Schaeffer's Options Center

Riverbed shares are up 30c to $36.60, and touched a new 52-week high of $37.28 Thursday. Option volume is running 5x the daily average in what looks very similar to action seen Wednesday, when an investor was apparently selling Jan 41 calls at $2.80 to buy the Jan 31 - 36 put spread at $2.20, 3000X total. Today, the, Jan. $31/$36 put spread has traded 3,600x in what looks like a purchase at $2.05. Meanwhile, Jan 41 calls traded on the $3 bid, 3600X. Another block of 3400 Sep 40 calls also traded, at the $1.20 ask, and this might be an offsetting trade. In the end, it looks like this strategist is accumulating a bearish position -- selling Jan 41 calls and buying the Jan 31 - 36 put spread -- over the past two days. Co. reported earnings last week.

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Genzyme (GENZ) is up $2.25 to $70.25 after the Wall Street Journal reported late yesterday that Sanofi (SNY) is "increasingly likely" to take a formal buyout offer to Genzyme's board. Then, CNBC reported this morning that SNY is likely to send a "bear hug" letter to Genzyme in the next 72 hours. Active trading continues in GENZ options. One player bought 5000 January 75 calls at $2.35 and sold 2,500 Aug 75 calls at 45 cents, possibly rolling a position and looking for an offer substantially greater than $75 per share. However, today's top trades also include an August 67.5 - Jan 65 put spread, apparently bought at $2.10, 4000X, which might be a hedge should any deal talk fall apart after the August expiration. Lazard downgraded GENZ shares to Hold from Buy this morning. Implied volatility is down 25 percent to 30.

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With Kellogg earnings not so Grrrreat! shares opened at $49.54, a $2 gap down from Wednesday's close. Early option flow is concentrated in the Aug 50 puts, with 8000 contracts trading in the first 10 mins of the day, and the largest block trading at 1.10 on the ISE with shares near $50.10. Yesterday afternoon we noted buyers paying 50-55cents for this contract, and today's volume appears to be closing that short term bet for a gain.

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Shares of Rubicon, a maker of LED parts and products, are off $1.70 to 430.10 and option volume is 6x the daily average as the March $30 calls trade 1,538 and the March $40 calls trade 3,130 contracts in an opening ratio spread. The 30s were bought at $6.30 and 40s sold at $2.50. Looks like a bullish 1x2 spread ahead of earnings. The company is set to report on August 5.

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A massive trade in Microsoft calls printed on the ISE this afternoon, totalling nearly 180,000 contracts, versus a hedge 700,000 shares at $26.11. Data indicates a customer bought 128960 September 28 calls to open, for an avg price near 24cents, and sold nearly 50,000 Jan-12 30 calls to open at an avg price near $1.975. Net options premium is about $6.7million collected on the trade, and while initially delta neutral, the trade is very long gamma and profitable if shares sell off sharply, or rally beyond the $29 level. Theta on the trade is nearly $54k/day and it may be related to the 190,000 contract spread that traded yesterday in MSFT (in that case, paper bought Sep 17th 27.5 calls against a sale of Oct 27s.)

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Symantec shares are off 10c to $14.90 and notable volume in the Sep. $16 calls as a block of 18,500 (now a total of 25,000) have traded at the 35 ask price most likely tied to stock. The computer software company is set to report earnings after the close.

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Patriot Coal (PCX) shares lost 9.3 percent, to $12.40, post-earnings yesterday and a noteworthy trade surfaced late when a strategist apparently bought the Jan 11 - 20 call spread at $2.61, 6950X. Open interest indicate new positions in both legs and therefore a spread that makes its best profits if shares rally 61.3 percent through the January 2011 expiration. Shares are down another 24 cents to $12.16 this morning after BMO Capital cut PCX to Market Perform from OutPerform.

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Genzyme (GENZ) has given up early gains and is down a dime to $67.28 late Tuesday, but is up more than 25 percent since last week's news that Sanofi Aventis (SNY) might make a bid for the company. Options are actively traded again today. This morning, for example, a bearish three-way spread surfaced when a strategist sold 7000 October 75 calls at $1.60 to buy 7000 Jan 50 - 65 put spreads at $3.70. The spread, which looks like a new position, has been repeated more than once and volume in the Jan 50 - 65 put spread is approaching 10000. The action might be hedging activity by shareholders to protect recent gains in GENZ shares. Reuters reports today that Genzyme is considering SNY's informal takeover request, but isn't actively attempting to sell the company.

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A number of new 'weekly' options will be listed this Thursday, with expiration at the close Friday Aug 6: new names include GE, CSCO, PFE (earnings 8/3), RIG (earnings 8/4) and DNDN will be listed. Today's volume in weeklys just passed 300K contracts, with 1/3 of that in SPY, and single stock leaders AAPL, BP, and AMZN.

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Large blocks of out-of-the-money Pfizer (PFE) calls have traded in recent action. Shares are up 21 cents to $15.23 and it includes: 50K Dec 18 calls at 15 cents, 50K Dec 17 calls at 30 cents, 50K Sep 17 calls at 10 cents, 50K Aug 16 calls at 11 cents, and 30K Dec 16 calls at 58 cents. Sources tell us this is a brokerage firm crossing blocks for account swaps, Not a spread or directional play on the pharmaceutical maker.

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