MT shares closed up two cents to $43.61. The company did not announce any news today following its announcement on Tuesday that it signed a memorandum of understanding with Turkish firm Dayen to build steel mini-mills in Northern Iraq. MT is scheduled to announce earnings on April 29 before the market opens, and analysts estimate earnings of 21 cents a share.

Now to the options action: Around 2:15 p.m. EST, an investor sold 5,000 in-the-money (ITM) June 36 calls for $8.75 per contract, sold the same number of out-of-the-money (OTM) June 50 calls for $1.25 per contract and bought 10,000 June OTM 45 calls for $3.05 per contract. When a trade has this many legs and this many contracts, I like to build a profit and loss graph using my virtual trading account, and consult the graph below.

This action suggests investors collected $1.95 million on this trade, and anticipate the stock to drop at least 17% throughout the later-term. This trade not only bets on downside, but is also long vega, which means the investor could profit from an increase in implied volatility even if the stock does not move.

The June 36 calls closed with implied volatility of 48%, while the June 45 calls and the June 50 calls had an implied volatility of roughly 38% when Wednesday’s trading session ended. The June 36 calls closed up 40 cents, the June 45-strike calls climbed 20 cents on the day, and the June 50-strike calls remained relatively unchanged on the day.

MT reached a 52-week high of $49 in January, and is currently trading roughly 11% off that level. The company’s stock has remained higher than $36 since November, but at least one investor thinks the stock could drop back to that level throughout the next three months.

DAL did not announce any news this morning and the shares are currently trading up four cents to $13.02. The airline sector has remained mixed throughout the last week, and ONN.tv covered an interesting strangle buyer on March 4 when the stock was trading at $12.69.

Around 11:30 a.m. EST, more than 7,500 March 13 calls changed hands versus open interest of nearly 22,000 contracts while the same number of April 13 calls crossed the tape versus current open interest of 1,600 contracts. These open interest and volume discrepancies suggest investors closed the front-month options and opened the April 13-strike calls. A look at time and sales shows the March 13 calls traded for 15 cents per contract, and the April 13 calls hit the tape for 65 cents per contract. Investors most likely bought the March 13 calls back and sold to open the April 13 calls, collecting a net credit of 50 cents per roll to maintain bearishness in the airline name.

The March 13-strike calls have an implied volatility of 33% and implied volatility of the April 13-strike calls is 45%. These levels compare to a 30-day historical volatility of 52%. Investors who rolled out the short call position to April will make money if DAL shares close lower than $13.65 at April options expiration in 30 days.

Keep in mind that this bearish roll factors in a potential 5% rally throughout the near-term before investors begin to lose money. So, at least one investor expects DAL shares to experience limited upside prior to April options expiration.

For a full visual of the risk/reward dynamics of the short April 13-strike call position, open a free virtual trading account. If you like this, or other option trades that ONN.tv covers, start trading with 100 commission-free trades at OptionsHouse.

AMR shares are trading down 16 cents to $9.68, compared to the rest of the airline sector that is mixed on the day. The company did not announce any news today, and could announce earnings figures sometime around April 15. The options action that crossed the tape suggests an investor expects significant upside to continue through AMR’s earnings announcement.

By 2:01 p.m. EST, more than 20,000 out-of-the-money (OTM) March 11 calls had changed hands for a premium of two cents per contract and the same number of OTM April 12 calls traded for the ask price of 13 cents per contract. We know current open interest of the March 11-strike calls is more than 22,000 contracts, while the April 12-strike calls are home to current open interest of 5,200 contracts. This volume suggests investors sold to close the front-month options and bought to open the higher-strike calls on a bullish bet that the stock could rally at least 23% throughout the next 31 days until April options expiration.

Implied volatility of the April 12 calls is 62%, compared to a 30-day historical volatility of 64%. It’s interesting this investor is not yet finished with a long position in AMR, but also that the stock could rally even higher than the original strike. Keep in mind that bullish rolls such as these had traded quite heavily in some near-the-money, or in-the-money (ITM) strikes, such as an Automatic Data Processing (NYSE: ADP) and Allegheny Energy (NYSE: AYE) rolls ONN.tv covered.

For additional commentary on AMR:

Heavy call volume in AMR Corp. (NYSE: AMR)

AYE shares have climbed nine cents to $23.47 so far on the day. The company has not announced its next earnings release, but the market expects the report sometime around May 5. AYE shares breached $29 in May, and have since sold off roughly 19% (the stock dipped to $20 in February).

Around 11:06 a.m. EST, the March 22.5 calls and the July 22.5 calls changed hands 7,100 times each versus current open interest of 14,680 contracts and 3,400 contracts, respectively. While this action seems like a lot of volume, the open interest levels suggest investors closed the front-month positions and simultaneously opened the July call positions. The March 22.5 calls traded for 97 cents per contract, and the July 22.5 calls crossed for $1.67 per contract, meaning investors likely paid a net debit of 70 cents per roll.

A roll-out like this suggests this investor still expects AYE shares to rally, and is willing to invest more capital toward a later-dated series. The investor who rolled into the June options expiration month will make money if AYE shares climb higher than $23.20. This means that if AYE shares maintain enough energy to at least hold their current level, the investor could remain in the green.

For a visual of the risk/reward dynamics of this trade, and other option strategies, open a free virtual trading account and start trading for free!

Just this morning, Karla Yeh and I took a look at Jim Cramer’s opinion on HK.   And then coincidentally out of the gate this morning, there was some big options action.   Around 9:44 a.m. EST, 5,000 March 17 calls crossed the tape versus current open interest of 10,700 contracts, and 4,000 June 17.5 calls changed hands versus current open interest of just 133 contracts. This volume and open interest discrepancy suggests an investor closed the front-month position and opened the June position. The March 17-strike calls crossed at $4.60 and the June 17.5 calls traded for the ask price of $4.60 per contract.

Because the investor sold more of the March 17 calls than they bough of the June 17.5 calls, they collected premium on this trade.  In the long term, the investor is maintaining a long exposure in HK, but because  they are reducing the number of long contracts they have, this trade could put the stock under a little bit of selling pressure in the short term as option market makers need to sell shares to hedge the option trade.

Implied volatility of the June 17.5 calls is 48% compared to a 30-day historical volatility of 41%. For a full risk/reward profile of this bullish strategy, open a free virtual trading account. Interested in more options strategies on HK? Be sure to watch Mad About Options for bullish and bearish plays on the company, and start trading for free!

HK shares dropped 18 cents to $21.43 during morning trading following news that Bank of America/Merrill Lynch reinstated coverage of the energy company and set a price target at $26. Yesterday, HK announced that it sold its interest in Terryville Field for $320 million to a private company. HK also said it plans to sell another asset package this year.

Investors will make money on this trade if HK shares climb higher than $22.10 prior to June options expiration. It’s interesting that at least one investor believes the stock could revert closer to its 52-week high of $28, and expects HK shares to rally at least 3% throughout the later-term.

For more options insight on HK:

Looking for a winner in Petrohawk (NYSE: HK) option plays

Cheap play on Petrohawk Energy (NYSE: HK)

FO shares climbed $1.16 on the day Monday to $48.50 without any company-specific news. On Friday, however, Davenport downgraded the company to “neutral,” according to published reports. FO has not announced its next earnings release date, but the market expects the report around April 30.

By the close yesterday, more than 16,400 June 50 calls had crossed the tape versus open interest of just 842 contracts. This morning, current open interest is 16,446; this volume and open interest discrepancy suggests investors opened long call positions yesterday. The majority of these calls traded at the ask price of $1.70 per contract, and will make money if FO shares close higher than $51.70 at June options expiration. In other words, if FO shares rally at least 6%, investors could turn profits on this trade.

Implied volatility of these calls closed at 26% on Monday, compared to a 30-day historical volatility of around 25%. The June 50 calls closed up 65 cents on the day.

FO shares reached a 52-week high of nearly $46 in September, and have not climbed higher than $50 since October 2008. Judging from bullish options action on Monday, at least one investor is calling for a nice rally in the stock and could be betting that the shares could reach a new 52-week high throughout the later-term.

To visualize the risk/reward dynamics of this long call strategy, open a free virtual trading account and start trading for free!

MET shares are currently trading down roughly 10 cents to $42.01 on the day without any news from the company (the majority of the insurance sector is also trading down on the day). MET could announce earnings figures around April 29, and consensus estimates show earnings of 99 cents a share.

Around 2:51 p.m. EST, a large block of January 2011 55 calls changed hands at the ask price of 90 cents per contract. So far on the day, more than 16,300 of these out-of-the-money options have traded versus current open interest of just 563 contracts, indicating investors initiated the calls to open. Investors who bought these calls will make money if MET shares close higher than $55.90 at January 2011 options expiration. This represents a 30% rally from the stock’s current level.

Implied volatility of the January 2011 55 calls is 27%, compared to a 30-day historical volatility of 30%. The calls have gained three cents so far on the day, with a 16-delta. The buying action has pushed up the price of these calls, which should be trading down roughly two cents.

MET shares have not breached the $55-mark since September 2008, but at least one investor is calling for volatility to kick in to result in longer-term upside. If these calls appreciate along with a rally in the stock prior to January 2011 options expiration, the investor could choose to sell the options back and close the long position to take profits.

To visualize the risk/reward dynamics of this long call strategy, open a free virtual trading account and start trading for free!

AGN shares have dropped 21 cents to $62.10 so far on the day without any news from the drug manufacturer. The company has not announced its next earnings release date, but the market expects the report sometime around April 29. AGN reached a 52-week high of $64 in December, and call-buying action suggests at least one investor is calling for new highs throughout the longer-term.

Around 11:24 a.m. EST, more than 10,000 out-of-the-money January 2011 65 calls hit the tape at the ask price of $4.60 per contract, suggesting investors bought these calls on a bet that the stock could climb higher than $69.60 prior to options expiration next January. Implied volatility of these calls is 25%, compared to a 30-day historical volatility of 17%. The heavy call-buying action has pushed up the implied volatility levels on the day, and also contributed to the 10-cent appreciation in these options. That’s right, the options are higher despite the stock being lower. Additionally, these calls are home to current open interest of 6,200 contracts, indicating investors opened long positions.

This options action suggests bullish investors who bought these calls anticipate at least 12% upside throughout the next nine months. Also, keep in mind that AGN has not breached the $69 mark throughout the last five years, but one investor seems to think the stock could experience significant upside. If the stock pops up significantly before the options expire, investors could choose to sell back these calls and book profits instead of unnecessarily holding onto them.

To visualize the risk/reward dynamics of this long call strategy, open a free virtual trading account and start trading for free!

For more on AGN:

Allergan Gains 3%, Botox Gets FDA Approval for Treatment of Upper Limb Spasticity in Adults

ADP shares have dropped 17 cents to $43.76 so far today. The stock reached a 52-week high of $44.50 in November, and dipped to a recent low of $40 last month. Options action during today’s sessions suggests an investor expects even further upside during the near-term.

Around 11:02 a.m. EST, the front-month March 43 calls and the April 45 calls crossed the tape 5,000 times each. It looks like an investor sold to close the in-the-money March 43 calls and bought to open the out-of-the-money April 45 calls on a bullish bet that the stock could rally another 3% by April options expiration, or that the stock could rally before expiry and provide a chance to sell them back for a profit. The investor collected around 50 cents per roll, despite maintaining a bullish position in ADP. The March 43 calls traded for 95 cents per contract, while the April 45 calls crossed at 45 cents per contract.

Implied volatility of the front-month options and the April 45 calls is roughly 16%, compared to a 30-day historical volatility of 17%. The March 43 calls, home to current open interest of more than 7,000 contracts, have dropped ten cents on the day, while the April 45 calls are down five cents on the day and are home to current open interest of 176 contracts.

Though ADP shares are slightly down on the day, at least one investor might not be finished with the stock and rolled a long position out and up.

For a visual evaluation of the risk/reward dynamics of this bullish roll, open a free virtual trading account and discover trading tools that will make your trading easier.

For more on ADP:

ADP names Symantec CEO to its board

Bullishness in payroll services

The online retail sector is mixed so far today, but EBAY shares are currently trading up 50 cents, to $25.94. EBAY did not announce any news today that could have catalyzed the pop-up in the stock, and the company has not confirmed an earnings release date. The market, however, expects the report around April 21.

By 12 p.m. EST, the April 30 calls and July 35 calls had crossed the tape nearly 7,500 times each thanks to an investor who likely rolled-out a long position that would have expired next month. It looks like an investor sold to close the April 30 calls for the bid price of five cents per contract and simultaneously bought to open the July 35 calls for 10 cents per contract, paying a net debit of five cents per roll. The nearer-term 30-strike calls are home to current open interest of 8,815 contracts, suggesting investors traded these options to close. On the other hand, current open interest of the July 35 calls is just 161 contracts, suggesting investors opened these option positions.

Bullish investors who rolled these calls could be betting that EBAY shares might experience 40% of upside throughout the later-term and close higher than $35.05 at July options expiration. Or, they are more likely banking on a rally in the options prior to July expiration which could give them the chance to sell the options out at a profit. Implied volatility of the April 30 calls and July 35 calls is roughly 30% compared to a 30-day historical volatility of 28%.

EBAY shares reached a 52-week high of $26 a couple days ago, and have not touched the $30-handle since June 2008. This trend makes it even more interesting that one investor rolled a bullish position expecting the stock to reach new highs between now and July options expiration.

By opening a free virtual trading account, you can visualize the risk/reward dynamics of this trade. Don’t forget to also sign up to trade for free!

STI shares closed up roughly 59 cents or more than 2%, to $27.08 on the day Thursday without a clear catalyst. The company has not announced its next earnings release date, but analysts anticipate the quarterly report around April 22. Investors who like the stock at its current levels should consider their commissions, and could even trade for free at OptionsHouse.

More than 10,000 April 29 calls crossed the tape today versus open interest of 371 contracts, indicating investors traded these options to open. Investors paid the ask price of around $1.31 per contract, meaning call buyers will make money if STI shares close higher than $30.31 at April options expiration. These calls climbed three cents on the day, and closed with an implied volatility of 33% compared to a 30-day historical volatility of 38%.

By opening a free virtual trading account, you can visualize the risk/reward dynamics of this trade and other option strategies.

