Tuesday Options Brief: CAT, EBAY, IYT & RIG

Andrew Wilkinson submits: Caterpillar, Inc. (CAT) – Caterpillar call options are in high demand this afternoon with shares of the machinery maker rising nearly 3.00% during the first half of the session to hit an intraday- and new all-time high of $96.35. Shares are currently up 2.5% to stand at $95.92 as of 12:45pm in New York. Investors are buying in- and out-of-the-money calls on CAT, purchased just fewer than 3,000 in-the-money contracts at the January $95 strike for an average premium of $1.27 each. Bulls hoping to see the stock breach $100.00 by February expiration picked up roughly 2,000 calls up at the February $100 strike for an average premium of $1.30 a-pop. Call buyers at this strike are prepared to profit should CAT’s shares rally 5.6% over the current price of $95.92 to surpass the average breakeven point on the upside at $101.30 before the contracts expire next month. Options expiring in February will have plenty of life left in them when Caterpillar reports fourth-quarter earnings before the market opens on January 27, 2011. Longer-term optimists looked to the May $110 strike to buy some 1,180 calls at an average premium of $1.26 apiece. Investors holding these contracts will break even on the trade if Caterpillar’s shares soar 16.0% higher to trade above the average breakeven price of $111.26 by expiration day in May. Options implied volatility on the manufacturer of excavators and backhoes is up 10.2% to arrive at 28.25% as of 12:55pm. eBay, Inc. (EBAY) – Put options on the operator of online marketplaces continue to garner investor interest yet again this morning with eBay’s fourth-quarter earnings report close at hand. Shares in eBay, Inc. are currently up 0.65% to stand at $29.37 just before 12:15pm. One pessimistic player picked up 15,000 puts at the July $26 strike for a premium of $1.32 apiece today. Last week a total of 35,000 puts were purchased at the same strike for an average premium of $1.58 per contract. Put buyers attacking the July $26 strike appear to be initiating outright bearish bets on the stock, but it is also possible that they are picking up the contracts to hedge a long position in the underlying shares. The investor buying the chunk of 15,000 lots today is prepared to make money should shares in EBAY plunge 16.0% from the current price of $29.37 to breach the effective breakeven point on the downside at $24.68 ahead of July expiration. eBay’s shares last traded below $24.68 back on October 20, 2010. The online-commerce company reports fourth-quarter earnings after the market closes on Wednesday. Complete Story »