IB Options Brief: Alcoa, Inc. (AA) & CVB Financial Corp. (CVBF)
AA ñ Alcoa, Inc.
Bullish options activity on the largest U.S. aluminum manufacturer caught our eye this morning with shares in Alcoa trading higher by 0.75% on the day to arrive at $15.00 by 11:25am in New York. One near-term optimistic options player established a ratio call spread, buying 2,500 calls at the January 2011 $15 strike for a premium of $0.48 each, and selling 5,000 calls at the higher January 2011 $17.5 strike at a premium of $0.05 apiece.
The net cost of the ratio spread amounts to $0.38 per contract, thus positioning the investor to make money if Alcoaís shares rally above the effective breakeven price of $15.38 by expiration day next year. Maximum potential profits of $2.12 per contract pad the investorís wallet if shares of the aluminum maker jump 16.7% to trade above $17.50 before the options expire in January. Alcoaís shares traded up at a 52-week high of $17.60 back on January 11, 2010. It looks like the ratio call-spreader hopes to see shares rally back up around that level in the near future.
But, the sale of twice as many January 2011 $17.5 strike calls could result in losses to the trader if Alcoaís shares increase far more than he expects. The investor may absorb losses in the event that, at expiration, AAís shares are up 31.4% to trade above the upper breakeven price of $19.71.
CVBF ñ CVB Financial Corp.
The holding company for Citizens Business Bank popped up on our scanners after a large chunk of deep out-of-the-money put options changed hands in the March 2011 contract. Shares in CVB Financial Corp. are currently up 4.4% to stand at $8.97 just before 12:00pm in New York trading.
It looks like one options trader picked up 20,000 puts at the March 2011 $5.0 strike for a premium of $0.20 per contract. The investor responsible for the transaction may be purchasing downside protection, or is perhaps initiating an outright bearish position that could appreciate in value if CVBF shares pull back significantly in the next several months to expiration.
From an expiration-only view, the trader starts to make money if the price of the underlying stock plummets 46.4% from the current price of $8.97 to breach the effective breakeven point to the downside at $4.80 ahead of March expiration. The 20,000 put options exchanged on CVB Financial Corp. today are more than 2.55 times greater than the volume comprising overall previously existing open interest on the stock of 7,805 contracts.
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