Heavy call buying action like this does not mean investors should run out and buy up STI shares, but at least one investor is willing to pay a relatively high premium to bet on at least 12% of upside in STI throughout the next month.

ALL shares have gained seven cents to $31.67 so far today, just 2% off its 52-week high of $32.30. This proximity to the stock’s highest level on the year could be the case for the put buying action we saw today. ALL has not announced its next earnings release, but the market expects the report sometime around April 28.

Options action around 11:39 a.m. EST suggests an investor bought 4,000 October 29 puts for roughly $1.50 per contract. Investors who bought these puts will make money at expiration if ALL shares close lower than $27.50 when these October-dated contracts expire. These puts are home to current open interest of zero contracts, indicating investors bought these options to open. Of course, the option traders can close this trade at any point between now and then (for a profit or a loss).

Implied volatility of the October 29 puts is 27%, compared to a 30-day historical volatility of 22%. By opening a free virtual trading account, you can access tools that help evaluate risk/reward dynamics of this trade and other option strategies. Why not manage risk for free?

The put buying we saw today does not necessarily mean investors should run out and sell ALL shares, but keep in mind that at least one investor bought downside protection, and could be calling for at least 13% of downside throughout the next seven months.

The answer, in fact, is neither. The action we saw today was neither bullish nor bearish. Instead, it was a trade designed to take advantage of the fact that shares of NYX will trade ex-dividend tomorrow. Because the shares will trade ex-dividend, the March 24, 25, and 26 calls are technically an exercise. They are technically an exercise because holders of call options do not participate in the dividend. So, rather than hold the calls, the owner of the calls should exercise them and get the shares, and get the dividend.

So, why all of the volume in the calls? Well, the answer is because if the calls are an exercise, then that means that if someone is short the calls and long the stock, they can make a profit on any call that is not exercised. What do I mean by that? Well, think of it this way: Any option market maker that is short the NYX March 24 calls is long stock against the calls as a hedge.

Let’s say that the calls are worth parity right now, so that is $4.39 with the stock at $28.39. If the calls that the option market maker is short are not exercised, then the stock will fall by the dividend amount. The stock in this case falls by 30 cents (the amount of the dividend) so the stock falls to $28.09. The call that the market maker is short also falls by the amount of the dividend to $4.09. Since the market maker is long the stock (a loser in the fall) and short the call (a winner in the decline) it seems that the market maker has no economic gain. But the market maker gets to pocket the dividend of 30 cents!

Based on what we just diagrammed, there is clearly a benefit to being short the calls in case any of the open interest fails to exercise. That is all there is to this trade; market makers are trying to get short the calls so that they can be a part of the open interest in each of those strikes. The volume that we saw today was market makers buying and selling the calls with one another. All of the trades record on the books as “open.” The market makers are smart enough to exercise their calls, and all that is left is anyone who does not exercise.

Investors should be aware of activity like this so that they do not get fooled into thinking that the options activity will give them some clues about the stock activity. When looking at options action, particularly deep-in-the-money call (DITM) options, investors should at least be aware of this and other arbitrage activity to make sure that they have a clear picture of the types of risks that people are taking in their stocks. Other stocks that had large call volumes today for the same reason were: Coca Cola (NYSE: KO) ; Merck (NYSE: MRK); Ares Capital (NASDAQ: ARCC); Blackstone (NYSE: BX); Leggett and Platt (NYSE: LEG); Public Storage (NYSE: PSA); Taubman (NYSE: TCO); and Altria Group (NYSE: MO).

Around 12 p.m. EST today, it looks like a SY options investor sold to close roughly 5,000 June 50 calls for around 95 cents per contract and simultaneously bought to open the same number of September 55 calls for around 80 cents per contract. The investor collected 15 cents per roll, but maintained bullishness by rolling up a strike. This investor will make money if SY shares rally at least 19% throughout the later-term. The June 50-strike calls are current trading up 25 cents on the day, while the September 55 calls are currently unchanged. Implied volatility of these options is roughly 24%, compared to a 30-day historical volatility of 20% (the rolling action likely pushed implied volatility of these options up on the day).

SY did not announce any news today, and the company could announce earnings figures sometime around April 22. SY shares are currently trading down six cents to $46.12.

In a separate ATPG call roll, an investor sold to close around 7,900 March 12.5 calls for around $6.60 per contract and bought to open the same number of April 15 calls for around $4.50 per contract. Investors who rolled the front-month position up and out by one month collected $2.10 per roll on a bullish bet that the stock could experience at least 2% of upside throughout the near-term (the investor makes money on this roll if ATPG shares close higher than $19.50 at April options expiration). The lower-strike front-month options are unchanged on the day, while the April 15 calls have gained 30 cents. These March 12.5 calls are home to current open interest of 9,000 contracts and open interest of the April 15 calls is 10 contracts, indicating investors closed the front-month position to open the April series.

ATPG shares have climbed 12 cents to $19.03 on the day. The company did not announce any news today, and could announce earnings figures as early as tomorrow (analysts estimate an earnings loss of 12 cents a share), though the March 11 earnings date remains unconfirmed.

Even though investors collected premiums on these rolls, rolling up to higher strikes suggests these investors maintain their bullish stances on the companies. Bullish rolls like these do not mean that investor should run out and buy SY or ATPG shares, but it’s interesting that investors are not yet finished with their options positions and expect further upside in SY and ATPG.

By opening a free virtual trading account, you can visualize the risk/reward dynamics of these trades.

ZION shares are currently trading up $1.22 to $20.48. The stock recently breached $20 in February, but it looks like at least one investor thinks this rally could end sooner rather than later.

Around 11 a.m. EST, an investor sold 22,000 out-of-the-money April 17 puts for the bid price of 30 cents per contract and simultaneously bought roughly 10,000 out-of-the-money April 19 puts for 78 cents per contract to pay a net debit of roughly 12 cents per ratio spread. The 17-strike puts have dropped 16 cents, and the 19-strike puts have declined 36 cents so far on the day. Current open interest of the April 17 puts and April 19 puts is 26,000 contracts and 4,700 contracts, respectively.

Though this trade looks like a lot of put volume at face value, investors bought some of the puts and sold others, so that is why we say that this is moderately bearish instead of exceedingly bearish. A look at the OptionsHouse Profit & Loss Calculator tool shows the risk/reward dynamics of this ratio put spread. Investors could make a maximum profit of $1,880,000 if ZION shares close right at $17 at April options expiration. Maximum loss on this spread is $120,000 if ZION shares close higher than $19. Investors could also lose money if the stock drops lower than $13.18, which again, is why we say it is just moderately bearish. Open a free virtual trading account to visualize this trade and other option plays.

For more on ZION:

Buying puts in Zions (NASDAQ: ZION)

Zions Bancorp (NASDAQ: ZION) bear put spread

OVTI shares closed up 21 cents to $16.14 on Tuesday. The company has not announced its next earnings release, but the market expects the report sometime around May 27. OVTI breached the $17-mark in September, but has since sold off roughly 5%. Options action during today’s session suggests at least one investor anticipates a new high throughout the next month.

The April 17.5 calls have crossed the tape more than 7,000 times so far today versus current open interest of just 103 contracts, indicating investors traded these options to open. It appears that investors bought these calls for the ask price of around 40 cents per contract. Bullish call buyers will make money if OVTI shares close higher than $17.90 at April options expiration.

These calls have an implied volatility of 43%, compared to a 30-day historical volatility of 47%. We know that the options action occurred on the buy side because the options have gained 12 cents on the day with a 31-delta, which is roughly 10 cents higher than the delta would suggest. The fact that the options are out-of-the-money, and yet have appreciated by MORE than the increase in the share price is a classic illustration of increasing implied volatility.

While the options action we saw today does not seem to have a catalyst, it’s interesting that at least one investor expects significant upside in the stock prior to the company’s next earnings release and is looking to get in on a possible quick rally throughout the next month.

For a visual of this long call strategy, open a free virtual trading account for more insight on the risk/reward dynamics.

For more on OVTI:

OmniVision shares rise after analyst upgrade

Put buying in OmniVision Technologies (NASDAQ: OVTI)

During midday trading, an investor bought the April 17-19 strangle 10,000 times for $1.30 per spread and simultaneously sold 20,000 out-of-the-money July 21 calls for 75 cents per contract. The April 17 puts traded for roughly 50 cents per contract, while the April 19 calls changed hands for around 80 cents. Because the investor did not trade the same number of contracts for all strikes, it is easier to look at this on a net premium basis: The investor paid a net debit of $1,300,000 for this strangle and collected $1,500,000 for the calls, collecting a net credit of $200,000 for this trade.

By opening a free virtual trading account, you can visualize the risk/reward dynamics of this trade. The graph below shows what the profit and loss should look like prior to April expiration. As you can see, the maximum profit is made should the stock decline.

The investor will make a profit of $2,200,000 if GME shares close right at $21 at July options expiration. However, it is more likely that the investor will not wait until even April expiration to realize some profit in this trade. That is because GameStop is slated to report earnings before the open on March 18th. Should the stock make a big move down following earnings, this trade will be profitable. The trade is also net short vega, meaning that should implied volatility decline, the spread will also make money.

For more on GME:

Big call volume in Hologic Inc. (HOLX)

AES shares have gained nine cents to $11.67 so far today. The company’s stock is currently trading roughly 21% off its September-high of $15. By 1 p.m. EST, more than 20,500 out-of-the-money January 2011 12.5 calls had crossed the tape versus current open interest of 4,700 contracts. This volume and open interest discrepancy indicates investors traded these options to open. These calls crossed the tape at the ask price of $1.30 per contract, suggesting the majority of the action occurred on the buy-side.

Investors who bought these calls could make unlimited gains (minus any commissions) if AES shares close higher than $13.80 at January 2011 options expiration (this represents a 19% rally throughout the longer-term).

Implied volatility of the January 2011 12.5 calls is 36%, compared to a 30-day historical volatility of 38%. These calls have gained five cents on the day, thanks to the buying action we saw earlier. AES has not announced its next earnings release date, but the market expects the report sometime around May 6. It looks like at least one investor decided to use options as a cheaper way to be long shares of AES.

Around 10:35 a.m. EST, a block of 7,000 January 2012 20 calls traded for around $1.80 per contract. This means that the investor who sold these options is calling for EMC shares to stay below $21.80 at January 2012 options expiration. This is just a moderately bearish play because the maximum profit is just $1.80 per contract minus commissions if EMC shares drop to $0.

These calls are home to current open interest of just 7,200 contracts, indicating the investor opened this moderately bearish position in EMC. The January 2012 20 calls have an implied volatility of 25%, compared to a 30-day historical volatility of 29% (the selling action during morning trading most likely put pressure on implied volatility).

EMC shares reached a 52-week high of roughly $19 in October, and the stock is relatively unchanged since then. This could be the reason we’re seeing at least one investor call for limited upside in the stock throughout the longer-term. The company has not announced its next earnings release, but the market expects the quarterly report sometime around April 22.

Shares of PDE, provider of offshore contract drilling services to oil and natural gas companies, climbed $1.24 to $29.34 on the day Friday. The company has not announced an earnings release date, but the market expects the report sometime around April 29. Equity traders looking to go long stock could purchase the stock at its current level, but options action today suggests a bullish investor opened a long call position betting on at least 12% of upside throughout the next month.

At the close of trading today, more than 9,600 April 32.5 calls crossed the tape versus open interest of just 268 contracts, indicating investors traded these options to open. The original trade, which hit the tape around 11 a.m. EST, traded at the ask price of 45 cents per contract, but the calls appreciated throughout the day and closed at 60 cents. Investors who bought these calls will make money if PDE shares close higher than $32.95.

You can visualize the risk/reward dynamics of this trade by opening a free virtual trading account .

These calls closed with implied volatility of 42%, compared to a 30-day historical volatility of 34%. It looks like today’s buying action has pushed up implied volatility significantly.

PDE shares reached a 52-week high of $34 on Oct. 22, but have since sold off roughly 14%. Judging from the call-buying action we saw today, at least one investor used options as a cheaper vehicle to express bullishness on this stock.

VRSN stock has climbed 32 cents to $26.57 a share, and the company did not announce any news today. VRSN has not announced its next earnings release date, but the market expects the report sometime around May 6.

Around 11:10 a.m. EST, an investor sold the June 25-27 strangle more than 7,300 times for roughly $2.30 per spread. The near-the-money June 25 puts crossed for 95 cents per contract, while the investor traded the June 27 calls for $1.35 per contract. The June 27 calls are home to current open interest of 553 contracts, while current open interest of the 25-strike puts is around 1,000 contracts, indicating the investor is putting on new risk in this short strangle position.

The 27-strike calls and 25-strike puts have an implied volatility of roughly 27%, compared to the 30-day historical volatility of 20%. If shares of VRSN are above $25 but below $27 at June expiration, the strangle seller could make a maximum profit of $2.30 per spread. If the stock swings significantly one way or the other, investors could incur unlimited losses. For this reason, strangle selling is a more risky bet that volatility will contract throughout the later-term and not necessarily bullish nor bearish.

By opening a free virtual trading account, you can check out a tool called the HotList to find other unusual options activity like this.

VMED shares are currently trading down three cents to $16.58. The stock’s 52-week high is $17.72 a share. VMED did not announce any news this morning. By 1:45 p.m. EST, more than 8,100 January 2011 20 calls had crossed the tape at the ask price of $1.35 per contract. This options action suggests an investor expressed bullishness in the entertainment company and is calling for at least 29% of upside throughout the longer-term. Investors will make money if VMED shares close higher than $21.35 at January 2011 options expiration, or if the calls rally enabling the investor to sell the calls before expiration.

These calls, which have dropped two cents on the day, are home to current open interest of 899 contracts. This discrepancy suggests investors bought these calls to open, meaning it is new risk being added. Implied volatility of the January 2011 20 calls is 40%, compared to a 30-day historical volatility of 52%. The fact that implied volatility is so much lower than realized volatility is emblematic of what we are seeing throughout the market, as the VIX plumbs new post-Lehman bankruptcy lows.

The call buying action we saw today is a way for this VMED investor to spend fewer dollars on a long position in the stock. For those stock investors interested in finding a cheaper way to go long VMED shares, discover ways to spend just $2.95 flat commission on stock trades at OptionsHouse.

