STOCKS NEWS US-BofA, Citi attract big option trades

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1545 ET 8Sept2010
BofA and Citi draw big option trades

A big block of calls traded in Bank of America on Wednesday morning, analysts said. Shares are up 26 cents to $13.46. In the options arena, one investor bought a block of 100,000 September $14 calls at 10 cents each. 'It seems like a bold trade because these calls are 4 percent out-of-the-money and expire at the end of next week,' said Joe Cusick, senior market analyst at optionsXpress. If the stock does not move up, the strategist is at risk of losing the entire investment, or $1 million, Cusick added. Meanwhile, big prints occurred in Citigroup. Its shares rose 3 cents to $3.86 in late afternoon trade. During the session, one strategist sold the December $4 Citi straddle at 59 cents. which traded 50,000 times, said WhatsTrading.com options strategist Frederic Ruffy. It looks like a bet that shares will drift toward
$4 through December expiration, but it might be a closing position, he said. Implied volatility in Citi was flat at 36.5 percent, compared to a 52-week high and low of about 76 percent and 30 percent, respectively, Ruffy added.

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1508 ET 8Sept2010
Goldman advises buy Best Buy straddles ahead of earnings

Buy September $34 straddles in Best Buy Co Inc to hedge downside and accentuate upside through Sept. 14 earnings, wrote Goldman Sachs derivative strategists in a note. 'Options are inexpensive ahead of what could be an unusually volatile earnings report for Best Buy shares,' they said. Goldman downgraded the stock to neutral on Aug. 10 due to concerns about Best Buy's ability to meet revenue expectations. 'Subdued consumer electronics units sales, price declines and recent negative notebook datapoints from Intel, Dell and Hewlett-Packard comments may foreshadow higher-than-normal earnings volatility,' Goldman said. 'Options are inexpensive and unlikely to decay ahead of earnings.' The straddles cost $2.10 with shares at $33.69. Given that shares have a median move of 6 percent on earnings day and shares have traded in a 13 percent range over the past month, Goldman sees a high probability that buying the straddles is a profitable strategy over the next two weeks. The strategists said straddle buyers have the potential to benefit from a large macro or micro driven move in the interim. Straddle buyers risk losing the entire premium paid.

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1438 ET 8Sept2010
Goldman Sachs suggests buy Mylan calls

Buy Mylan Inc call options to gain upside ahead of October third-quarter earnings, wrote Goldman Sachs equity derivative strategists in a report. Goldman rates Mylan a Buy and sees a back half earnings acceleration with increased visibility into longer-term earnings growth. Next week's Global Generic Strategy Summit in Europe may increase visibility into European trends toward generics, the note said. 'Mylan has underperformed the S&P 500 Healthcare sector by 7.5 percent over last three months and our analyst sees more than 50 percent upside to his 12-month price target,' the options team said. The options are inexpensive, notably calls. Goldman recommends buying January $19 MYL calls for 71 cents. With shares at $17.65, this trade profits if shares are up more than 3 percent from current levels between now and earnings due the end of October. The stock has a median earnings day move of plus/minus 3 percent on previous eight quarters' earnings day alone. 'If shares were to reach our analyst's price target of $26 by mid-January, we estimate January $19 calls could return 900 percent,' they said.

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1409 ET 8Sept2010
Bulls line up for Micron Tech call options

Bullish flow was detected in Micron Technology, with 28,216 calls traded late in the session, or double the recent average daily call volume in the name, said WhatsTrading.com option strategist Frederic Ruffy. Micron shares fell 3.05 percent to $6.54. The top trade is a block of 17,500 April $9 calls at 42 cents per contract on the International Securities Exchange, which is an opening buyer, according to ISEE data. 'In fact, data shows that 25,000 calls have been bought to open on the chipmaker so far today,' Ruffy said. He noted the April $9 strikes are the most actives, with 25,042 contracts traded. The stock's option implied volatility rose 4 percent to 55 percent. The shares are down about 42 percent since April 14 and Wednesday's call buyers might be anticipating a recovery over the next two quarters, Ruffy said.

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1405 ET 8Sept2010
Fed report shows widespread signs growth easing

The U.S. Federal Reserve observed 'widespread signs' that economic growth had eased in the six weeks through the end of August, it said on Wednesday in a report suggesting the recovery was faltering along the East Coast and the Midwest.

The Fed said in its Beige Book compilation of anecdotal reports that modest growth continued in the five western districts: St. Louis, Minneapolis, Kansas City, Dallas, and San Francisco. At the same time growth was mixed or had slowed in five other areas: New York, Philadelphia, Richmond, Atlanta, and Chicago.

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1218 ET 8Sept2010
CBS call options grab investors' interest

CBS Corp is seeing unusual option activity this morning with investors buying the October $16 calls, said Patrick Mortimer, director of options trading at Pipeline Trading Systems. About 6,600 contracts have already traded, with almost all being new positions. These purchases have helped push total CBS option activity to 3.5 times its average daily volume. These 34 delta options have seen a 4 percent rise in implied volatility and begin to show a profit if CBS's share price can rise 9.6 percent over the next 5-1/2 weeks, he said. CBS shares rose 1.49 percent to $14.91 in early afternoon trade. Looking at a six-month chart of CBS, 'we see that its shares are nearing a short-term resistance point of $15.20,' Mortimer said. These new investors are hoping for a breakout through this technical level, thereby setting up a new bullish trend and pushing its shares above the $16 price level. Also of interest is the convergence of the three moving averages (10-, 50- and 200-day). 'We have noticed in the past that this can be a signal for increased price movement in the near future,' he added.

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