IB Options Brief: Altria Group, Inc. (MO) & Norfolk Southern Corp. (NSC)

Posted December 19th, 2011 by Caitlin Duffy in Unusual Activity

Bullish Smoke Signals Detected In Altria Options

MO ñ Altria Group, Inc.
Bullish activity in Altria Group call options this morning indicates shares in the cigarette maker, which today rallied 1.7% to a new three-year high of $29.63, may have more room to run in 2012. Investors dabbling in February 2012 contract calls on the Richmond, Virginia-based Company may be prepping for the stock to hit new highs following the companyís fourth-quarter earnings report on January 26.

Options volume on Altria Group is heaviest at the Feb. 2012 $31 strike, where more than 3,000 calls changed hands against zero open positions. It looks like most of the call options were purchased for an average premium of $0.16 apiece. Call buyers stand prepared to profit should shares in the tobacco products provider climb 6.1% to top $31.16 at expiration day in February.

Philip Morris International, Inc.ís shares too are in rally-mode today, though activity in February 2012 contract calls on the cigarette seller may not be the work of a bullish player. The purchase of 3,000 Feb. 2012 $80 strike calls on Philip Morris would have tended to suggest optimism on the tobacco Company; however, it appears the options were likely tied to the sale of stock in a position that may be profitable if shares in PM decline.

NSC ñ Norfolk Southern Corp.
A large put credit spread on the rail transportation provider signals the stock is unlikely to crash in the near future. Shares in Norfolk Southern Corp. are bucking the broader market decline today, trading 0.40% higher on the session at $70.09 just before 1:00 PM on the East Coast.

The strategist responsible for the sizable spread appears to have sold 13,750 puts at the Jan. 2012 $65 strike at a premium of $0.65 each, and purchased the same number of puts at the Jan. 2012 $55 strike for a premium of $0.15 apiece. The parameters of the transaction limit the investorís maximum potential gains to $0.50 per contract, and cap maximum possible losses at $9.50 per contract.

The trader walks away with the $0.50 net credit at expiration day next month as long as shares in NSC exceed $65.00. But, the investor starts to lose money on the spread in the event that shares in the transportation provider drop 8.0% to breach the effective breakeven price of $64.50 by expiration day. Shares in NSC would need to plunge 21.5% to settle below $55.00 at January expiration in order for the investor to absorb the maximum possible losses of $9.50 per contract on the trade. Norfolk Southern Corp. is scheduled to report fourth-quarter earnings after the final bell on January 24, which is several days after the puts will have expired.
------------------------------------------------------------------------------------------

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.