Remember, heavy call buying is not the only reason for investors to buy up shares of VMED. But it’s interesting that at least one investor decided to buy out-of-the-money longer-dated calls betting on a new 52-week high in the stock.

An investor sold the July 12-13 strangle more than 35,000 times for roughly $1.45 per spread. The near-the-money July 12 puts crossed for 87 cents per contract, while the near-the-money April 13 calls traded for the bid price of 58 cents per contract. The calls are home to current open interest of 6,000 contracts, and current open interest of the puts is 3,500 contracts; this indicates the investors traded the short strangle to open.

Implied volatility of the July 12 puts is 32%, and the July 13 calls have an implied volatility of 31%. This compares to a 30-day historical volatility of 39%. Investors will make a maximum profit of $1.45 per strangle if AMAT shares close between $10.55 to the downside and $14.45 to the upside. Maximum risk on this trade is unlimited, but the investor banks on volatility to come in as July options expiration approaches.

By opening a free virtual trading account with OptionsHouse, you can build a profit/loss diagram to help visualize the risk/reward dynamics of this trade.

AMAT shares have dropped 18 cents to $12.21 so far today. It’s interesting that at least one investor is willing to take on more risk and cap any gains at $1.45 per spread on a bet that AMAT stock does not move significantly in one direction or the other throughout the later-term.

Around 11:36 a.m. EST, an investor sold 4,000 October 10 straddles for $2.53 per spread while the stock traded around $9.95 per share. The October 10-strike calls have gained 13 cents on the day, and are home to current open interest of 72 contracts, while the puts have dropped 15 cents and are home to current open interest of 140 contracts. It appears the straddle seller opened these short positions with implied volatility at 40% compared to a 30-day historical volatility of 46%.

This discrepancy between implied volatility and recent realized volatility suggests investors who sold the straddle expect volatility to come in significantly throughout the longer-term. Investors who sold this straddle will make a maximum profit of $2.53 per spread if CX shares close between $7.47 to the downside and $12.53 to the upside (the breakeven prices of the straddle).

As the CBOE SPX Volatility Index (VIX) continues to edge down, there is a good chance that options on individual stocks will continued to see more selling, suggesting a tight range for the market.

CX shares reached a 52-week high of $14.20 in September, and the stock is currently trading roughly 29% lower. The stock has hovered around the $10-mark throughout the last month, and at least one investor expects minimal movement until October options expiration.

By opening a free virtual trading account with OptionsHouse, you can build a profit/loss diagram to help visualize the risk/reward dynamics of this short straddle in CX.

The investor bought 2,000 April 31 calls for 1.95 per contract and simultaneously sold twice as many April 34 calls for 60 cents per contract to pay 75 cents per ratio spread. In this call one-by-two, investors will make a maximum profit of $2.25 per spread if HAL shares close at $34 on April options expiration. If HAL shares drop below $31.75 (the breakeven price), investors cap their losses at 75 cents per spread. However, this trade is only moderately bullish because investors incur unlimited losses if HAL shares rally higher than $36.25.

By opening a free virtual trading account with OptionsHouse, you can build a profit/loss diagram to help visualize the risk/reward dynamics of this call one-by-two.

The April 31 calls have gained 40 cents so far today, while the April 34 calls are currently trading up 14 cents on the day. Current open interest of the April 31 calls is 7,500 contracts, and the 34-strike calls are home to current open interest of 3,200 contracts.

HAL shares are currently trading up 88 cents to $32.07. The stock reached a 52-week high of nearly $35 on Jan. 19 after trading in a range between $25 and $32 since October. It looks like at least one investor expects the stock to rally around 6% through the near term, but not much higher before losing money on this call one-by-two.

The January 2011 30 calls have traded more than 9,200 times so far today versus current open interest of 423 contracts, indicating investors most likely traded these options to open. The majority of these calls traded at or near the ask price of $1.15 per contract, likely meaning they were initiated on the buy side.

Bullish investors who bought these calls need UAUA shares to close higher than $31.15 to make money, unless the calls appreciate along with a rally in the stock and investors could choose to sell back the options to take profits. Implied volatility of the January 2011 30 calls is 58%, compared to a 30-day historical volatility of roughly 71%.

UAUA reached a 52-week high of $18.49 during yesterday’s session before selling off. Today, the stock is currently trading down 12 cents to $17.91 on the day. UAUA stock must rally at least 73% by January expiration for today’s long-call trade to turn profits.

On Monday, IPI announced earnings of nine cents a share. The figures missed estimates by two cents. This morning, however, positive news for domestic potash producers that the Russian government could impose a 15% tax on potash exports is pushing the sector up on the day. IPI shares are currently up nearly 3.5%, or 93 cents, to $29.44.

At 11:37 a.m. EST, 8,000 June 40 calls crossed the tape thanks to an investor who bought these calls for roughly 25 cents per contract on a very bullish bet. These calls are home to current open interest of 102 contracts, indicating investors traded these options to open.

As far as breakevens go, this call buyer will make money if IPI shares climb at least 38% throughout the next four months to close above $40.25 at June expiration. However, it is more likely that the investor will try to make money by having the calls increase in value, even if the stock does not go above $40. The total premium paid out on this trade is only $200,000. IPI’s 52-week high is only $33, reached at the beginning of the summer last year. But prior to the financial crisis in the Fall of 2008, the stock was well-above $40. So if the shares regain that past level, this call buyer could stand to gain in a big way.

Shares of the solar module producer are currently up 38 cents, or 1.7%, to $22.93. The company is not expected to announce its next earnings figures until mid-May.

At 11:10 a.m. EST, an investor sold 7,000 March 20.5-24.5 strangles for 90 cents. The out-of-the-money (OTM) March 20.5 puts, currently down 17 cents on the day, traded for 35 cents per contract, while the investor sold the OTM March 24.5 calls, currently down three cents on the day, for roughly 55 cents per contract. With the stock rallying and the call options actually lower, this action indicates investors sold the strangles.

Investors will make money on this strangle sale if TSL shares close between $19.60 to the downside and $25.40 to the upside. Maximum profit on this trade is 90 cents, or the premium collected, while risk is unlimited. Shares climbed above $30 as recently as January, so the bet is that the recent malaise in the solar stocks will not reverse all the way before March options expiration.

By opening a free virtual trading account with OptionsHouse, you can build a profit/loss diagram to help visualize the risk/reward dynamics of this trade.

Remember, strangle sellers count on time decay and decreasing volatility as expiration approaches. This investor is making a relatively inexpensive bet that TSL shares won’t experience much volatility throughout the next 17 days until March options expiration. But accompanying this cheap bet is unlimited potential for losses if the stock swings significantly in one direction or the other. So, this strangle seller is betting on a range in TSL.

MGM shares have rallied 15 cents, or roughly 1.5%, to $10.69 so far today. The rest of the casino sector is also climbing today without any company-specific news, but names like MGM are outperforming the broader market (the SPY is currently up 0.8% on the day). The company has not announced its next earnings release date, but the market expects the report sometime around May 4.

The January 2012 20 calls have crossed the tape more than 20,000 times thanks to at least one investor who paid $1.40 per contract, betting that the stock could double throughout the longer-term. This LEAPS call buyer will make money if MGM shares climb higher than $21.40 (the breakeven price) throughout the next two years, unless the options rally before then, and the investor decides to sell and take profits. Either way, the stock has to go up for this bet to work.

Implied volatility of these calls is 61%, compared to a 30-day historical volatility of 59%. The January 2012 20 calls have gained 18 cents on the day.

Maximum loss on this long-call position is the premium paid, or $1.40 per contract, while gains could be unlimited if MGM shares continue to soar higher than the breakeven. For a visual of the risk/reward dynamics of this trade and additional trading tools, open a free virtual trading account.

On Feb. 25, ONN.tv covered bearish options action in MGM, as an investor sold the September 15-12 call spreads and bought the September 9 puts 7,000 times. It’s interesting that today’s action suggests the opposite sentiment toward the casino stock throughout an even longer time-frame.

At 11:36 a.m. EST, 10,000 April 55 calls crossed the tape at the ask price of 35 cents per contract. These out-of-the-money calls have gained 10 cents so far on the day, and are home to current open interest of 20,000 contracts. The argument exists that an investor could have bought these calls to close a short position, but it is more likely the investor is expressing a bullish stance on HPQ.

Investors who bought these options to open will make money if HPQ shares close higher than $55.35 at April options expiration. If these calls gain value along with a rally in the stock prior to April options expiration, investors could choose to sell these options and book profits.

For a visual representation of this trade and access to free tools that evaluate risk/reward profiles, open a free virtual trading account at OptionsHouse.

The April 55 calls have an implied volatility of 19%, compared to a 30-day historical volatility of 25%. HPQ shares have gained 78 cents to $51.57 so far on the day, which is just 2% off their 52-week high of $52.95. Judging from the call-buying action we saw today, at least one investor expects the stock to rally at least 7% during the near-term.

At 11:00 a.m. EST, an investor bought 5,000 January 2011 60-70 call spreads for a net debit of $5.05 per spread. A look at time and sales suggests the investor bought the January 60 calls for $8.05 per contract and financed the purchase by selling the 70-strike calls for $3.00 per contract. This means the investor is calling for XOM shares to close higher than $70 at January 2011 options expiration, but is protected against a potential slide in the stock and is capping any losses at $5.05 if the company’s shares drop lower than $65.05.

By opening a free virtual trading account with OptionsHouse, you can build a profit/loss diagram to help visualize the risk/reward dynamics of this bull call spread.

Implied volatility of the January 60 calls is 23%, and the January 70 calls have an implied volatility of 21%, compared to a 30-day historical volatility of 18%.

If XOM shares climb higher than $70, investors could make a maximum profit of $4.95 per spread (the difference between the strikes minus the premium paid).

XOM shares are currently trading up 31 cents to $65.31. The shares are currently trading 14% off their November high of $77. It’s interesting that at least one investor expects the stock to rally at least 7%, but not necessary revert to its highs, throughout the greater part of the year.

Around 11:42 a.m. EST, the investor sold to close 13,000 January 37.5 calls for 12.30 per contract, and bought to open 4,700 January 2012 47.5 calls for $9.50 per contract. Current open interest of the January 37.5 calls is 13,000 contracts, which is why the investor likely closed this long position. The January 2012 47 calls are home to current open interest of 16 contracts, indicating the investor bought these calls to open.

Why the volume discrepancy? This investor is maintaining exposure in CTSH, but could arguably be taking a less aggressive bullish stance on the company by taking some chips off the table. But keep in mind that the investor also rolled up to the 47.5-strike, maintaining the bet that CTSH shares could climb.

One reason for this could be that CTSH share have climbed 20% since November. The stock is currently down four cents so far today to $48.12, up near its 52-week high of $48.95. So, this investor rolled out long call positions expecting further upside, but isn’t willing to have as much capital at risk.

Around 10:10 a.m. EST, 2,500 March 30-33 call spreads traded thanks to an investor who paid roughly $2.52 per spread. The investor bought the front-month 30-strike calls for $4.10 per contract and simultaneously sold the 33-strike calls for $1.58 per contract on a moderately bullish bet. While the investor expects the stock to climb higher than $33 at March options expiration, this bull call spread protects against unlimited losses if UNH shares drop below $32.52 (maximum risk is capped at the premium paid $2.52 per contract).

In a separate trade, an investor expressed bearishness on the stock and sold 5,000 out-of-the-money June 37-strike calls for $1.25 per contract. The June 37 calls have gained 18 cents on the day, and are home to current open interest of 3,600 contracts. Call sellers will make money on this sale if UNH shares close below $38.25 at June options expiration. The June 37 calls have an implied volatility of 31%, compared to a 30-day historical volatility of 33%.

We also saw heavy put volume cross the tape, as an investor bought the March 33-34 put spread 5,000 times for 45 cents per spread. This bear put spread will turn profits if UNH shares close lower than $33 at March options expiration in 21 trading days (maximum profit on this trade is 55 cents per spread). This bearish investor is capping any losses at 45 cents (the premium paid) if UNH shares close higher than $33.55.

By opening a free virtual trading account with OptionsHouse, you can build a profit/loss diagram to help visualize the risk/reward dynamics of these trades.

A review of these options trades indicates that UNH options investors expressed caution this morning, despite the pop-up in the stock. UNH shares have gained 64 cents to $34.09 so far today. The company has not announced its next earnings release, but the market expects the quarterly report sometime around April 21.

An investor bought the April 24-26 one-by-two put spread 5,000 times around 3:17 p.m. yesterday. The investor paid roughly 40 cents per spread. This means the investor bought the 26-stike puts for $1 per contract 5,000 times and sold twice as many April 24-strike puts for 30 cents per contract for a combined debit of 40 cents per transaction.

The April 24 puts closed down five cents on the day, and were home to open interest of 10 contracts. The April 26 puts closed down 12 cents and were home to open interest of just seven contracts, indicating the investor traded these options to open. This morning, open interest of the April 24 puts has climbed to 10,000 contracts, while the 26-strike puts saw open interest spike to 5,000 contracts.

Implied volatility of the 24-strike puts was 27%, and the 26-strike puts closed with an implied volatility of 22%.

Investors who bought this put spread are protected against a major rise in the stock because maximum risk on this trade is 40 cents if the stock pops higher than $26. Investors make a maximum profit of $1.60 per spread (the difference between the strike prices minus the premium paid) if the stock closes right at $24 at April options expiration. If the stock closes below $22.40, investors could incur unlimited losses because the investor would be short more puts than he is long.

Though this trade looks like a lot of put volume at face value, investors bought some of the puts and sold others, so that is why we say that this is moderately bearish instead of exceedingly bearish.

Around 12:12 a.m. EST, more than 7,000 out-of-the-money September 15-12 call spreads crossed the tape simultaneously with the same number of out-of-the-money September 9 puts. The September 15 calls traded at the ask price of 62 cents per contract, and the September 12 calls traded at the bid price of $1.22 per contract, meaning the investor collected a net credit of 60 cents per spread, rendering this a bear call spread. The September 9 puts crossed the tape at the ask price of around $1.29 per contract. The net debit for this combination trade was 69 cents.

This investor initiated this bearish trade by buying puts and funding the purchase by selling the call spread. Maximum gain in this trade is unlimited until MGM hits the zero mark, but the investor only starts making money if MGM shares drop below $8.31 (the breakeven price) throughout the next seven months. The investor is taking in $3.69 worth of risk if the stock climbs higher than $15.

