Leaving Las Vegas, Playing Priceline's Pep

19.02.2010, Priceline predicts even better times ahead and bulls take positions. The mood is more dour down on the Strip.

JPM & XLP

Priceline.com ( PCLN - news - people ):The online travel agency's shares surged nearly 10.5% during the session to a nearly 10-year high of $235.10 after the firm increased its first-quarter profit forecast to a range of $1.54 to $1.64 per share, which beats average analyst expectations of $1.40 a share. Optimistic options traders delighted by the news established bullish positions. Investors sold roughly 1,400 put options at the February $230 strike for an average premium of $2.08 apiece. Put-sellers keep the premium if Priceline's shares trade above $230.00 through expiration tomorrow. The higher February $240 strike attracted plain-vanilla call buyers who picked up roughly 3,000 calls for an average premium of $0.88 each. Shares must rally another 2.45% from an intraday high of $235.10 before call-buyers break even at $240.88. Traders exchanged more than 45,000 contracts on Priceline.com during the first half of the trading session. Options-implied volatility contracted 30%, down to 34.8% as of 12:55 p.m. (EDT).

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MGM Mirage ( MGM - news - people ):The Las Vegas Strip's largest casino owner posted a wider than expected fourth-quarter loss of $0.25 per share, which underwhelmed analysts anticipating an average loss of just $0.14 a share. Mirage's shares fell nearly 7% Thursday to $10.85 following the earnings disappointment. One options investor, who does not expect MGM's luck to change anytime soon, established a medium-term bearish trade on MGM to position for continued downward movement in the price of the underlying stock through June expiration. The trader purchased 2,000 puts at the now in-the-money June $11 strike for a premium of $1.68 apiece, and sold 2,000 puts at the lower June $8 strike for $0.52 each. The net cost of the debit put spread amounts to $1.16 per contract. Maximum available profits of $1.84 per contract accumulate for the pessimistic investor if the casino operator's share price slumps another 26.25% lower to $8 by expiration day.

Green Mountain Coffee Roasters is up almost 400% from Jim Oberweis' recommendation. Click here for instant access to brand new buys and sells for February in the Oberweis Report. Abercrombie & Fitch ( ANF - news - people ): Short straddle plays initiated on clothing company Abercrombie & Fitch suggest investors expect ANF-shares to remain range-bound and anticipate lower volatility in the price of the underlying stock through March expiration. Shares of the teen and tween haven for micromini jean skirts and predestroyed T-shirts rallied 1% to $35.72 Thursday. However, straddle-sellers apparently foresee little movement for shares in either direction from the current value.

Investors sold approximately 6,600 puts at the March $35 strike for an average premium of $1.44 apiece in combination with the sale of 6,600 calls at the same strike for $1.46 each. The average gross premium pocketed on the transaction amounts to $2.90 per contract. Traders retain the full premium received Thursday if Abercrombie's shares settle at $35.00 at expiration. Investors are vulnerable to losses, however, in the event that shares trade outside of the effective break-even points. Losses accumulate should shares rally above the upper break-even price of $37.90, or if the stock falls below the lower break-even point at $32.10, ahead of expiration day in March.

JPMorgan Chase ( JPM - news - people ):A large-volume ratio call spread enacted on banking institution JPMorgan Chase indicates one big options player expects shares of the underlying stock to rally significantly by June expiration. The firm received an upgrade to buy from hold with a 12-month target share price of $49 at Sandler O'Neill as JPMorgan shares added 0.50% to stand at $40.22 by midday on the East Coast. The optimistic investor responsible for the ratio spread transaction purchased 20,000 calls at the June $42 strike for a premium of $2.09 apiece and sold 40,000 calls at the higher June $47 strike for $0.67 each. The trader paid a net premium of $0.75 per contract, but stands to accrue maximum potential profits of $4.25 per contract if JPMorgan's shares surge 16.85% from the current day's price to $47 by expiration day in June. Shares must increase at least 6.30% before the trader breaks even on the transaction at $42.75. We note that shares traded as high as $47.47 back on Oct. 14, 2009.

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