Friday Options Brief: FIG, CYD, CROX & NUAN

Andrew Wilkinson submits: Fortress Investment Group, LLC (FIG) – The asset management firm popped up on our ‘hot by options volume’ market scanner in the first half of the trading session after one investor enacted a large-volume bullish transaction in the January 2012 contract. FIG’s shares rallied nearly 1.5% to $4.15 just before 12:25 pm ET. The trader appears to have essentially financed the purchase of in-the-money calls by selling a straddle. It looks like the investor purchased 12,300 deep in-the-money calls at the January 2012 $2.5 strike at a premium of $2.20 each, sold 12,300 calls at the higher January 2012 $5.0 strike for a premium of $0.75 apiece, and shed 12,300 in-the-money puts at the January 2012 $5.0 strike for a premium of $1.50 each. The spread yields a net credit of $0.05 per contract to the investor. The trade positions the responsible party to amass maximum potential profits of $2.55 per contract – including the net credit of $0.05 received on the transaction – as long as Fortress Investment Group’s shares rally 20.5% over the current price of $4.15 to exceed $5.00 by expiration day in 2012. China Yuchai International, Ltd. (CYD) – A three-legged bearish options combination play on the holding company with a controlling interest in Yuchai, a Chinese diesel engine manufacturer, indicates one strategist is bracing for share price erosion through September expiration. The price of the underlying stock slipped 0.45% to $18.74 by 12:00 pm ET. It looks like the investor responsible for the transaction sold 6,350 calls at the September $20 strike at a premium of $0.60 each, purchased the same number of puts at the September $17.5 strike for a premium of $0.85 apiece, and sold 6,350 puts at the lower September $15 strike at a premium of $0.15 a-pop. The net cost of buying the combo trade amounts to $0.10 per contract. Thus, the investor is prepared to either make money or protect the value of a position in the underlying shares, should he hold one, if CYD’s shares fall another 7.15% from the current price of $18.74 to breach the effective breakeven point at $17.40 by September expiration. If this transaction represents an outright bearish bet rather than a protective play the trader is prepared to amass maximum potential profits of $2.40 per contract as long as shares plunge 19.95% to trade below $15.00 by expiration day next month. The short position in calls exposes the trader to potentially unlimited losses, assuming no offsetting long stock position is held, if CYD’s shares fly upward. Losses in this scenario start to accumulate if shares exceed $20.00 ahead of expiration day. Complete Story »