By opening a free virtual trading account with OptionsHouse, you can build a profit/loss diagram to help visualize the risk/reward dynamics of your options trades. Additionally, refer to the graph below for the profit and loss visual of this strategy.

MGM did not announce any news today, but the broader market sell-off is putting pressure on the stock, which has dropped 24 cents, or 2.3%, to $10.20 so far today. Judging from the options action we saw today, at least one investor could be betting the stock could continue to drop by at least 18% before September options expiration.

Around 11 a.m. EST, an investor bought the June 31-36 call spread 10,000 times for a net debit of 96 cents per spread. The June 31 calls crossed at a premium of $1.26 per contract, and the investor helped finance that purchase by selling the June 36-strike calls for 30 cents per contract.

This investor will make a maximum profit of $4.04 per spread (the difference between the strike prices minus the premium paid) if SU shares close at $36 or higher on June options expiration. While the investor expects upside in the stock, this trade protects against a significant drop in the stock, with maximum loss capped at 96 cents per spread (the premium paid).

By opening a free virtual trading account with OptionsHouse, you can build a profit/loss diagram to help visualize the risk/reward dynamics of this trade.

The June 31 calls have an implied volatility of 37%, and implied volatility of the June 36 calls is 35%. This compares to a 30-day historical volatility of 32%.

SU did not announce any news this morning, and the stock has dropped 84 cents, or nearly 3%, to $28.30 without a clear catalyst. It’s interesting that one investor is calling for at least 27% of upside throughout the next four months, especially since the stock has not climbed higher than $36 since January.

The out-of-the-money April 55 calls have traded more than 15,000 times so far today versus current open interest of 5,800 contracts, indicating investors traded these options to open. Around noon EST, one large block of more than 14,400 April 55 calls crossed the tape at the ask price of 31 cents per contract. This means investors who bought these options are calling for at least 10% of upside throughout the next 51 trading days. Call buyers will make money if HPQ shares close higher than $55.31 at April options expiration.

By opening a free virtual trading account with OptionsHouse, you can build a profit/loss diagram to help visualize the risk/reward dynamics of this trade.

Implied volatility of the April 55 calls is 20%. If the calls move significantly to the upside along with a rise in stock, call buyers could choose to sell back the calls and book profits.

Normal options volume in HPQ is 32,000 contracts across all strikes. It’s interesting that at least one bullish investor’s trade already accounts for more than half of the daily volume we’ve seen hit the tape today.

HPQ shares have gained nearly 2%, or roughly 85 cents, to $50.97 on the day.

By10:47 a.m. EST, more than 6,200 POT April 100 puts had crossed the tape and most of the action appeared to be on the sell-side. We saw a large block of these out-of-the-money options cross for $3.10, which was lower than the bid price at the time of the trade. This suggests investors sold these puts on a moderately bullish bet that the stock could close higher than $96.90.

By opening a free virtual trading account with OptionsHouse, you can build a profit/loss diagram to help visualize the risk/reward dynamics of this trade.

The April 100 puts, currently up 14 cents on the day, have an implied volatility of 41%, compared to a 30-day historical volatility of 42%. The delta of these options is 27, which means the puts are trading down more than the delta would suggest and also indicates selling action (the options should have gained roughly 30 cents so far on the day).

If POT stock holds its current levels, or does not drop more than 12% throughout the next 51 days, investors could make a maximum profit of $3.10 per contract (the premium collected). Put sellers are willing to cap their gains at $3.10 per contract on this trade. This is one of the reasons why put selling such as this is a moderately bullish play, not exceedingly bullish.

An investor traded the April 55-60 put one-by-two spread 4,000 times during afternoon trading, buying the 60-strike puts for roughly $3.11 per contract and selling twice as many April 55 puts for around $1.10 per contract. The investor paid around 91 cents per spread (the cost of the spread dropped significantly because the investor sold double the number of 55-strike puts).

By opening a free virtual trading account with OptionsHouse, you can build a profit/loss diagram to help visualize the risk/reward dynamics of this trade.

The April 55 puts closed with open interest of 1,100 contracts, while the April 60 puts were home to open interest of just 225 contracts. This morning, current open interest of the 55-strike and 60-strike puts is …., respectively.

Investors will make a maximum profit of $4.09 per spread if EL shares expire at $55. The maximum risk to this trade occurs if the stock crashes below $50.91. At this point, the investor would be short more puts than he is long.

Though this trade looks like a lot of put volume, investors bought some of the puts and sold others, which is why we call this ratio spread a moderately bearish play instead of exceedingly bearish. The most interesting thing to remember with a put one-by-two spread is that investors are betting the stock could drop, but that the drop is likely to be limited to no more than the $50 level, and likely closer to $55.

Around 12:05 a.m. EST, an investor sold roughly 4,600 September 60 calls for $3.35 per contract and bought the same number of January 2011 62.5 calls for $3.45. So they net paid 10 cents per spread. The September 60-strike calls are home to current open interest of 15,400 contracts, while the January 2011 62.5-strike calls are home to current open interest of zero contracts. Implied volatility of the September calls is roughly 20% while the January calls are roughly 21%.

Calendar spreads call for minimal volatility in the shares until the option that was sold expires. Calendar spreads bank on movement in the later-strike and time decay in the closer-strike. If the September calls expire worthless, the investor continues to make profits on the long-call position that is left.

Investors who buy this calendar spread will begin to make money if TEVA shares climb higher than $65.95 at January 2011 options expiration. If the short calls expire worthless, the maximum loss at January 2011 options expiration is 10 cents per contract if the stock drops below $62.50. Because the long-call position is left after the September options expire, investors could make unlimited profits if the stock climbs higher than the breakeven in January 2011.

The following two graphs show how the profit and loss of this trade will behave today, versus how it will behave after September expiry. By opening a free virtual trading account with OptionsHouse, you can build a profit/loss diagram to help visualize the risk/reward dynamics of this trade.

AZN was the center of attention on Feb. 19, as the company reportedly still has plans to acquire Dendreon (NASDAQ: DNDN). Then today, the company raised its forecast for 2010 earnings after settling a tax dispute with the British government, according to published reports.

Around 10:30 a.m. EST, an AZN investor sold off potential upside in the stock to decrease the cost of downside protection in a July collar spread. The investor bought the July 40-50 risk reversal 5,000 times, buying the out-of-the-money July 40 puts for $1.35 per contract and selling the out-of-the-money July 50 calls for 60 cents per contract. The net cost of this risk reversal was 75 cents per spread.

By opening a free virtual trading account with OptionsHouse, you can build a profit/loss diagram to help visualize the risk/reward dynamics of this trade.

The July 40 puts are home to current open interest of 1,000 contracts, while the July 50 calls are home to current open interest of 4,200 contracts, indicating the investor most likely initiated the trade to open.

AZN shares reached a high of $50.70 on Jan. 21, but are currently trading roughly 14% off their highs. The stock has rallied nearly 45% since its March low of roughly $30 per share. While the options action we saw in AZN suggests bearishness, this could also be an investor who is long the shares and hedging that position after the run in stock. If that is the case, then this investor makes the most money if the stock rallies because they are long the shares against the collar.

Around 10:12 a.m. EST, an investor sold 5,000 May 16 puts, sold 7,500 May 17 calls, and simultaneously bought 17,500 May 20 calls. The May 16 puts traded around 45 cents each, while the May 17 calls traded for $2.15 per contract. The May 20-strike calls, meanwhile, traded at 65 cents per contract. Because the investor did not trade the same amount of contracts for all strikes, it is easier to look at this on a net premium basis. The investor collected $225,000 to sell the May 16 puts, collected $1,612,500 to sell the May 17 calls, and paid $1,137,500 for the May 20 calls. So the investor collected a net credit of $700,000.

If shares of M close between $16 and $17 at May expiration, the investor keeps the entire $700,000. To the downside, the investor starts to lose money if this stock closes below $14.60. Should the stock rally, the investor loses money if the stock is between $17.93 and $21.55 at May expiration. However, should the stock rally prior to May expiration, the investor will likely profit prior to expiration because of the large amount of May 20 calls that they own. This trade has a long delta as of today, meaning the investor profits as the shares rally, ceteris paribus.

This trade is classic example of a complex options trade that can be difficult to see the risk profile. By opening a free virtual trading account with OptionsHouse, you can build a profit/loss diagram to help visualize the risk/reward dynamics of this trade.

For more on M:

Bearishness in Zion, bullishness in Macy’s as market drops

At the close on Monday, more than 10,000 January 2012 60 calls had crossed the tape thanks to an investor who paid $2.80 per contract on a bullish longer-term bet. These calls started Monday with open interest of just 35 contracts, indicating the investor opened a long call position. The January 2012 60-strike calls closed down 32 cents to around $2.75.

By opening a free virtual trading account with OptionsHouse, you can build a profit/loss diagram to help visualize the risk/reward dynamics of this trade.

The investor who bought these calls is betting that AMSC shares could close higher than $62.80 (the breakeven on this trade) at January 2012 options expiration. AMSC shares are currently trading at $29.40, meaning the bullish investor expects to see at least 111% of upside in the long-term. Keep in mind, however, that the investor could choose to take profits and sell the calls back out if their price appreciates following a significant rally.

Implied volatility of the January 2012 60 calls is 50, which is roughly the same level as the 30-day historical volatility. But since this trade is so far in the future, we don’t expect a major swing in volatility this far out. The buying action, however, calls for a significant move to the upside throughout the next two years.

On Jan. 12, AMSC shares reached a high of $43.85, and have since dropped precipitously.  So this call buyer needs the shares to retain shades of old glory in order for the bet to pay off.

On. Feb. 17, ITMN reported earnings of 62 cents per share, which beat estimates by eight cents. ITMN shares have dropped 59 cents, or more than 3%, to $14.74 so far today.

The way-out-of-the-money (OTM) front-month March 30 calls have crossed more than 8,400 times versus current open interest of around 1,800 contracts, indicating investors traded the majority of these options to open. Most of these calls changed hands near the ask price of 65 cents per contract, likely meaning they were initiated on the buy side.

Bullish investors who bought these front-month calls need ITMN shares to close higher than $30.65, which represents 108% of upside in the near-term. If the calls gain value prior to expiration following a rise in the shares, the investor could choose to sell the options to book profits.

By opening a free virtual trading account with OptionsHouse, you can build a profit/loss diagram to help visualize the risk/reward dynamics of this trade.

The March 30 calls have an implied volatility of 216%, far exceeding the option’s 30-day historical volatility of around 58%. ITMN shares haven’t breached the $30 mark since Jan. 29, 2007. A definite catalyst for the heavy call buying we saw today is the fact that an FDA panel will convene in March to look at one of the company’s drugs to treat developing lungs. This type of call action is a good example of biotech stocks that have catalysts coming. Investors use the options to bet on certain outcomes, in this case, the bet is that the outcome will be positive.

DTV announced earnings of 48 cents a share on Feb. 18, beating estimates by eight cents a share. The company’s stock has climbed 10 cents to $33.74 during morning trading today.

At 10:55 a.m. EST, an investor sold the June 30-35 strangle more than 10,000 times for around $2.60 per spread. The out-of-the-money June 35 calls have gained seven cents on the day to around $1.80 and are home to current open interest of 6,200 contracts. The June 30 puts are currently trading down 12 cents on the day to 80 cents, and are home to current open interest of 6,000 contracts.

The June 30 puts have an implied volatility of 31%, and implied volatility of the June 35 calls is currently 30%, compared to a 30-day historical volatility of roughly 29%.

This strangle seller is calling for the stock to close between $27.40 to the downside $37.60 to the upside at June options expiration. Risk in this trade is unlimited, but strangle sellers bank on time decay and decreasing volatility as the expiration month approaches. It’s interesting that at least one investor is willing to cap any gains on this trade at $2.60 per contract, but could incur unlimited losses if volatility kicks in and the stock moves significantly in either direction.

Around 12:19 p.m. EST, the investor bought 6,000 September 15-22.5 call spreads for a net debit of $2.35 per bull call spread. The investor sold the September 22.5 calls at 95 cents per contract, and simultaneously bought the 15-strike calls for $3.30 per contract. This cost means that the investor needs UAUA shares to close higher than $17.35 (the breakeven price) at September options expiration to make money, unless the call spread appreciates with the shares prior to expiration and the investor decides to sell the spread back out.

Investors make a maximum profit of $5.15 (the difference between the strike prices minus the premium paid) if UAUA shares climb to $22.50 or higher. But the call spread protects the investors from unlimited risk if the stock drops below $15, in which case the maximum loss is $2.35 (premium paid).

UAUA shares are currently trading up 29 cents to $15.27. Implied volatility of the September 15 calls is 70%, while the 22.5-strike calls have an implied volatility of 62. This compares to a 30-day historical volatility of 74.

The airline company’s stock reached a recent high of $15.95 on Feb. 12. It’s interesting that at least one investor could be calling for at least 44% of upside throughout the next seven months, but making the bet less expensive (and less risky), by simultaneously selling upside calls.

For more on UAUA:

Sector Snap: Airline stocks rise slightly

Bearish put buying out of the gate in UAL

Around 11:50 a.m. EST, roughly 30,000 January 2011 15 puts crossed the tape versus current open interest of 10,000 contracts, indicating most of these contracts traded to open. The investor collected $1.48 per contract. These puts are currently down two cents on the day, and the stock has gained 25 cents during today’s session.

Judging from this put action, at least one investor is calling for limited downside in the stock throughout the longer-term, or they are betting on a decline in implied volatility in the options of this game maker. Selling puts is a moderately bullish play because investors will make money if the stock closes higher than $13.52 at January 2011 options expiration, which accounts for a possible $2 drop in the stock.

By opening a free virtual trading account with OptionsHouse, you can build a profit/loss diagram to help visualize the risk/reward dynamics of this trade.

Become an options expert by opening a free virtual trading account with OptionsHouse, where you can build a profit/loss diagram to help visualize the risk/reward dynamics of these roll trades.

