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E-Trade Financial Corp. Trader Opens Large Short-Call Position

Joseph Hargett (jhargett@sir-inc.com)

3/12/2010 3:41:42 PM

E-Trade Financial Corp. (ETFC) has seen option volume explode on the shares this afternoon. More than 54,000 contracts have changed hands on the security, outpacing the stock's daily average by a ratio of nearly seven to one. What's more, nearly all (99.7%) of this activity has traded on the call side, according to data from WhatsTrading.com.

The culprit for today's groundswell of call volume is ETFC's October 2 strike, which has seen 50,500 contracts trade on open interest of just 9,750 contracts. Digging deeper, we find that a block of 50,000 contracts traded on the October 2 call at about 2:28 p.m. Eastern time for the bid price of $0.18. Assuming these contracts were sold (to open), the trader pocketed a premium of $900,000, which he will retain as long as ETFC remains below $2 per share through October expiration.

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IMAX Corp. Puts Popular as Post-Earnings Rally Fades

Joseph Hargett (jhargett@sir-inc.com)

3/12/2010 2:46:40 PM

Put traders took a rather keen interest in IMAX Corp. (IMAX) yesterday. So much so, in fact, that the activity has landed IMAX in today's Daily Schaeffer's Open Interest Ratio (SOIR) Changes filter. Specifically, the stock's SOIR soared 35% overnight, from yesterday's reading of 0.41 to 0.56 today. More than 3,100 puts were added among options with less than three months until expiration on Thursday, while call open interest fell by 2,484 contracts.

As a result of the spike, IMAX's SOIR now rests in the 86th percentile of all such readings taken during the past year. In other words, options traders have been more pessimistic only 14% of the time. What's more, this preference for puts is reflected in data from the International Securities Exchange (ISE) and Chicago Board Options Exchange (CBOE). The stock's 10-day ISE/CBOE put/call volume ratio of 0.35 ranks above 79% of all those taken during the past year.

Technically speaking, IMAX has rallied sharply in the past several sessions, as investors react to a better-than-expected quarterly earnings report. However, the shares ran smack into long-term resistance at the 17 level, which is home to the stock's October 2000 high. Given the renewed interest in IMAX puts, options traders may be trying to fade the equity's earnings rally.

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Peer's Upbeat Outlook Drives Call Activity on Intrepid Potash, Inc. (IPI)

Andrea Kramer (akramer@sir-inc.com)

3/12/2010 2:06:08 PM

Intrepid Potash, Inc. (IPI) has been a popular target among call traders today, thanks to the halo lift provided by sector peer Potash Corp. of Saskatchewan's (POT) boosted first-quarter guidance. So far today, the equity has seen roughly 14,000 calls cross the tape � more than 11 times its expected single-session volume of fewer than 1,300 contracts.

The stock's out-of-the-money March 33 call has seen close to 2,800 contracts traded on open interest of fewer than 1,900 contracts, pointing to the addition of new positions. In similar fashion, the now-near-the-money March 32 call has seen about 2,500 contracts exchanged on open interest of fewer than 1,200 contracts. Plus, more than three-quarters of the front-month calls have traded closer to the ask price, signaling buy-to-open activity.

Prior to today, near-term option traders were actually skeptically skewed toward IPI. The stock's Schaeffer's put/call open interest ratio (SOIR) of 0.68 stands in the 60th percentile of its annual range, suggesting that short-term speculators are more bearishly biased than usual toward the fertilizer concern.

In afternoon trading, the shares of IPI have added more than 11.6% to linger in the $31.75 neighborhood.

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SandRidge Energy Inc. Investors Ramp Up Call Volume

Joseph Hargett (jhargett@sir-inc.com)

3/12/2010 2:02:34 PM

Despite a lack of headline news, SandRidge Energy Inc. (SD) has attracted a wealth of options activity today. Specifically, volume has swelled to more than 26,000 contracts, more than quintupling the stock's daily average of 5,044 contracts. Additionally, it would seem that the bulls are in charge of SD's options trading, as more than 84% of today's volume has traded on the call side, according to data from WhatsTrading.com.

The most popular call on the session is the April 9 strike, where nearly 9,000 contracts have changed hands on open interest of just 2,282 contracts, while another 9,000 contracts traded on SD's June 12 call.

