Marriott Call Options Active

Marriott International (MAR) - Hotelier Marriott is a little lower at $24.37 to start the week. Breaking through $25.25 has proved a tough-but to crack in the last month and as recently as last week shares slumped to $22.00. One trader appears to be banking on an economic recovery to power the share price higher in the medium-term. In the option market we saw two trades that appear to reveal the investor as a buyer of calls and seller of same-strike puts. The investor used the September 24 strike to write some 5,000 calls at 35 cents in exchange for buying 5,000 calls at 80 cents. He same pattern emerged using the same 24 strike in the January series where the position was increased to some 9,000 contracts. In this case the net cost was around 45 cents, which significantly reduces the cost at which the investor breaks even. Option implied volatility appears to be around 12% higher on Marriott’s options today at 56%.

Caterpillar Inc. (CAT) - There was heavy call option activity in the heavy-equipment manufacturer this morning. With prospects of a trade war looming that might harm global trade, it’s all too easy to justify a decline at Caterpillar to $48.48, but its shares are hardly changed. But the 25,000 lots going through in 50 strike call options expiring at the weekend is harder to figure out. Much of the options activity appears to be led by buyers who chased premiums up to 60 cents from Friday’s close at 46 per contract. However, early challenges for the broader market saw the calls open at 25 cents before a recovery in its share price saw buyers double the premium commanded by rights to lock into the stock some 3% higher than they are currently.

Sprint Nextel Corp. (S) - Shares of the third-largest mobile-phone operator in the U.S. have surged more than 10.5% during the trading session to $4.17 following reports that Deutsche Telekom AG may consider purchasing the company. Option traders celebrated the upward move in the stock by taking bullish positions. The November 8.0 strike attracted one investor who purchased 10,000 calls for a nickel per contract. Shares of Sprint would need to explode 93% higher by expiration in order for the trader to breakeven at a price of $8.05. However, it is possible the call-buyer plans to sell the contracts ahead of expiration. He would realize profits on the trade as long as he sells the calls for more than the 5-penny purchase price paid today. Additional bullishness was displayed in the February contract through the use of a risk reversal strategy. The investor looked to the February 3.0 strike to sell 5,000 puts for 25 cents apiece, which he spread against the purchase of 5,000 calls at the February 6.0 strike for 25 cents per contract. The trader essentially put on the transaction for free although the naked put transaction means losses are possible below the strike price. Profits are available to this individual if shares rise 44% and surpass the breakeven point at $6.00 by expiration next year.

Motorola, Inc. (MOT) - Different options strategies employed using the same strike prices in the April 2010 contract caught our eye on Motorola this morning amid a more than 1.5% rally in the stock to $8.82. Perhaps the bullish positioning we observed stems from the upgrade MOT received to ‘buy’ from ‘neutral’ at UBS AG today. Analysts at UBS also shifted their target price on the stock up to $11.50 from $7.50. One tactic of note was the use of large-volume bullish risk reversal. The investor responsible for the reversal chose to sell about 12,000 puts at the April 7.0 strike for an average premium of 53 cents each in order to finance the purchase of 12,000 calls at the higher April 10 strike for 85 cents apiece. The net cost of the transaction amounts to 32 cents and positions the investor to profit above the breakeven point at $10.32 by expiration. It appears that this trader is hoping UBS’s share price prediction becomes a reality by April of 2010. In contrast, another investor initiated a sold strangle using the same strikes. This indicates that while he is still bullish on the stock, he does not expect shares to break out of the price parameters defined by the strangle. The investor shed 2,000 puts at both the April 7.0 and 10 strikes for a gross premium of 1.42 per contract. He will retain the full premium received as long as shares remain ‘strangled’ by the strike prices described. The trader is vulnerable to losses only in the event that shares move beyond the breakeven point to the upside at $11.42, or beneath the lower breakeven price of $5.58, by expiration.

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