Here are today’s roll-out highlights:

Around 11:09 a.m. EST, an Eli Lilly & Co. (NYSE: LLY) options investor bought to close roughly 6,300 February 33 puts for roughly two cents per contract and simultaneously sold to open the same number of March 33 puts for 40 cents per contract. The investor who rolled out the short put position in LLY collected 38 cents per spread, possibly maintaining a moderately bullish position on the drug manufacturer (this roll is not necessarily bullish because the investor could be short stock and hedging by selling the March 33 puts). The company did not report any news this morning, but the market expects its next earnings release sometime around April 19.

In another likely moderately bullish play, one investor rolled a short front-month position in Valero Energy Corp. (NYSE: VLO) out one month. Investors bought to close more than 6,200 February 18 puts and sold to open the same number of March 18 puts to collect a net credit of 45 cents per roll. The February 18 puts have gained three cents to roughly 30 cents per contract versus current open interest of 11,400 contracts, while the March 18 puts are trading up one cent to 75 cents per contract, and are home to current open interest of 7,000 contracts. VLO did not announce any news today, and the market expects its earnings release sometime around April 28.

Keep in mind that investors who rolled these short put positions in LLY and VLO are willing to cap their gains at less than 50 cents per spread (the risk in short put positions is unlimited), expecting the stocks to experience limited downside throughout the next 29 days until March options expiration.

For more LLY options insight:

Options action in Wellpoint, Eli Lilly, General Electric out of the gate

Call buying dominates Eli Lilly options action

For more VLO options insight:

Valero, JP Morgan options activity post-earnings

Investors look for protection in Valero, Western Digital, Oracle

To start, be sure you have a free virtual trading account with OptionsHouse, which allows you to build and profit/loss diagram to help visualize the risk/reward dynamics of this call sale.

By 12:12 p.m. EST, more than 10,000 June 55 calls had crossed the tape versus open interest of roughly 5,000 contracts. These calls, most likely traded to open, have gained 19 cents on the day to around $1.64 per contract. A look at time and sales indicates these calls traded as a spread, most likely coupled with a stock position.

At first glance, this trade appears bearish; it could be. A closer look, however, shows that these options traded with stock, meaning the call seller simultaneously bought shares from the option market makers as he sold the calls. The investor who put on a delta-neutral trade could indicate stronger interest in betting on volatility rather than direction.

Implied volatility of the June 55 is currently 35, compared to a 30-day historical volatility of 43%. If this investor thinks NEM will experience less volatility, then selling these calls will make money for the investor if the options are hedged daily until June expiration. NEM is scheduled to announce earnings on Feb. 25, before the market opens. This could also be a moderately bullish investor who is buying the shares and selling the June upside calls on a bet that NEM could inch higher in the coming months. With 90 minutes left in the trading day, NEM shares have gained $1.06, or 2.2%, to $48.30.

Around 2:30 p.m. EST, an investor sold 25,500 out-of-the-money September 15 calls for a price of 90 cents per option. These calls have dropped 15 cents on the day. Current open interest of these calls is 117 contracts, and the stock is trading down 37 cents, or roughly 2.8%, to $12.85.

CBG did not announce any news this morning to account for the drop in the stock on the day. The company has not announced an earnings release date, but the market expects the quarterly report sometime around April 29.

Investors who sold these calls will make money if CBG shares close lower than $15.90 (the breakeven price) at September options expiration. The September 15 calls have an implied volatility of 45%, compared to a 30-day historical of 46%.

Normal daily options volume in CBG is roughly 1,500 contracts, but this investor’s moderately bearish bet already trumped usual volume by 16 times that amount.

Call-selling activity such as this does not mean investors should run out and sell their CBG shares. The stock is trading near its 52-week high of $14, which could be a reason why an investor is calling for limited upside throughout the later-term. But this could also be an investor who is long the shares and is turning a position into a buy-write where their maximum profit is realized if the shares close higher than $15 at September expiration.

The in-the-money front-month February 7.5 calls crossed the tape more than 18,800 times, and the March 7.5 calls have traded more than 18,500 times so far today. An investor bought to close the front-month options (expiring in two days) for $2.60 per contract and simultaneously sold to open the March 7.5 calls for $2.93 per contract, collecting a net credit of roughly 33 cents per spread. Though this action suggests bearishness, the investor could be rolling out a buy-write position (a long stock position coupled with a short call). Selling to open the March 7.5 calls could be a hedge against being long stock.

The February 7.5 calls have gained 30 cents so far on the day. Implied volatility of the March 7.5 calls, currently trading up 17 cents on the day, is 126%. These implied volatility levels compare to a 30-day historical volatility of just 76%.

MNKD did not announce any news this morning, and the market expects the company’s next earnings release around May 4.

More than 5,000 July 7.5 puts hit the tape so far today versus current open interest of 1,178 contracts, indicating investors traded these options to open. The majority of these options crossed at the ask price of 25 cents per contract, suggesting investors expect the stock to drop at least 33% throughout the next five months. These options have an implied volatility of 54%, compared to a 30-day historical volatility of 48%. The July 7.5 puts have dropped six cents on the day, with a 10-delta.

By opening a free virtual trading account with OptionsHouse, you can build a profit/loss diagram to help visualize this trade.

Investors could make profits of up to $7.25 if AUY shares close lower than $7.25 (the breakeven price) at July options expiration. But keep in mind that investors could sell these puts if the stock drops significantly throughout the next month and take profits instead of holding the options until they expire.

AUY shares reached a 52-week high of $14.07 on Dec. 2, but the stock has since sold off roughly 22%. AUY is scheduled to announce earnings on March 3 after the market closes (analysts expect earnings of 17 cents a share). At least one investor is betting that the stock could drop after the earnings announcement and bought puts today to protect against a potential slide.

For additional commentary on AUY:

Moderate bullishness in Yamana Gold (NYSE: AUY)

Market loses rally, sparks bearishness in Zion, Yamana

By 10:50 a.m. EST, nearly 25,000 March 15 puts had already traded today versus current open interest of 8,900 contracts, indicating the majority of the options traded to open. We saw several blocks go off out of the gate, thanks to investors who bought the puts closer to an ask price of $1.12 per contract expressing bearishness in UAUA. This means investors who bought the puts will make money if UAUA shares drop at least 11% throughout the next 31 days before March options expiration.

By opening a free virtual trading account with OptionsHouse, you can build a profit/loss diagram to help visualize the risk/reward dynamics of this trade.

These puts have an implied volatility of 76, compared to a 63-day historical volatility of 68%. A look at the at-the-money March 16 straddle, currently priced at $2.84, also suggests investors are loading up on UAUA implied volatility. The same straddle closed on Feb. 11 at $2.62, and heavy option buying action has pushed up the price of that straddle by roughly 22 cents. Another measure of just how extreme the put buying is today is the fact that with the stock down about 19 cents, these puts are up 19 cents. These options are moving dollar-for-dollar with the stock, despite a delta of less than 40%.

UAUA shares reached a new high of 52-week high of $16.34 earlier this morning, but are currently down 1.3%, or roughly 21 cents, to $15.75. These recent highs in the stock could be a reason we’re seeing heavy put-buying action this morning, as investors brace for a potential near-term pullback in the stock.

For more ONN.tv commentary on UAUA:

Limited upside in UAL Corp. (UAUA)?

A call one-by-two in Ual (UAUA)

During midday trading today, more than 26,000 April 31 calls crossed the tape compared to open interest of just 1,729 contracts, indicating investors traded these options to open. The out-of-the-money calls have dropped 12 cents on the day to 55 cents, with the stock fluctuating around breakeven all day, indicating the action was initiated on the sell side. Additionally, the selling action has put pressure on implied volatility, which is currently 25, compared to a 30-day historical volatility of 24.

By opening a free virtual trading account with OptionsHouse, you can build a profit/loss diagram to help visualize this trade.

Investors who shorted these calls are betting ALL shares could close lower than $31.55 at April options expiration, which accounts for a possible 7% rise in the stock before investors lose money with a further rally.

On Wednesday (the day of the company’s earnings release), we saw a hefty number of March 30 calls and March 31 calls cross the tape because of selling action. Investors could be selling the April calls today in addition to their moderately bearish front-month positions.

Call-selling activity that we’ve seen this week does not mean investors should run out and sell their ALL shares. It’s interesting, however, that investors are willing to cap their gains at 55 cents per contract on a bet that ALL could experience limited upside throughout the near term.

The out-of-the-money March 47 calls have traded more than 5,300 times today versus current open interest of just 281contracts, suggesting these calls were traded to open. The majority of these traded at the ask price of 80 cents per contract, likely meaning they were initiated on the buy side.

This means bullish investors who bought these calls need MEE shares to expire higher than $47.80 at March options expiration in 35 days to make money, unless of course the calls gain value prior to expiration following a rise in the shares and the investor chooses to sell these contracts to book profits. In terms of implied volatility, these options have an implied volatility of 51, compared to a 63-day realized volatility of 54.

By opening a free virtual trading account with OptionsHouse, you can build a profit/loss diagram to help visualize this trade.

MEE shares peaked at $49.43 on Jan. 19, and are currently trading 17% off their recent high. The stock is up 13 cents to $41.75 on the day so far. Investors who are long these calls expect the stock to climb at least 14.5% higher throughout the next month in order to make money on this trade.

During yesterday’s trading session, more than 12,500 April 13-17 put spreads crossed the tape thanks to an investor who paid $1 per spread calling for a slide in the stock. In this moderately bearish play, the investor bought the April 17 puts and financed that purchase by selling the lower-strike puts. The April 13 puts closed with open interest of 10,800 contracts, while the April 17 puts were home to open interest of 13,400 contracts of open interest. This morning, the April 13 puts and the April 17 puts are home to open interest of 23,188 contracts and 25,933 contracts, respectively. These discrepancies indicate investors traded this spread to open.

The breakeven price on this bear put spread is $16, meaning investors turn profits if ZION shares close lower than that level, and collect a maximum profit of $3 (the difference between the strike prices minus the premium paid) if the stock closes lower than $13. Investors incur a maximum risk of $1 (the premium paid) if the stock closes at $17 or higher at April options expiration.

We noted another bearish put spread in ZION on Jan. 26 when an investor bought the July 11-17 put spread, on an even later-dated bet than the action we saw yesterday.

Continued heavy put buying action does not mean investors should run out and sell their ZION shares. The stock continues to trade around its 52-week high of $20, which could be a reason why several investors are buying downside protection should the stock slide and give back some of its gains.

At the close of today’s session, more than 12,500 out-of-the-money September 12.5 calls changed hands versus open interest of 106 contracts, indicating investors traded these options to open. The calls dropped 10 cents on the day to $1.15 per contract, and the stock closed up 16 cents, or 1.5%, to $10.80 a share, suggesting the majority of this action occurred on the sell side. Normal daily options volume in VNDA is 1,600 contracts. The call selling action we saw today far trumps normal options volume.

Investors who shorted these calls are calling for the stock to close lower than $13.65 at September options expiration. This is a moderately bearish strategy because the trade accounts for potentially 26% of upside for the position to turn profits.

The September 12.5 calls closed with an implied volatility of 53, compared to a 30-day historical volatility of 36%.

Call-selling activity such as this does not mean investors should run out and sell their VNDA shares. The company did not report any significant news today that could have instigated this call-selling activity, but at least one investor expects limited upside in the stock throughout the later-term.

MCO earnings are now out of the way, as the company announced earnings of 42 cents on Feb. 4, beating estimates by one cent. The company did not announce any news today.

An investor sold 5,000 March 26-27 strangles at $2.14 per spread when the stock was trading around $26.74 per share. The near-the-money March 26 puts, which have declined 18 cents so far on the day, are home to current open interest of 617 contracts, and the March 27 calls have gained nine cents with current open interest of 401 contracts. Judging from the existing open interest in these strikes, the investor traded these options to open.

Investors who sold this strangle are calling for a range in the stock between $23.86 to the downside and $29.14 to the upside at March options expiration in 36 days. Maximum gain in this spread is the premium collected, or $2.14 per spread. Risk in this trade is unlimited to the upside and significant to the downside, should the stock move significantly in one direction or the other.

Strangle sellers bank on time decay and decreasing volatility as the expiration month approaches. The implied volatility of this strangle translated to roughly 37, which is right in line with the 63-day realized volatility of 37.

At 10:45 a.m. EST on Wednesday, more than 17,500 April 30 calls crossed the tape versus open interest of 22,000 contracts. This morning, the open interest is 39,612 contracts, indicating the volume traded to open. An investor paid $1.12 per call contract when the stock was trading around $28.10 a share.

At first glance, this trade appears very bullish; it probably is. A closer look shows that these options traded with stock, meaning the call buyer simultaneously sold shares to the option market makers. The investor who put on a delta-neutral trade could indicate stronger interest in betting on volatility than direction.

I think, however, that this trade is still bullish because it appears the investor has sold the stock to the option market makers to control the price jump in the stock caused by the market makers buying the stock in the open market. This way, the investor has managed to only purchase volatility from the market makers rather than delta. This enables the investor to get a cheaper options price because the option market makers do not have to take stock price risk at the time of the option sale. This way, the investor can keep the purchase of the stock more anonymous. The investor may have bought the stock in the market prior to buying the calls. The investor hopes the price that is paid for the shares will be less than what would be implied in the option price. The investor then sells the stock to the market makers and is left holding the long calls.

Around 11:30 a.m. EST, an investor bought 12,000 March 19-22 bear put spreads for 83 cents per spread. By afternoon trading, the March 19 puts and March 22 puts dropped two cents to 25 cents and 95 cents, respectively. This HOG put spread buyer sold the lower-strike puts to help finance the purchase of the March 22 puts.

The March 19 puts are home to current open interest of 651 contracts, while the March 22 puts are home to 2,800 contracts of open interest, indicating the investor bought the put spreads to open.

HOG shares reached a 52-week high of around $30 at the beginning of December, but have since sold off roughly 25%.

The put spread buying action we saw today suggests one investor expects slight downside in the stock throughout the next 37 days until March expiration.

If HOG shares drop below $19, the put spread buyer makes a maximum profit of $2.17 (the difference between the strikes minus the premium paid), and makes money if the shares close lower than $21.17. Investors incur a maximum risk of the premium paid, or 83 cents per spread, if HOG shares close at $22 or higher.

Heavy put buying action does not mean investors should run out and sell their HOG shares. Keep in mind, however, that at least one investor expects a 6% drop in the stock throughout the next couple weeks.

