IB Options Brief: Verizon Communications, Inc. (VZ) & Alere, Inc. (ALR)
Bullish Player Picks Up Verizon Call Spread
VZ ñ Verizon Communications, Inc.
Activity in Verizon LEAPS suggests one strategist is positioning for shares in the communications company to trade at a substantially higher price by expiration in January 2013. Verizonís shares are currently up 1.75% today to stand at $38.29 as of 12:15pm in New York.
The stock is hovering just $0.66 below its 52-week high of $38.95 this afternoon, one day before Appleís white iPhone 4 comes out. The phone will sell for a suggested retail price of $199 for the 16gb model at Verizon wireless stores in addition to AT&T stores and Appleís online store.
In VZ options, it looks like one bullish player purchased a call spread, picking up 4,000 deep in-the-money calls at the Jan. 2013 $35 strike at a premium of $4.86 each, and selling the same number of calls up at the Jan. 2013 $45 strike for a premium of $1.11 apiece.
Net premium paid to initiate the spread amounts to $3.74 per contract, and positions the investor to make money above a breakeven share price of $38.74 through expiration in more than one year.
Maximum potential profits of $6.26 per contract are available to the call-spreader should shares in VZ surge 17.5% over the next 20 months to exceed $45.00 at expiration. Verizonís shares last traded above $45.00 back in December 2007.
ALR ñ Alere, Inc.
The Waltham, MA-based medical supplies company with a focus in womenís health popped up on our scanners today after one trader initiated a large-volume spread in the January 2012 contract. Alereís shares are down 2.6% at $37.57 just before 12:45pm. The company posted first-quarter earnings of $0.61 a share, which met analyst expectations, ahead of the opening bell this morning.
It appears the investor responsible for generating nearly all of the dayís options volume on the stock is positioning for a rally in the price of the underlying. The size of the transaction, with total volume of 30,000 options, is substantial in comparison to overall open interest on the stock of 35,922 contracts.
It looks like the options player responsible for the trade sold 15,000 puts at the Jan. 2012 $35 strike for a premium of $2.55 each, and purchased the same number of calls at a premium of $2.05 apiece at the higher January 2012 $45 strike. The investor pockets a net credit of $0.50 per contract on the trade, and keeps the full amount as long as Alereís shares exceed $35.00 through expiration day next year.
Additional profits start to amass in the event that the stock surges 19.8% over the current price of $37.57 to trade above $45.00 at expiration. The shares need not move at all, however, for the trader to walk away with the premium of $0.50 per contract in hand. The erosion of time value on the short puts will work in his favor should he decide to buy back the contracts at some point prior to January expiration day.
But, the sale of the put options indicates the investor could wind up having 1.5 million ALR shares put to him at $35.00 each if the puts land in-the-money and are exercised at expiration. Options implied volatility on the stock is down 15.8% at 28.20% as of 1:00pm.
Note: The material presented in this commentary is provided forinformational purposes only and is based upon information that isconsidered to be reliable. However, neither Interactive Brokers LLC norits affiliates warrant its completeness, accuracy or adequacy and itshould not be relied upon as such. Neither IB nor its affiliates areresponsible for any errors or omissions or for results obtained from theuse of this information. Past performance is not necessarily indicativeof future results.
This material is not intended as an offer or solicitation for thepurchase or sale of any security or other financial instrument.Securities or other financial instruments mentioned in this material arenot suitable for all investors. Any opinions expressed herein are givenin good faith, are subject to change without notice, and are onlycorrect as of the stated date of their issue. The information containedherein does not constitute advice on the tax consequences of making anyparticular investment decision. This material does not take into accountyour particular investment objectives, financial situations or needsand is not intended as a recommendation to you of any particularsecurities, financial instruments or strategies. Before investing, youshould consider whether it is suitable for your particular circumstancesand, as necessary, seek professional advice.
View Andrew Wilkinson's post archive >