RehabCare Group, Inc. (RHB) – The implementation of a three-legged bullish options combination strategy on the provider of program management services for inpatient rehabilitation and skilled nursing units, outpatient therapy programs and other long-term care facilities in the U.S. indicates one investor is positioning for a rebound in the price of RehabCare’s shares by December expiration. RHB’s shares took a severe beating recently after The Centers for Medicare & Medicaid Services issued proposed rules late on Friday June 25 that would reduce rehab therapy rates by 12%. RehabCare’s shares plunged 22.8% from Monday’s high of $26.75 to yesterday’s low of $20.65 on news the proposed rules could result in a $17 to $18 million annual impact on operating earnings in RHB’s Skilled Nursing Rehabilitation Services division. However, shares of the underlying stock rebounded slightly in the first half of the current session, rising 0.90% to $20.88 by 11:30 am (ET), after earlier rallying 2.5% to briefly touch an intraday high of $21.21. One investor expecting the firm’s shares to continue to strengthen over the next six months essentially sold short put options in order to offset the cost of buying a debit call spread in the December contract. The bullish player purchased 2,500 calls at the December $22.5 strike for a premium of $2.40 each, sold 2,500 calls at the higher December $25 strike for a premium of $1.40 apiece, and sold 2,500 puts at the December $17.5 strike for a premium of $1.50 a-pop. The three-legged spread yields a net credit of $0.50 per contract, which the investor keeps in full if RHB’s shares exceed $17.50 through December expiration day. Additional profits are attainable should the price of the underlying stock rally 7.75% over the current price of $20.88 to surpass the effective breakeven point on the call spread at $22.50 by expiration. The investor walks away with maximum potential profits – including the credit received today – of $3.00 per contract if RehabCare’s shares jump 19.7% to trade above $25.00 ahead of expiration day in December. The short stance taken in December $17.5 strike puts implies the options player is willing to have shares of the underlying stock put to him at an effective price of $17.00 apiece should the puts land in-the-money at expiration.
Genzyme Corp. (GENZ) – Shares of the global biotechnology company rallied as much as 9.3% this morning to an intraday high of $54.49 on reports Sanofi-Aventis SA, France’s largest drugmaker, is getting ready to initiate a major $20 billion acquisition in the United States. Genzyme’s shares tapered off slightly by midday and currently stand 5.2% higher on the day at $52.41 as of 11:40 am (ET). Other biotech and pharmaceutical companies, such as Allergan Inc. and Biogen Idec Inc., experienced sharp upward shifts in share price as well as in options implied volatility following the news. Investors hoping Genzyme, the largest maker of drugs for rare genetic diseases, is the acquisition target purchased out-of-the-money call options on the stock. Call buyers are betting Genzyme’s shares will shoot higher if the firm turns out to be the apple of the French drugmaker’s eye. Traders picked up approximately 1,400 calls at the August $55 strike for an average premium of $1.59 apiece. Investors long the August $55 strike calls make money if Genzyme’s shares rally 8.00% over the current price of $52.41 to trade above the average breakeven price of $56.59 by August expiration day. Bulls also purchased 1,100 calls at the August $60 strike for an average premium of $0.63 per contract. Profits are available to August $60 strike call coveters if the biotechnology firm’s shares jump 15.7% to exceed $60.63 by expiration. Finally, options investors paid an average of $0.44 per contract to take hold of 1,200 calls at the higher August $62.5 strike. Individuals long the higher-strike calls profit if GENZ share price surges 20% over the current price of $52.41 to trade above the average breakeven point at $62.94 ahead of expiration day in August. The surge in demand for Genzyme’s call options coupled with uncertainty regarding which company will be acquired sent the overall reading of options implied volatility on the stock up 27.1% to 41.16% as of 11:55 am (ET).
Marvell Technology Group Ltd. (MRVL) – Options traders are augmenting bearish stances on the provider of semiconductors today with shares of the underlying stock down 2.50% to $15.89 just before 12:00 pm (ET). Selling in- and out-of-the-money call options on Marvell Technology Group has been a popular pastime for some pessimistic players recently and today is no exception. Investors sold at least 2,700 calls at the August $17 strike for a premium of $0.66 apiece, and shed 2,100 calls at the lower August $16 strike for an average premium of $1.13 each. Call sellers at these strikes keep the premium received on the transaction as long as shares fail to rebound above the strike prices described through August expiration. Options traders expecting Marvell’s shares to continue to decline sold at least 3,300 in-the-money calls at the August $15 strike to pocket an average premium of $1.74 each. In-the-money call sellers walk away with the full premium received if shares of the semiconductor company decline another 5.6% to trade beneath $15.00 through expiration day in August.
Sketchers USA, Inc. (SKX) – Bullish options investors are engaging in plain-vanilla call buying on the maker of contemporary footwear this morning with shares of the underlying stock up 1.2% to $37.08 as of 11:10 am (ET). Earlier in the session Sketchers’ shares rallied 3.25% to secure an intraday high of $37.83. Traders anticipating continued appreciation in the price of the shoe maker’s shares picked up approximately 1,900 calls at the August $40 strike for an average premium of $2.20 apiece. Call buyers make money if Sketchers’ shares surge 13.8% over the current price of $37.08 to surpass the average breakeven price of $42.20 by expiration day in August. SKX shares traded above the effective breakeven price of $42.20 as recently as June 22, 2010.
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