AUY shares are currently down 16 cents, or 1.5%, to $10.25. Analysts expect AUY to announce earnings of 17 cents a share.

Around 10:57 a.m. EST, an investor bought the April 10-13 bull call spread more than 7,000 times for around 85 cents per spread. The April 10 calls, currently down six cents on the day, are trading for roughly $1.05, while the April 13 calls are currently down two cents to 20 cents. This cost of 85 cents means that the investor needs AUY shares to close higher than $10.85 at April options expiration to make money, unless the call spread appreciates with the shares prior to expiration and the investor decides to sell the spread to close.

Investors could make a maximum profit of $2.15 per spread (the difference between the strikes minus the premium paid) if the stock climbs higher than $13. Investors begin to turn profits when the stock climbs higher than $10.85 (the breakeven on this spread).If the stock dips below $10, investors incur a maximum risk of the net debit, or 85 cents per spread.

Implied volatility of the 10-strike and 13-strike calls is 52, compared to a 30-day historical volatility of 47%.

AUY shares reached a 52-week high of $14.37 on Dec. 2, but are currently trading 28% off that level. Bullish investors could interpret this trend in the stock as a bullish driver for this call spread: The stock has reached an over-sold condition, and could be due for a relief rally throughout the next couple months.

More than 26,800 July 22.5 calls crossed the tape on Tuesday versus open interest of just five contracts. This morning, the calls are home to current open interest of 26,800 contracts, an indication that investors traded these options to open. These deep in-the-money calls climbed $1.02 on the day to around $7.45 per contract, and were picked up on the buy side in a similar fashion to a stock transaction.

In a stock replacement strategy such as this, investors take advantage of a high delta, which means the price of the options move by almost as much as the underlying. The July 22.5 calls have a 85-delta, and the buying action has pushed up the price of the options more than the delta would suggest.

The oil and gas name is due to announce earnings figures on April 19 before the market opens (analysts expect earnings of 25 cents a share). HAL shares reached a 52-week high of $34.60 last month, and the stock is currently trading 15% off its highs. Investors who bought these calls are taking a bullish stance on HAL, calling for additional upside throughout the next five months.

If HAL shares continue to rally, the options bought yesterday will significantly appreciate in value, even with modest price movement due to the reasonable amount of time left until July options expiration.

Around 11 a.m. EST, more than 6,000 January 2012 12.5 puts crossed the tape versus current open interest of just 376 contracts, indicating investors opened bearish positions in CHK. The implied volatility of these puts is 49, compared to a 30-day historical volatility of 43.

The buying action has pushed the price of these puts up six cents on the day to around $1.00. Investors who bought these puts will make money if CHK shares close lower than $11.50 at January 2012 options expiration.

CHK shares reached a 52-week high of $30 on Oct. 13, and the stock is currently trading at $24.59, up 35 cents on the day. Put buying such as this does not mean investors should clean out their supply of CHK shares. But at least one investor, who could be long stock, thinks CHK could experience at least 50% downside throughout the next couple years.

Out of the gate on Tuesday, an investor sold 27,000 in-the-money February 60 calls for roughly $17.25 per contract and simultaneously bought the same number of in-the-money May 60 calls for $18.20 per contract. Bullish investors paid 95 cents per spread for this roll-out.

The simplest explanation for this trade is that the investor sold to close the front-month calls (expiring in 10 days), and rolled out for exposure in the May 60 calls in anticipation of further upside in OXY shares. The open interest in the February 60 calls is currently 27,216 contracts, which is why it is quite possible that that this customer is selling to close.

OXY shares are currently trading up $1 to $77.30. The stock reached a 52-week high in November of around $83, and one investor boosted call volume today on a bullish bet that the stock could climb higher than its current level throughout the next three months, and possibly even experience further upside following its earnings report in a couple of months.

Bullish rolls like these do not indicate that all investors should run right out and buy OXY shares. However, it is interesting to note that one investor is rolling out a bullish play, and is possibly betting on the earnings power of OXY.

More than 10,300 August 75 calls crossed the tape versus open interest of 10,456 contracts Monday. This morning, open interest is currently 4,000 contracts, indicating investors traded many of these options to close. The calls dropped 15 cents on the day to $2.50 per contract with a 27-delta. The August 75 calls closed with an implied volatility of 41, compared to a 30-day historical volatility of 31%.

Investors who sold these calls yesterday are betting that APOL shares could close lower than $72.50 at August options expiration, which means the stock could rise 22% and the trade would still make money. For this reason, selling calls is a moderately bearish play that takes into account a slight pop in the stock.

APOL has not announced an earnings release date, but the market expects the quarterly report sometime around March 30. Call-selling action such as this does not mean investors should run out and sell their APOL shares, particularly since this trade was closing risk, rather than opening new risk. However, the fact that someone no longer wanted to hold long calls could be indicating that the future upside for APOL is limited at the $70-level.

For more on APOL:

UPS, Halliburton, Apollo Group are movers

More than 6,700 July 35 calls have crossed the tape versus current open interest of 473 contracts, meaning investors traded these options to open. The calls are currently up five cents on the day to $1.25 per contract with the stock up 15 cents to $29.55, computing to an implied volatility of 39. This compares to a 30-day historical volatility of 30.

Investors who are short these calls are expecting the stock to hit a ceiling around $36.25 and close below that level by July options expiration. This call sale could also have been initiated by someone who owns shares of the stock. They could be selling these calls to collect some income on a bet that the shares will not go higher than the $36.25 level.

PDE shares reached a 52-week high in October of roughly $34, and the stock has sold off roughly 25% since then. The call-selling action we saw today is a moderately bearish play on the oil and gas drilling company because the stock could climb 22% throughout the next six months and the call option sale would remain profitable.

PDE is scheduled to announce earnings on Feb. 18 before the market opens, and analysts estimate earnings of 17 cents a share.

In trading shortly after the market opened, we saw several blocks of the front-month February 13 calls cross the tape thanks to investors who bought the options at a price of roughly 70 cents. That means investors who bought these calls need the stock to close higher than $13.70 at February expiration in order to make money. Keep in mind that investors could choose to sell back the options if the stock pops up significantly prior to options expiration.

More than 8,000 of these options have changed hands so far on the day, and the stock is currently trading up 39 cents to $13.64 per share. The shares have been in positive territory right from the open, despite the initial dip in the market.

The February 13 calls have an implied volatility of 45, compared to a 30-day historical volatility of 35%. Because earnings are due to be released before these options expire, it is not unusual for the implied volatility to be that different from the recently realized volatility.

DELL shares peaked at $16.92 on Sept. 16, and are currently trading around 19% lower. Still, at least one investor expects further upside in the stock and expects to make a quick premium by buying front-month calls.

Around 2 p.m. EST, an investor bought 1,000 September 65-100 strangles for $4.08 per spread. This means the investor is looking for the stock to move $4.08 in either direction away from the strike prices. The investor will turn profits if V shares close lower than $60.92 to the downside or higher than $100.08 to the upside. Maximum risk on this trade is the premium paid, or $4.08, and occurs if Visa shares expire between the strike prices.

The September 65 puts closed today at $2.06, up two cents on the day, while the September 100 calls are priced at $2.02, down 2 cents on the day. The 65-strike puts are home to current open interest of 14 contracts, while the 100-strike calls are home to 72 contracts of open interest.

Implied volatility of the September 65 puts is roughly 34, and implied volatility of the September 100 calls is 28, compared to a 30-day historical volatility of just 21%.

V did not announce any news on Friday, and already announced better-than-expected earnings on Feb. 3 (the credit card company announced earnings of $1.02 a share, which beat estimates by 11 cents).

Strangle buyers are betting on a surge in volatility, unlike investors who sell strangles that are betting on a potential range in stock. If the stock moves significantly in either direction prior to September options expiration, the investor could choose to sell back the spread and book profits.

For more on V:

SPY edges down, investors possibly close positions

Sector Update: Financials

Card company results show waning credit card use

Take a look at a put one-by-two spread in NKE, as an investor bought one March 62.5 put for a premium of 2.98 and sold two March 60 puts at a premium of $1.74 each for a net credit of 50 cents per spread. The March 60 puts have crossed more than 6,300 times versus open interest of 2,300 contracts. The March 62.5 puts have traded 3,000 times and are home to open interest of 1,000 contracts (investors traded these spreads to open).

Though this trade looks like a lot of put volume at face value, investors bought some of the puts and sold others. Investors will make a maximum profit of $3.00 on this spread if NKE shares expire at $60. The investor makes money all the way down to $57, at which point the spread loses dollar for dollar all the way down to $0.

NKE has not announced an earnings release date, but it is likely that the company will report sometime around March 17. In that case, this put-one-by-two will not have expired yet, so the investor will get the earnings event as a chance to attain maximum profits.

For more on NKE:

Option Trading Idea: Nike (NKE) iron condor

Bullishness ahead of Nike earnings

The out-of-the-money August 30 calls crossed the tape 10,000 times around 2 p.m. EST on Thursday versus open interest of just 248 contracts, indicating investors traded these options to open. The majority of these calls crossed at an ask price of $1.15, meaning the majority of the action occurred on the buy side.

Bullish investors who opened these long call positions will make money if SUN shares close higher than $31.15 at August options expiration. That means the stock needs to rally at least 20% in order for this call purchase to turn profits. If the stock climbs significantly prior to August expiration, investors could choose to sell these calls and book profits instead of holding them.

By opening a free virtual trading account with OptionsHouse, you can build a profit/loss diagram to help visualize this trade.

Implied volatility of the August 30 calls closed at 36, compared to a 30-day historical volatility of just 15%.

Analysts expected SUN to announce an earnings loss of 26 cents a share following the market close. The stock closed down 79 cents, or 3%, to $25.70 a share, and the call buying action we saw yesterday afternoon is not a signal for investors to buy up SUN shares. But at least one investor expects the stock to experience upside throughout the next seven months and edged up closer to its October high of around $33.

Around 12:10 p.m. EST, an investor sold 10,000 May 55 puts and simultaneously bought the same number of May 80 calls in a bullish risk reversal (also known as a “synthetic long stock” strategy). The May 55 puts are currently up 10 cents on the day, and are home to current open interest of 1,998 contracts, while the 80-strike calls have dropped seven cents on the day and are home to just 1,404 contracts of current open interest. The investor collected 52 cents per spread on this play, which simulates a long stock position.

UTX shares are currently down $1.42 to $66.82, but it’s interesting that at least one investor is calling for later-term upside in the stock without buying shares. Instead, the investor is financing his long call position by selling puts.

The breakeven on this risk reversal is $54.48 to the downside, meaning investors will make money if the stock closes higher than that level at May expiration. Investors retain a profit of 52 cents per spread if UTX shares expire between the breakeven and $80. If the stock soars higher than $80, maximum gain is unlimited.

By opening a free virtual trading account with OptionsHouse, you can build a profit/loss diagram to help visualize this trade.

UTX shares are currently trading roughly 8% off their recent high of $72 in mid-January, but at least one investor took the cheaper route to be bullish and expects new highs throughout the next four months.

The near-the-money March 24 puts have crossed the tape more than 10,200 times versus current open interest of 670 contracts, suggesting investors traded these options to open. We saw several blocks go off close to the bid price of 83 cents per contract around 11:20 a.m. EST today, indicating investors sold these options betting on limited downside in the stock.

By opening a free virtual trading account with OptionsHouse, you can build a profit/loss diagram to help visualize this trade.

The March 24 puts are currently trading up 11 cents on the day, which is lower than a delta of 35 would suggest.

Investors who sold these puts are capping their gain on this trade at 83 cents per contract, and will make money if JNPR shares close higher than $23.17 at March options expiration in 43 days. Additionally, the investor is factoring in a potential 7% drop in the stock. For this reason, this trade is more neutral than absolutely bullish.

Looking at the March 185 puts in MA, we saw an investor sell these options more than 3,000 times for approximately $1 per contract with the stock trading down $21.48 to around $224 a share. These puts are currently trading up 65 cents with a 7-delta, and are home to current open interest of just six contracts, indicating the investor traded these options to open. The puts are priced lower than the delta would suggest, indicating the majority of the action occurred on the sell side.

By opening a free virtual trading account with OptionsHouse, you can build a profit/loss diagram to help visualize this trade.

MA shares are currently trading 15% off a recent high of $265 last month. It looks like the investor is betting the stock will hold higher than $184 (the breakeven on this trade) throughout the next six weeks or so until March options expire. This represents an 18% drop from current levels throughout the next 43 days.

MA announced earnings of $2.43 per share before the market opened this morning, which missed analysts’ estimates by three cents per share. It’s interesting that at least one investor believes the stock’s 8% decline on the day is limited going forward.

Put selling like this is a sign of moderate bullishness, and could be an example of how risk aversion is abating in the market. Also, the investor is willing to cap the gain on this trade at $1 per contract, which is why this strategy is neutral in nature rather than bullish.

ORCL shares are currently trading at $23.75, relatively unchanged on the day, and off roughly 7% from their January high of $25.33.

During midday trading, two large blocks of June 23 puts and June 24 calls crossed the tape thanks to an investor who sold the strangle for a premium of $2.60 per spread. Nearly 40,000 contracts have accumulated in each strike, and open interest of the 23-strike puts is currently 9,900 contracts compared to the 3,300 contracts of open interest in the 24-strike calls.

The investor who sold this strangle is looking for ORCL shares to close between $20.40 to the downside and $26.60 to the upside at June options expiration. Investors retain a maximum profit of $2.60 (the premium collected) if ORCL shares close between $23 and $34, and will lose money if the stock moves significantly in one direction or the other (maximum loss is unlimited in this strategy). For this reason, selling a strangle such as this is a riskier trade as investors call for volatility to come in prior to expiration.

Implied volatility of the June 23 puts and the June 24 calls is roughly 26, compared to a 30-day historical volatility of 25.

By 1 p.m. EST, 6,500 way-out-of-the-money January 2011 17.5 calls crossed the tape with the stock currently trading up 51 cents to $13.66 per share. These options are home to current open interest of just 489 contracts, indicating investors traded these calls to open. The calls have climbed just 10 cents on the day to 90 cents, which suggests the majority of this action occurred on the sell-side because the price of the option has not rallied as much as the delta would have suggested.