A preference for calls is not new for SD options traders, according to data from the International Securities Exchange (ISE) and the Chicago Board Options Exchange (CBOE). Specifically, the stock's 10-day ISE/CBOE call/put volume ratio of 18.28 indicates that calls bought to open during the prior two weeks has outstripped puts purchased by more than 18 to one. This reading also ranks above all but 11% of those taken in the past year.

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Spread Strategist Centers on Alkermes, Inc. (ALKS) Ahead of FDA Decision

Andrea Kramer (akramer@sir-inc.com)

3/12/2010 12:53:15 PM

Option traders have bombarded pharmaceutical firm Alkermes, Inc. (ALKS) lately, as investors anxiously await a Food & Drug Administration (FDA) decision expected to hit the Street today. More specifically, the FDA is slated to give its two cents on a longer-acting version of diabetes drug Byetta LAR, which is a joint venture between ALKS and Eli Lilly (LLY).

By Thursday's closing bell, ALKS had seen roughly 7,800 puts change hands � more than seven times the expected volume � and about 18,000 calls cross the tape � more than 10 times its average daily volume. In that same vein, the equity has seen close to 800 puts and 12,000 calls exchanged so far today.

Digging deeper into the data, we find that one option trader is betting on more upside momentum for ALKS, but is hedging his bets in the event of an unexpected decline. Earlier today, the investor bought 500 April 12.50 calls for $1.41 apiece, and simultaneously sold an equal amount of April 15 calls for $0.51 each. As such, the strategist implemented a long call spread on ALKS for a net debit of $0.90 per pair of options.

By employing this spread, the trader is hoping the stock powers past breakeven at the $13.40 level (long call strike + net debit) by options expiration. Nevertheless, in the event of a decline, the investor's maximum risk is limited to the $0.90 paid to establish the trade.

At last check, ALKS has surrendered 2.5% to explore the $12.30 neighborhood.

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Commentary by WhatsTrading.com

Unusual Activity Roundup, Mar 12

3/12/2010 4:00:03 PM

Some less actively traded names seeing bullish order flow: Corinthian Colleges (COCO), Golden Star Resources (GSS), Zoltek (ZOLT) Bearish order flow: Brinker (EAT), Continental Resources (CLR), Williams Partners (WPZ) Post Earnings: Ann Taylor (ANN), National Semi (NSM), Aeropostale (ARO), ATP Oil and Gas (ATPG) Pre-Earnings: GTX Inc. (GTXI) Ex-div.: H-P (HPQ), Terra Industries (TRA), Methanex (MEOH)

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Citigroup Inc (C) $4.00 -4.43%

3/12/2010 3:20:01 PM

Citi (C) has seen heavy trading this week and, after a four-day 19.4 percent rally, shares are down 20 cents to $3.98, falling to session lows. Another 1.34 million calls and 565K puts traded on the bank today. The top two options trades so far today: 140K and 112K Jan $5 calls at the asking price of 36 cents on AMEX. The 112K were sold and might close an existing position. Open interest in the Citi Jan 5 calls is more than 1.8 million and by far the largest of any options contract. The high OI in the Jan 5s seems to reflect a view shared by some investors that the worst is over and shares will settle above $5 at the Jan 2011 expiration. However, C is down today and Oppenheimer notes that after the recent run-up, with 30 bln shares outstanding, Citi's market cap is now approaching its bigger competitors. The firm sees the stock as fairly valued.

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Intrepid Potash Inc (IPI) $31.64 +11.33%

3/12/2010 2:20:02 PM

Intrepid Potash (IPI) is seeing relative strength and active options trading on the heels of upbeat earnings guidance from Potash (POT) -- see POT 9:40 color. IPI is up $3.23 to $31.65 and options volume is 6X the recent average daily, with 14K calls and 3000 puts traded. The action is scattered across March and April calls with strike prices ranging from 29 to 35. Implied volatility is easing about 3 percent to 39.

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Alcoa Inc (AA) $13.68 +0.31%

3/12/2010 12:00:02 PM

Alcoa (AA) is up 4 cents to $13.68 and a block of 5986 April 12 puts at 18 cents on the ISE is an opening customer buyer, according to ISEE data. 12.2K now traded. Looks like some hedging activity. AA is due to release earnings April 12, according to the company's web site, and before the April expiration.

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Potash Corp (POT) $125.60 +7.41%

3/12/2010 10:20:03 AM

Potash (POT) is up $9.32 to $126.25 and POT options are seeing brisk trading after the company increased its first quarter earnigns guidance to $1.30 - $1.50 per share, from .70 to $1.00. 17K calls and 5660 puts traded on POT so far. The top trade looks like an April 100 - 125 strangle, bought at $7.83, 400X.

