Options Update: Intel Corp. (INTC), Giant Interactive Group, Inc. (GA) & iShares MSCI Brazil Index ETF (EWZ)

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Contrarian Players Keep An Eye On The Upside At Intel

INTC ñ Intel Corp.
Investors populating the March contract on chipmaker, Intel Corp., expect shares to rebound by expiration. Shares are trading slightly lower by 0.10% to $21.03 with about one hour remaining before the closing bell. Bullish traders utilized a couple of different option strategies.

Some investors sold 2,400 puts at the March $20 strike to receive an average premium of $0.45 per contract. Put-sellers keep the $0.45 premium if Intelís shares trading above $20.00 through expiration. The short sale of puts suggests investors are happy to have shares of the underlying put to them at an effective price of $19.55, should the contracts land in-the-money.

Additional bullish action took place at the higher March $22 strike where 20,400 calls were purchased for an average premium of $0.36 apiece. Investors long the calls begin to accumulate profits to the upside if shares of INTC rally 6.3% over the current price to surpass the breakeven point at $22.36 by expiration day in March.

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GA ñ Giant Interactive Group, Inc.
Online game development company, Giant Interactive, attracted significant option volume in late afternoon trading today. Options traded on the stock amassed to 52,350 contracts by 3:00 pm (EDT), which is more than twice that of existing open interest on GA of 25,314 lots. Shares are trading flat at $7.48 with one hour remaining in the session. While some investors are putting on risk reversals, it looks like the bulk of the trading volume represents short straddle plays.

Short-straddlers sold the bulk of some 30,000 calls exchanged at the July $7.5 strike for an average premium of $0.51 apiece, and shed the majority of the 26,000 puts traded at the same strike for roughly $0.62 each. Investors selling the straddles receive an average gross premium of $1.13 per contract, and keep the full premium if shares settle at $7.50 by expiration. Shares are a scant two pennies off the central strike price of $7.50.

Traders employing the short straddle strategy also benefit from declines in option implied volatility because of the downward pull such shifts in volatility have on put and call premium. Investors may profit ahead of expiration if they buy back the short straddles for less than they received on todayís sale. Option implied volatility is lower by about 3.5% to 24.44%.

 

EWZ ñ iShares MSCI Brazil Index ETF
A massive bearish butterfly put spread unfurled its wings on the EWZ fund. Shares of the Brazil exchange-traded fund, which mirrors the performance of publicly traded securities in the Brazilian market (as measured by the MSCI Brazil index), fell 3.25% this afternoon to $72.20. The butterfly spread suggests at least one trader is expecting a serious pullback in shares of the fund by expiration in March.

The pessimistic trader purchased 20,000 puts at the March $70 strike for an average premium of $2.93 each [wing 1], and bought another 20,000 puts at the lower March $50 strike for about $0.17 apiece [wing 2]. The body of the butterfly, located at the central March $60 strike, is comprised of 40,000 puts purchased for a premium of $0.70 each. The net cost of the massive play, which is also the maximum loss potential faced by the trader, amounts to $1.70 per contract.

Perhaps the investor responsible for the butterfly is long an equivalent number of shares of the underlying stock. Assuming this to be true, the spread serves as an insurance policy on the underlying position in case EWZ-shares decline beneath the upper breakeven price of $68.30 by expiration. The investor is protected should shares decline to $60.00 in the next couple of months. Option implied volatility is up sharply by 14.70% over Tuesdayís closing reading of 27.27% to todayís intraday high of 31.28%.

 
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Note: The material presented in this commentary is provided forinformational purposes only and is based upon information that isconsidered to be reliable. However, neither Interactive Brokers LLC norits affiliates warrant its completeness, accuracy or adequacy and itshould not be relied upon as such. Neither IB nor its affiliates areresponsible for any errors or omissions or for results obtained fromthe use of this information. Past performance is not necessarilyindicative of future results.

This material is not intended as an offer or solicitation for thepurchase or sale of any security or other financial instrument.Securities or other financial instruments mentioned in this materialare not suitable for all investors. Any opinions expressed herein aregiven in good faith, are subject to change without notice, and are onlycorrect as of the stated date of their issue. The information containedherein does not constitute advice on the tax consequences of making anyparticular investment decision. This material does not take intoaccount your particular investment objectives, financial situations orneeds and is not intended as a recommendation to you of any particularsecurities, financial instruments or strategies. Before investing, youshould consider whether it is suitable for your particularcircumstances and, as necessary, seek professional advice.



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