Investors who sold these calls are betting the stock could experience limited upside, and close lower than $18.40 at January 2011 options expiration. These calls have an implied volatility of 40, compared to a 30-day historical volatility of 30%.

Call selling activity such as this does not mean investors should run out and sell their CBS shares. After all, this could be an investor who is long the shares, and is merely selling these calls to create a covered call position. CBS is scheduled to announce earnings figures on Feb. 18 after the market closes (analysts expect earnings of 25 cents per share). However, CBS is likely seeing a little bit of strength today because its competitor News Corp (NWS) announced better- than-expected earnings.

More than 65,000 January 2011 12.5 puts crossed the tape during today’s trading session versus open interest of just 253 contracts, indicating investors traded these options to open. The puts are currently trading down 28 cents to around $2.25 per contract with a 54-delta. The puts are trading lower than the delta would suggest, indicating the majority of the options action took place on the sell side. Implied volatility of the January 2011 12.5 puts is currently 38, compared to a 30-day historical volatility of 24.

Investors who sold these puts on a moderately bullish play are calling for limited downside in CPN stock, and will make money if the shares close higher than $10.25 at January 2011 options expiration.

CPN shares are currently trading up 11 cents to $11.30 on the day, and are trading roughly 23% off their 52-week high of $14.68 (the stock reached the high point on June 1). The company’s stock continues to rally following an upgrade from Barclay’s last night to equal-weight from underweight. It’s interesting that at least one investor is willing to cap his gain at $2.25 per spread if CPN shares at least hold their current levels, and do not dip more than 9% throughout the next year.

CEPH shares are currently trading at $65.61, up 81 cents on the day. The company is scheduled to announce earnings figures on Feb. 11 after the market closes. Analysts expect the company to announce earnings of $1.58 per share.

The at-the-money February 65 calls have crossed the tape more than 13,500 times so far on the day versus current open interest of 16,800 contracts, while the May 70 calls have traded more than 18,100 times and are home to current open interest of 3,400 contracts. This volume and open interest relationship indicates investors likely closed their front-month positions and opened positions in May.

Around 11:29 a.m. EST, investors sold the February 65 calls at a bid price of $1.85 per contract and bought to open a large block of the May 70 calls at an ask price of $2.79 per contract, paying a net debit of 94 cents per spread. The investor expressed a bullish bet that CEPH shares could rally at least 8% during the next four months (the breakeven on this purchase is 70.94). The February 65 calls and the May 70 calls have an implied volatility of roughly 30, compared to a 30-day historical volatility of 21%.

CEPH shares are currently up roughly 20% from their October-low of $53, and it’s interesting that at least one investor is calling for even further upside and wants to maintain long exposure in the company. While investors should not interpret this morning’s roll action as a reason to buy up CEPH shares, at least one investor expects the stock to keep rolling higher for the next four months.

For more on CEPH:

Call buyers surface as Cephalon (CEPH) stock pops

Options action in Cephalon, Simon Property, A123 Systems

Around 10:40 p.m. EST yesterday, an investor sold more than 7,000 March 48 straddles (selling both the March 48-strike puts and calls) for a premium of $4.27 per spread. The options closed on Monday with an implied volatility of 28, compared to a 30-day historical volatility of 22. The March 48 puts closed down 69 cents to $2.04 and the March 48 calls gained thirteen cents on the day yesterday to $1.86. The puts previously had open interest of 2,500 contracts while the calls were home to 1,400 contracts. As of this morning, open interest stands at 9,522 and 8,422 contracts respectively.

HPQ shares closed up 76 cents, or roughly 1.6%, to $47.83 yesterday. This straddle seller is betting on volatility to slow and time decay to kick in throughout the next 46 days (throughput March options expiration) in order for the stock to stay in range and turn profits on this sale.

The investor needs HPQ shares to expire between $43.73 and $52.27 (the breakeven prices of the straddle), and can make a maximum profit of $4.27 per straddle.

Yesterday’s straddle-selling action suggests investors expect HPQ shares to hold their current levels, or move in a 10% range in one direction or the other throughout the next month. This neutral behavior compares similarly to moderately bullish activity we covered last Thursday when an investor bought 5,000 March 46 calls and sold twice as many March 50 calls in a call one-by-two spread. A free virtual trading account with OptionsHouse enables you to build profit/loss diagrams to visualize this and other transactions.

For more on HPQ:

Call one-by-two boosts Hewlett-Packard (NYSE: HPQ) option volume

Call buyers boost Hewlett-Packard (NYSE: HPQ) options

Shortly after 10 a.m. EST, we saw several blocks of the July 40 puts cross the tape at an ask price of around $2.05 per contract. Investors who bought these puts need DLR shares to close lower than $37.95 at July options expiration in order to make money on this trade. But if the stock drops significantly throughout the next five months, investors could choose to sell the puts back and book profits. A free virtual trading account with OptionsHouse enables you to build profit/loss diagrams to visualize this and other transactions.

The July 40 puts have traded more than 5,600 times versus current open interest of 103 contracts, indicating investors traded these options to open. Implied volatility of the July 40 puts has climbed to around 40, compared to a 30-day historical volatility of just 18%.

Shares of the commercial real estate company are currently trading up 10 cents to $48.10. The buying action in these puts has actually caused the puts to rally on the day, despite the increase in the shares. Stock up and puts up? That is an intuitive way to understand that implied volatility is rallying. Heavy put buying such as this is not the only case for investors to sell DLR shares, but it is interesting that investors (who could be long stock) are looking to purchase downside protection. DLR is involved in the commercial real estate space, and given the continued chatter in the market that commercial real estate might be the next shoe to drop, it is understandable why investors might be seeking some longer-dated protection.

At approximately 11:25 a.m. EST, an investor sold roughly 15,000 July 8-11 put spreads for a net credit of $1.15 per spread. The July 8 puts are currently priced at 45 cents, up two cents on the day so far, and the July 11 puts are relatively unchanged on the day at $1.60. The lower-strike puts are home to current open interest of 820 contracts, while the 11-strike puts are home to open interest of 3,057 contracts, indicating investors traded these options to open. The price of $1.60 in the 11 strike translates to an implied volatility of 44% compared to a 63-day realized volatility of 40.

Investors will make a maximum profit of $1.15 per spread if PHM shares close higher than $9.85 (the breakeven) at July options expiration. The maximum loss, which investors incur if PHM shares close lower than$8, is the difference between the strike prices minus the premium collected, or 85 cents per spread. Of course, the investor could also choose to buy back the spread well prior to July expiration should the stock rally. A free virtual trading account with OptionsHouse enables you to build profit/loss diagrams to visualize this and other transactions.

Heavy put spread selling action such as what we are seeing today does not necessarily mean investors should run out and buy PHM shares. But in this case, it is worth considering that at least one investor is willing to risk some capital on a bet that even with earnings due to be released shortly, the stock could rally, or at least not go a lot lower.

We saw an investor sell the January 40-50 put spread 10,000 times for roughly $3.77 per spread. So far on the day, the January 40 puts are unchanged at around $3 per contract, while the January 50 puts have risen 10 cents to $7.10 per contract. The lower-strike puts are home to current open interest of 3,781 contracts, while the higher-strike puts are home to current open interest of 2,388 contracts.

Investors who sold this put spread are moderately bullish on DE, and expect the company’s stock to closer higher than $46.23 (this trade’s breakeven price) at January 2011 expiration. Maximum gain on this trade is the premium collected ($3.77 per spread), which investors will achieve if DE shares are higher than $50 at January expiration, and maximum risk on this trade is $6.23 per spread (the difference between the strike prices minus the premium), which investors will incur if the stock drops below $40 per share.

The market expects DE to announce earnings figures sometime around Feb. 17 (analysts expect earnings of 17 cents a share). DE shares are currently trading around $50.80, down 30 cents so far on the day, which means investors need the stock to either hold or surge higher than their current level.

Heavy put-spread selling action does not necessarily mean investors should run out and buy DE shares, but keep in mind that someone in the options pits today is calling for the stock to hold its current levels throughout the next year.

For more on DE:

Trading Idea: A Deere & Co. (NYSE: DE) bull call spread

Deere & Co. braces for shareholder vote on executive pay; shares up

Deere & Company (DE) bull put spread

The January 2011 7.5 puts crossed the tape more than 22,600 times during yesterday’s trading session, thanks to investors who bought these options for 65 cents per contract. The puts started Thursday with 23,874 contracts of open interest, which has now dropped down to 5,300 this morning.

GNW shares closed up 29 cents to $13.67 on Thursday. That is a rally of more than 57% since a recent low of $8.69 in October.

The January 2011 7.5 puts closed yesterday with implied volatility of 64, compared to a 30-day historical volatility of just 45%. But given the rally in the shares, the investor might be thinking that the short-term money has been made on these puts, so capital is best deployed elsewhere.

For more on GNW:

MidnightTrader’s after-hours news movers

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More than 9,000 March 55 puts have crossed the tape so far on the day versus open interest of just 534 contracts, indicating investors traded these options to open. The puts have declined 12 cents on the day to roughly $1.05 per contract, and have an implied volatility of 27 compared to a 30-day historical volatility of 20% (today’s buying action has pushed up implied volatility).

Investors who bought these puts are calling for the stock to close lower than $53.95 at March expiration, in which case investors experience unlimited profits. If the stock drops significantly, investors could choose to sell back these options and book profits instead of holding them (if the stock rallies higher than the breakeven, investors incur a maximum loss of the premium paid, or $1.15 per contract).

AMGN shares saw a recent low of $54.05 on Nov. 5, but have since rallied around 7%. The stock is currently trading at $58.22 a share, and at least one bearish investor expects the stock to drop back down to that level throughout the next 50 days until March expiration.

Around 12 p.m. EST, an investor bought 5,000 March 46 calls at an ask price of roughly $3.20 per contract and simultaneously sold twice as many March 50 calls for $1.15 per contract, paying a net debit of 90 cents per spread.

The March 46 calls are home to current open interest of just 17 contracts, and the March 50 calls are home to open interest of 20,000 contracts. Selling twice as many higher-strike calls helps the investor fund his purchase of the more expensive March 46 calls while maintaining a bullish stance on the company.

Investors make a maximum profit of $3.10 (the difference between strike prices minus the premium paid) if HPQ shares close right at $50 at March expiration in 50 days. If HPQ shares close lower than the lower call strike of $46, investors lose the premium paid. The potential loss in this trade is unlimited above $53.10, which is why call one-by-twos like this are a moderately bullish play.

HPQ shares are currently trading down $1.72, or 3.5%, to $47.73, roughly 8% lower than their 52-week high of $53 at the end of December. Earnings results will be released on Feb. 17 after the market closes; analysts expect earnings of $1.05 a share, and that could be just the catalyst the investor needs to get the stock to rally back towards that 52-week high.

For more on HPQ:

Call buyers boost Hwlett-Packard (NYSE: HPQ)

Hewlett-Packard Go. (HPQ) bull call spread

The out-of-the-money April 45 calls crossed more than 11,700 times versus open interest of 15,000 contracts during Wednesday’s trading session. The calls gained 20 cents on the day yesterday, while PBR shares closed up 58 cents to $41.31.

During afternoon trading, an investor bought these calls at an ask price of $1.37 per contract, making the breakeven price on this purchase $46.37. Judging from the open interest, some investors could have bought the calls to close a short position. But bullish investors who bought these options to open will make money if PBR shares close higher than $46.37 at April options expiration. If the calls gain in value along with the stock, investors could choose to sell the options back to book profits before expiration.

Implied volatility of the April 45 calls closed around 36, compared to the 30-day historical volatility of just 26. The buying action yesterday pushed up implied volatility, suggesting investors expect the stock to move significantly (potentially a 12% move to the upside) throughout the next few months.

PBR has not announced an earnings release date, but the market expects the figures sometime around Feb. 26. Analysts expect PBR to announce earnings of 90 cents a share.

CMC shares are currently trading down 31 cents to $13.89. That brings its total loss to more than 13% in the past six trading days. The market does not expect the company’s earnings until late March.

The February 15 calls have changed hands roughly 6,700 times during today’s trading session versus open interest of just 631 contracts, indicating investors traded these options to open. The calls have gained roughly three cents on the day to 35 cents and have a 32-delta. We know investors bought these options because the calls are trading up despite the fact that the stock is currently down on the day.

Investors who bought these calls will turn profits if CMC shares close higher than $15.35 at February options expiration in 23 days. If the calls appreciate along with the stock during the next few weeks, investors could choose to take profits instead of holding the options until expiration.

The February 15 calls have an implied volatility of 54, compared to a 30-day historical volatility of 39 (the buying action during midday trading significantly pushed up implied volatility).

CMC shares need to move at least 10% to the upside in order for call buyers to make money, and at least one bullish investor expects to see this rally in the short-term.

During morning trading, more than 6,100 March 35 calls crossed the tape versus current open interest of just 44 contracts, indicating investors traded these options to open. The majority of these calls traded at an ask price of 40 cents, meaning most of the options were initiated on the buy-side. Another indication that these options were purchased can be seen in the price action. The calls have gained 10 cents on the day, but the stock is currently down 60 cents to $30.27 per share. Calls up despite a decline in the shares means implied volatility expanded. The current implied volatility in these calls is 38, compared to a 126 day realized volatility of 33.

Bullish investors who bought these calls need UHS shares to expire higher than $35.40 (the breakeven price) at March options expiration to make money on this purchase. If the calls gain value prior to expiration following a rise in the shares, investors could choose to sell back the options to take profits.

UHS did not announce any news today, and the company has not officially declared an earnings release date (the market expects the quarterly report on Feb. 25). Given that the company will most likely report earnings after February expiration but before March expiration, that could be just the catalyst this investor is looking for to turn a profit on these calls.

During afternoon trading yesterday, two large blocks of the July 11-17 put spread, totaling more than 7,000 contracts in each strike, crossed the tape at a net debit of $1.40 per spread with the stock around $19.50. The July 11 puts were home to open interest of 1,000 contracts, while the July 17 puts had just 191 contracts of open interest, indicating investors traded these spreads to open. The investor bought the 17-strike puts for $1.80 per contract and sold the 11-strike options for 40 cents per contract.