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Unusual Activity Roundup, March 11

3/11/2010 4:19:53 PM

Some less actively traded names seeing bullish order flow: Polycom (PLCM), Phillips Van Heusen (PVH), GMXR (also pre-earnings) Bearish order flow: Savvis (SVY), Intersil (ISIL), Varian Semi (VEA) Post Earnings: IMAX, Clean Energy Fuels (CLNE), ATP Oil and Gas (ATPG) Pre-Earnings: Ann Taylor (ANN), National Semi (NSM), Aeropostale (ARO) Ex-div.: Navios Maritime (NM), Burger King (BK), Mercury General (MCY)

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Cheesecake Factory Inc (CAKE) $26.66 +2.40%

3/11/2010 2:19:54 PM

Cheesecake Factory (CAKE) touched a new 52-week high and was recently up 60 cents to $26.63. Options volume is running 10X the average daily, with some unusual activity seen in July and October puts. A total of 20K puts traded, compared to 2290 call options. July 22.5s are the most actives. 7723 traded (89 percent ask). The top two trades were 607 and 594 contracts at 65 cents. July 20 puts are trading 92 percent on the bid and so some of today's flow might be spreads. July 25, 17.5, Oct 20, and Oct 17.5 puts are seeing interest as well, with volume exceeding open interest in all six contracts. No news today. CAKE was the subject of a downgrade Tuesday (MKM Partners to Neutral). Implied volatility is flat around 35 percent.

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Terra Industries (TRA) $46.88 -0.15%

3/11/2010 12:19:54 PM

Terra Industries (TRA) is off 10 cents to $46.85 and an investor pays 30 cents for the Mar 45 - 46 put spread, 15000X. It might roll a position up in strikes, but seems like a defensive play. CF Industries (CF) has started its exchange offer for TRA common stock at $37.15 in cash plus .0953 of a share of CF. CNBC's Faber said yesterday that Yara's Board of Directors is meeting today to see if they want to revise, perhaps top, CF's bid. They have 5 days to do so. The put spread is likely a short-term hedge should, for whatever reason, the buyout fall apart. March options come off the board at the end of next week.

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Citigroup Inc (C) $4.02 +1.53%

3/11/2010 10:59:56 AM

Interest in Citi (C) calls continues. 1.47 million traded in the name yesterday, creating 223,000 contracts in new open interest. Today, shares are up 6 cents to $4.02 and one player pays 10 cents for June 5 calls, 50000X. 240K calls and 66K puts traded in Citi during the first 30 minutes Thursday.

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Waters Corp. (WAT) $65.07 +0.0%

3/11/2010 10:19:55 AM

Waters Corp (WAT) was mentioned intraday Wednesday, with unusual call action and it continued throughout the day with shares closing near highs, up 1.6% while IV spiked 13% higher. More than 6,600 calls traded, which is 35X average, and comes after the recent takeover of Millipore has many thinking Waters could be next as a filtration play. The March 65/70 and April 70 calls attracted buyers, mostly offer side on the 100+ contract orders. Shares trade 15.4X earnings and 18.8X cash flow. The recent breakout has shares eyeing a move to 2008 highs around $70, although a takeover would likely fetch a 25% or more premium.

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More Options Commentaries and Observations by Schaeffer�s

Monday Morning Outlook: Dow Jones Industrial Average Bulls March Warily Upward

Ho-hum. But a good ho-hum. Stocks traded in a relatively tight range all week, but by week's end, all three major market indexes had recorded respectable gains. The Dow Jones Industrial Average surpassed the 10,600 mark, while the S&P 500 Index finished the week within a hair's breadth of 1,150. Looking ahead to next week, Todd Salamone, Senior Vice President of Research, examines the short-term bullish case, but sees technical obstacles, mainly an overbought market trading at chart resistance, and a short-term sentiment backdrop that is getting close to optimistic extremes. Next, Senior Quantitative Analyst Rocky White salutes the upcoming triple-witching expiration week, and examines market returns during those weeks dating back to 2006. You'll be interested in his findings. Finally, we wrap up with a look at some key economic and earnings reports slated for release this week.

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Market Recap: Stocks Finish Flat as Somber Sentiment Offsets Retail Report

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Call Volume Pops on Halozyme Therapeutics, Inc.

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Call Speculators Swarm Supervalu (SVU) on Leveraged Buyout Buzz

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