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Traders dialed in to Research in Motion calls as shares extend gains

Traders dialed in to Research in Motion calls as shares extend gainsResearch In Motion Limited (NASDAQ:RIMM) – Upside call buying in Blackberry maker, Research In Motion, could result in quick overnight profits for some traders as long as shares in the name extend gains through the end of the trading week. Shares in RIMM are up 9% this morning to stand at $8.65 as of 11:55 a.m. in New York, adding to Wednesday’s more than 4.5% gain in the stock, sparked by reports that wireless carriers have started lab-testing the company’s Blackberry 10 phones. Options traders who purchased weekly calls on Research In Motion yesterday have in some cases seen the value of bullish positions rise markedly since the prior session. For example, buyers of around 1,600 Nov. 02 ’12 $8.5 strike calls on Wednesday for roughly $0.01 per contract now find these options changing hands at $0.18 apiece. Traders appear to be bulking up on the $8.5 strike weekly calls, purchasing another 2,300 contracts in morning trading on Thursday. Bulls also snapped up 2,300 calls at the higher Nov. 02 ’12 $9.0 strike for an average premium of $0.02 each. Continued gains in shares of the wireless company ahead of the weekend may result in substantial gains on positions established today. Not all trading traffic in weekly options with one full trading session remaining to expiration is bullish. Buyers of around 2,400 puts at the Nov. 02 ’12 $8.5 strike for an average premium of $0.13 apiece, and some 4,000 of the Nov. 02 ’12 $8.0 strike put options at $0.05 each, may profit at expiration if RIMM’s shares return some of the week’s gains tomorrow.

Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX) – Shares in drug maker, Vertex Pharmaceuticals, Inc., are soaring today, up better than 7% at $51.72 in early-afternoon trade, on news the biotechnology company agreed to test one of its experimental hepatitis C drugs with therapies from Johnson & Johnson and GlaxoSmithKline. Cambridge, Mass.-based Vertex is scheduled to report third-quarter earnings after the closing bell tonight. Options activity on VRTX this morning indicates one trader is preparing for shares in the name to near its highest level of the past 52-weeks in the months ahead. It looks like the trader purchased a roughly 2,500-lot Jan. 2013 $60/$65 call spread for an average net premium of $0.85 per contract. The position starts making money if Vertex shares surge 18% to trade above the average breakeven price of $60.85. Maximum potential profits of $4.15 per contract are available on the bull call spread should shares jump more than 25% to top $65.00 by January 2013 expiration. The shares last traded above $65.00 back on May 15th.

Barrick Gold Corporation (NYSE:ABX) – Options contracts that are among the most actively traded on gold mining company, Barrick Gold Corp., this morning suggest some traders expect shares in the name may avoid additional declines from the current level in the near term and could potentially rebound sharply by year end. Shares in the world’s largest gold producer are down more than 8.7% today at $36.96 as of 11:30 a.m. ET after the company reported third-quarter net income and revenue that missed consensus estimates. Traders expecting the price of the underlying to exceed $35.00 through November expiration sold the majority of the more than 6,500 puts in play at the $35 strike in the early going for an average premium of $0.20 apiece. Put sellers keep the full amount of premium at expiration in two weeks as long as shares settle above $35.00. Meanwhile, options strategists looking for shares in ABX to rebound picked up more than 3,000 calls at the Dec. $40 strike at an average premium of $0.69 per contract. Traders long the calls profit at December expiration if Barrick Gold Corp.’s shares jump 10% during the next seven weeks to top $40.69.

Caitlin Duffy

Equity Options Analyst

The material presented in this commentary is provided for informational purposes only and is based upon information that is considered to be reliable. However, neither Interactive Brokers LLC nor its affiliates warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither IB nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance is not necessarily indicative of future results.

This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities or other financial instruments mentioned in this material are not suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only correct as of the stated date of their issue. The information contained herein does not constitute advice on the tax consequences of making any particular investment decision. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation to you of any particular securities, financial instruments or strategies. Before investing, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

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