Today’s tickers: CAT, S, INTC, YHOO, GE, XHB & HAL

CATCaterpillar, Inc. – Shares of the world’s largest maker of construction equipment have gained nearly 3.5% during the trading session to stand at $47.06 despite reports of accelerated declines in machinery sales to retailers during the month of July. At first glance, the 20,000 put options purchased at the January 2010 40 strike price for 2.72 apiece, looks bearish. However, we believe the puts are likely tied to the acquisition of an equivalent number of shares of the underlying stock, and is thus a bullish play. The purchase of married put options provides the investor with downside protection through expiration day in January. This individual is hoping to see the price of CAT appreciate, but is immune from losses beneath the breakeven share price of $37.28. We note that the puts are deep out-of-the-money. Thus, downside protection would not kick in unless the investor had already experienced a more than 20% decline in the value of the underlying shares.

S – Sprint Nextel Corp. – The communications company edged onto our ‘most active by options volume’ market scanner this afternoon following a burst of options activity in the November contract. Shares of the firm are currently higher by about 2.5% to $3.92. Investors essentially established short straddles at the November 4.0 strike price by shedding 15,000 calls for a premium of 45 cents apiece and selling 15,000 puts for about 50 cents each. Such positioning indicates that traders expect shares of Sprint to settle near $4.00 by expiration. If this occurs, investors will retain the 95 cent gross premium received on the sale. The premium pocketed today compensates traders for bearing the risk that the stock shifts away from the $4.00 level. If shares were to rally higher, investors are exposed to potentially unlimited losses above the breakeven point to the upside at $4.95. On the other hand, losses would begin to amass to the downside if shares slip beneath $3.05 by expiration.

INTCIntel Corp. – The semiconductor chip maker has enjoyed a 0.5% increase in shares today to $18.80, but a bullish reversal play on the stock suggests one investor is positioning for more significant gains. It appears that the trader shed 8,800 puts at the January 2010 17.5 strike price for a premium of 1.13 apiece in order to finance the purchase of 8,800 calls at the higher January…
continue reading