Options Intelligence Report: Hercules Offshore, Inc. (HERO) & TeleCommunication Systems, Inc. (TSYS)
HERO ñ Hercules Offshore, Inc.
The provider of shallow-water drilling and marine services to the oil and natural gas industries popped up on our ëhot by options volumeí market scanner after one contrarian trader initiated a cautiously optimistic transaction in the April 2011 contract. HEROís shares plunged 11.15% lower today to trade at $2.31 by 1:00 pm ET.
The options strategist appears to have enacted a delta neutral hedge, buying approximately 115,000 shares of the underlying stock at $2.55 each, and picking up 5,000 protective put options at the April 2011 $2.0 strike for a premium of $0.30 apiece on a 0.23 delta. The investor is likely taking advantage of the sharp pullback in HEROís shares today. He takes a long position in the stock, perhaps because he expects shares to rebound by April expiration, but purchases the put options as an insurance policy of sorts in case shares fail to rally and instead erode further.
Other put players appear to be buying the April 2011 $2.0 strike calls outright at an average premium of $0.30 each. Plain-vanilla put buyers make money if HEROís shares fall another 26.4% from the current price of $2.31 to breach the effective breakeven point to the downside at $1.70 by expiration day. Options traders exchanged more than 9,500 puts at the April 2011 $2.0 strike thus far in the session versus paltry previously existing open interest of just 30 contracts at that strike.
TSYS ñ TeleCommunication Systems, Inc.
Reports that the provider of secure mobile communication technology won a contract from the U.S. Marine Corps worth up to $269 million sent the firmís shares up as much as 43.97% to an intraday high of $5.37. The rally inspired bulls to purchase roughly 800 now in-the-money calls at the October $5.0 strike for an average premium of $0.25 each. Investors holding these contracts make money if TSYS shares trade above $5.25 through October expiration.
Optimists also picked up another 1,000 in-the-money calls at the November $5.0 strike for an average premium of $0.55 a-pop. These investors are prepared to profit should shares rally another 3.35% over todayís high of $5.37 to surpass the average breakeven price of $5.55 by expiration day in November. News of the companyís contract with the Marine Corps sent TeleCommunicationís overall reading of options implied volatility 28.5% lower to 74.10% by 12:30 pm ET.
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