The breakeven price on this put spread is $15.60 (the long strike minus the premium paid), meaning investors could make a maximum profit of $4.60 (the difference between the strike prices minus the premium paid) if ZION shares close below 11 at July options expiration. Investors incur a maximum loss of the net debit, or $1.40 per contract, if the shares close higher than $17 when the options expire.

Heavy put buying action does not mean investors should run out and sell their ZION shares. However, it is worth noting that after topping out at a new 52-week intraday high on Tuesday of $20.58, the shares reversed course along with the rest of the market. The stock is currently trading up 38% since hovering around $13 throughout December, and that spike could be the reason there was demand on Tuesday for some downside protection should the stock give back a sizable chunk of those gains.

For more on ZION:

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At 11:45 a.m. EST, 10,000 in-the-money January 2011 27.50-strike calls crossed the tape thanks to an investor who paid $4.45 per contract, when the shares were trading for near $28. These calls are home to current open interest of just 338 contracts, indicating investors bought these options to open. By the end of the day, the calls had lost roughly 25 cents, with an implied volatility of 39. That compares to the 30-day historical volatility of 34%.

The breakeven on this call purchase is $31.95, which is a 15% gain from the stock’s current level. Investors will make money on this purchase if MS shares close higher than $31.95 at January 2011 expiration. However, it is more likely that the investor will not wait for expiration, and instead take profits if the calls gain value prior to expiration following a rise in the stock.

On Jan. 20, MS announced earnings of 29 cents a share, compared to estimates of 36 cents a share. Since then, the stock has sold off roughly 9%. In addition to the earnings report, obviously the discussion in Washington of the new Volker Rule has put the stock under pressure. Investors have spent the last week trying to figure out what the new rules might mean for companies like MS and Goldman Sachs (NYSE: GS). The slide in the shares has been very rational, since when there is more uncertainty or risk, investors will demand more potential return. So they sell the shares, decreasing the price that they are willing to pay for future earnings, because of the uncertainty of those earnings. Time will tell if this call buyer is correct, but it could prove to be a sign that the bearish sentiment in this stock is diminishing and the selling pressure is abating.

At 11:14 a.m. EST, several blocks of the January 15 straddle crossed the tape, totaling 10,000 contracts. Investors collected roughly $4.60 per straddle, as the January 15 calls were trading at $1.60 and the January 15 puts were priced around $3. The January 15 calls are home to current open interest of 500 contracts, while the puts are home to current open interest of 441 contracts, indicating investors sold these straddles to open. This translates to an implied volatility of around 40, compared to a 30-day historical volatility of 35.

Investors who sold these straddles are calling for a range in the stock throughout the next year, and will make money if MAS shares close between $10.40 to the downside and $19.60 to the upside (the breakeven prices of the straddle) at January 2011 options expiration..

If MAS shares close right at the $15-strike, the investor retains the entire net credit ($4.60 per straddle). But if the stock moves significantly in either direction, risk is unlimited to the upside and limited only by the zero mark to the downside.

MAS shares reached a 52-week high of $15.58 on Jan. 8, and the stock has maintained a range between $12 and $15 throughout the last few months. The next big catalyst for a move in the shares could occur on Feb. 10 when earnings are announced. But given that this straddle goes out almost a year, there are likely to be many other events in MAS that this straddle seller needs to weather, before pocketing a profit, unless other sellers come in and lower implied volatility with the stock still trading around $14.

The January 2011 135 calls have crossed 5,000 times versus current open interest of 2,300 contracts, while the January 2011 150 calls have changed hands more than 10,500 times versus current open interest of 2,700 contracts. The 135-strike calls are currently up 30 cents on the day to $6.50 per contract, and the higher-strike calls have gained seven cents to around $2.50 per contract. During midday trading, an investor bought the 135-strike calls and sold twice as many of the higher-strike calls for a net debit of $1.50 per spread.

If IBM shares close at $150 on January 2011 options expiration, this trader makes a maximum profit of $13.50 per spread (the difference between the strikes minus the debit paid). If IBM shares close below $135 at January 2011 options expiration, the trader incurs a maximum loss of $1.50 per spread (the premium paid). Also, the investor is subject to unlimited risk if IBM shares close higher than $163.50 (the upper breakeven) at January 2011 expiration. This means the moderately bullish investor is calling for the stock to finish at expiration between the breakevens of $136.50 and $163.50, with max profits achieved right in the middle at the 150 strike.

IBM reached a 52-week high last week of $134.14, but the stock is currently 5% off that level to $126.50 per share. Now that the company’s earnings are out of the way, at least one investor is taking a moderately bullish stance and expects the stock to experience limited longer-term upside.

–Kevin Cook contributed to this article

For more on IBM:

Trading a bull put spread in IBM

IBM: Bull and bear plays following IBM earnings

More than 22,500 March 19 puts have changed hands in EBAY so far on the day versus current open interest of just 195 contracts. These puts have gained two cents on the day and have an 8-delta. This means the puts should be relatively unchanged on the day, but buying action has pushed the prices of these puts higher than their delta suggests. Additionally, the implied volatility of these options is 41, compared to a 30-day historical volatility of 37%.

Out of the gate, we saw several large blocks trade around an ask price of 15 cents. The breakeven on this trade is $18.85, meaning investors who bought these puts will turn profits on this purchase if EBAY shares close lower than that level at March options expiration in 53 days. The put buyers we saw today are expecting the stock to drop at least 18% throughout the next couple months. If the stock drops significantly prior to the options’ expiration, investors could choose to sell back the puts and book profits instead of holding on to them.

EBAY shares are currently trading down 18 cents to $23.40 on the day, and the stock has maintained a range between $22 and $24 throughout the last few months. EBAY shares are currently trading roughly 6% off their 52-week high of $25, and at least one investor expects further downside in the near-term.

Normal daily options volume in EBAY is roughly 22,000 contracts. Today’s option volume in EBAY has far-surpassed that level, and the bulk of the action continues to accumulate in the March 19-strike puts.

For more on EBAY:

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During the afternoon trading session today, an investor sold 5,000 June 74 calls for a premium of $4.10 per contract. This particular investor could also be long stock, and may have financed the equity position by selling the calls.

The call seller will turn profits on this sale if BRK-B shares close lower than $78.10 at June expiration (the strike price plus the premium collected). Keep in mind that the investor could be hedging a bullish position because the trade factors in a potential 10% rise before the investor could begin to lose money on the option position.

In other options news, we also saw an investor buy the March 75-78 call spread as a cheaper way to express a moderately bullish play on the stock.

It looks like option traders are mixed on the insurance company after the 50-1 stock split, but it is interesting that the call selling and call spread buying action we saw today may accompany existing long stock positions.

For more on BRK-B:

Berkshire Hathaway (BRK.B) bear call spread

The at-the-money March 50 calls have changed hands more than 10,000 times on the day versus current open interest of 1,300 contracts, indicating investors traded these options to open. The calls have dropped 27 cents on the day to $2.30 per contract and are trading at a 55-delta. With HPQ shares down about $1 today, this means the calls should have dropped roughly 55 cents, but they are currently trading higher than their delta suggests (this tells us the majority of the options action occurred on the buy side).

Investors who bought these calls will make money on this trade if HPQ shares close higher than $52.30 at March expiration in 56 trading days. Remember, if HPQ shares jump significantly, investors who own the calls could choose to sell them back to take profits instead of holding them until expiration.

HPQ shares are currently trading down roughly $1 to $50.24, which means bullish investors are looking for at least 4% of upside throughout the next few months. The call-buying action we saw today as pushed implied volatility up to 27, compared to a 30-day historical volatility of just 17%.

Investors should not interpret the heavy call buying action in HPQ as a reason to load up on the company’s stock. However, HPQ shares have seen a nice run since their March low of $25.53, and at least one investor is looking for further upside even after the earnings report is out of the way.

For more on HPQ:

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More than 6,600 September 26 puts changed hands so far today versus open interest of just 21 contracts, indicating investors traded these options to open. The puts have gained 17 cents to roughly $2.40 so far today, and have a 34-delta. We know investors bought these puts because the options have climbed more than their delta would suggest (the calls should be trading up four cents).

In order to make money on this purchase, put buyers need DOW shares to close lower than $23.60. The puts have an implied volatility of 40, compared to a 30-day historical volatility of 37%. If DOW shares drop significantly throughout the next couple quarters, the investor could choose to sell the puts back and book profits instead of holding on to them until September options expiration.

DOW shares reached a 52-week high of $31.66 a couple weeks ago, and the stock is currently trading at $28.56 (a 7% decline from the high). The put-buying action we saw during morning trading suggests investors are expecting at least a 17% drop throughout the next nine months. Also, an investor could be long the stock expecting a pop up, and buying these puts to reduce risk exposure.

DOW is scheduled to announce earnings figures on Feb. 2. Analysts expect the report to show 11 cents earnings per share (EPS).

For more on DOW:

Bull and bear plays on Dow Chemical (DOW)

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Out of the gate this morning, more than 6,100 June 14 calls crossed the tape in the airline name versus open interest of 7,100 contracts. At 10:23 a.m. EST, two blocks of 3,000 contracts traded around the bid price of $1.80 per contract. Judging from the open interest, the investor could have sold these options to close and took profits on a long position.

Today’s call selling action suggests investors are calling for limited upside in UAUA shares. The breakeven on this call sale is $15.80, meaning investors will turn profits if UAUA shares close lower than that level at June options expiration. Investors will keep their premium if the shares either drop of hold their current level.

UAUA is scheduled to announce earnings figures on Jan. 27 before the market opens (analysts expect the company to announce a $1.47 earnings per share (EPS) loss). So, will UAUA shares rally post-earnings report, or not? The stock is currently up around 32 cents, or more than 2%, to $13.45, and at least one investor is expressing a moderately bearish bet that UAUA shares won’t climb higher than 17% throughout the next six months.

For more on UAUA:

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Around 10:47 a.m. EST, 6,200 contracts traded at the May 60 put strike, the May 65 put strike, and the May 75 call strike. These options crossed the tape simultaneously as an investor bought the put spread and sold the calls. The investor bought the May 65 puts for $4.40 per contract and sold the 60-strike puts at $2.20 per contract, paying a net debit of $2.20 per spread. At the same time, the investor sold May 75 calls at 70 cents per contract (perhaps to help finance the purchase of the put spread while maintaining a bearish stance on UNP), making the entire combination trade cost $1.50 each.

By afternoon trading, more than 11,600 contracts had changed hands at each strike. The open interest at the May 60 puts is currently 2,200 contracts, while the March 65 puts are home to open interest of 1,500 contracts, indicating investors traded these options to open. The March 75 calls are home to current open interest of 32,000 contracts, which means the investor could have taken profits and closed a long call position.

Looking at the put spread specifically, if UNP shares drop below $60 at May options expiration, the investor will make a maximum profit of $2.80 (the difference between the lower and higher strike minus the premium paid). Investors will incur a maximum loss of $2.20 (the debit paid) if UNP shares soar higher than $62.80 (the breakeven on this trade).

Roughly 10,000 March 75 puts and March 85 puts changed hands in the pharmacy benefit management (PBM) services company during midday trading. Around 10 a.m. EST, we saw a block of 3,200 of these put spreads cross the tape, and another hefty block traded around 12:30 p.m. EST. By 2:15 p.m. EST, more than 9,400 March 75 puts changed hands, while more than 10,000 March 85 puts hit the tape.

The put spread buyers bought the 85-strike puts and simultaneously sold the 75 puts. The lower-strike puts have gained 30 cents on the day to roughly 90 cents per contract with a 14-delta, which means the options are trading lower than the delta would suggest. Additionally, the 85-strike puts are currently trading up 97 cents to $3.15 per contract with a 40-delta (most of these options traded at the ask price, indicating buyers boosted volume in this series).

Investors paid a premium of roughly $2.25 per spread, which means the maximum risk on this trade is $2.25 while the maximum profit is $7.75 (the difference between the strike prices minus the premium paid). The breakeven on this trade is $82.75 (the long strike minus the premium paid). This trade turns a maximum profit if ESRX shares close below $75 at March options expiration.

The open interest of the March 75 puts is one contract, while the March 85 puts are home to 290 contracts, indicating investors traded these options to open.

ESRX shares saw a new 52-week high on Jan. 11 (the stock reached $90.23), and the stock is currently up more than 100% since its March lows. While investors should not run out and clear their ESRX shares, it’s interesting that at least one investor is calling for roughly 15% of downside throughout the next couple months.

For more on ESRX:

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At 11 a.m. EST, an investor sold a large block of March 26 puts for roughly 83 cents, and simultaneously sold the same number of March 33 calls to collect roughly $1.62 on each strangle sale. The out-of-the-money puts, currently up six cents on the day, are home to current open interest of 1,164 contracts, and the March 33 calls are currently unchanged and home to current open interest of zero contracts. More than 7,600 of each strike have changed hands so far on the day.

HGSI shares are currently down roughly 93 cents, or more than 3%, to $28.89. The investor who sold this strangle is betting that HGSI shares will close between $24.38 to the downside and $34.62 to the upside.

Maximum risk in a strangle sale is unlimited, while maximum gain is limited to the premium collected ($1.62 per strangle in this particular trade). It looks like at least one investor is willing to take on more risk, as the CBOE SPX Volatility Index (VIX) has closed below the 20 mark since Jan. 5.   The strangle seller is betting on a range in HGSI stock, and could lose money if the stock moves significantly in one direction or the other.

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The front-month February 27 puts have traded more than 5,200 times today, and the February 29 puts have crossed the tape more than 8,700 times thanks to at least one investor who bought this put spread. The investors bought the 29-strike puts for 43 cents and sold the 27-strike puts for roughly 11 cents, paying 32 cents per spread. The February 27 puts are home to current open interest of 2,600 contracts, while the February 29 puts are home to open interest of 9,900 contracts. The February 27 puts have dropped 16 cents on the day, and the February 29 puts are currently trading down 33 cents.

The investor who bought these put spread will make a maximum profit of $1.68 (the difference between the strike prices minus the net debit) per spread if the stock falls below $27, and will lose the debit of 32 cents if the stock climbs to $29 or higher. The debit paid is the maximum loss for this bear put spread strategy.

MS shares are currently trading up 72 cents, or 2.3% on the day, to $31.30.

The investor who bought the put spread is expressing a moderately bearish bet that MS shares could experience a 13% drop throughout the next month.

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