hoping to see CAGís shares stagnate and implied volatility come off. Currently, the stockís overall reading of options implied volatility is up 5.5% at 21.48% as of 12:10 pm ET.
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