IB Options Brief: ProShares Short S&P500 ETF (SH) & Anadarko Petroleum Corp. (APC)
Options Traders Position For Pullback In S&P 500 Index
SH ñ ProShares Short S&P500 ETF
Call buying on the ProShares Short S&P500, an exchange-traded fund that seeks daily investment results that correspond to the inverse of the daily performance of the S&P 500 Index, indicates options traders expect the pullback in the market to continue through February expiration.
The massive run up in stocks since September 2010 drove the ProShares Short S&P500 ETF to a 52-week low of $42.63 last Friday. But, shares in the fund have started to climb with rising fears over dampening economic growth, pushing the price of the underlying up 0.55% today to $43.21 as of 12:15pm in New York. Bearish players picking up call options foresee shares in the fund rising, and consequently the S&P 500 Index falling ahead of February expiration.
More than 6,790 calls changed hands at the February $45 strike on open interest of just 978 contracts. It looks like the majority, or roughly 5,140 of the calls, were purchased for a premium of $0.20 a-pop. Investors purchasing the call options make money if shares in the fund rally another 4.6% to surpass the effective breakeven price of $45.20 ahead of expiration day next month.
Total volume in options traded on the ProShares Short S&P500 has climbed to 9,083 in early afternoon trade today, which is substantial compared to the 14,880 lots of overall previously existing open interest on the fund. Options implied volatility on the ETF has inched up 5.1% to 16.14% as of 12:20pm.
APC ñ Anadarko Petroleum Corp.
Shares of the oil and gas exploration and production company are currently down 1.90% to stand at $75.00 as of 11:10am in New York, but it looks like one optimistic options player is taking advantage of the pullback by placing a bullish bet on the stock in May contract. Anadarko is scheduled to report earnings for the fourth quarter after the market closes on January 31, 2011.
The debit call spread strategy employed on APC this morning builds upon a nearly identical one established at the same May contract strikes recently. The APC-bull picked up 5,000 calls at the May $85 strike for a premium of $3.05 each, and sold the same number of calls at the higher May $95 strike at a premium of $1.04 apiece. Net premium paid to initiate the spread amounts to $2.01 per contract.
Thus, the trader is positioned to make money should shares in Anadarko Petroleum surge 16.0% over the current price of $75.00 to surpass the effective breakeven point on the spread at $87.01 ahead of May expiration day. Maximum potential profits of $7.99 per contract are available to the trader in the event that shares in the oil company jump 26.7% to exceed $95.00 before the calls expire in May.
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