Put-Selling in Calpine
By Jud Pyle, CFA, chief investment strategist for the Options News Network
The chief financial officer of electric utilities company
Calpine
(CPN)
on Tuesday said the company's earnings before taxes were higher than forecast for last year. This positive news sparked heavy put-selling in a longer-dated series, as at least one investor bet on limited downside in the stock.
More than 65,000 January 2011 12.5 puts crossed the tape during today's trading session vs. open interest of just 253 contracts, indicating investors traded these options to open. The puts are currently trading down 28 cents to around $2.25 per contract with a 54-delta. The puts are trading lower than the delta would suggest, indicating the majority of the options action took place on the sell side. Implied volatility of the January 2011 12.5 puts is currently 38, compared to a 30-day historical volatility of 24.
Investors who sold these puts on a moderately bullish play are calling for limited downside in CPN stock, and will make money if the shares close higher than $10.25 at January 2011 options expiration.
CPN shares are currently trading up 11 cents to $11.30 on the day, and are trading roughly 23% off their 52-week high of $14.68 (the stock reached the high point on June 1). The company's stock continues to rally following an upgrade from Barclay's last night to equal-weight from underweight. It's interesting that at least one investor is willing to cap his gain at $2.25 per spread, if CPN shares at least hold their current levels and do not dip more than 9% throughout the next year.
Jud Pyle is the chief investment strategist for Options News Network (www.ONN.tv) and the portfolio manager of TheStreet.com Options Alerts. Click here for a free trial for Options Alerts. Mr. Pyle writes regularly about options investing for TheStreet.com.
Jud Pyle, CFA, is the chief investment strategist for Options News Network. Pyle started his career in finance in 1994 as a derivative analyst with SBC Warburg. After four years with Warburg, Pyle joined PEAK6 Investments, L.P., in 1998 as an equity options trader and as chief risk officer. A native of Minneapolis, Pyle received his bachelor's degree in economics and history from Colgate University in 1994. As a trader, Pyle traded on average over 5,000 contracts per day, and over 1.2 million contracts per year. He also built the stock group for all PEAK6 Investments, L.P. hedging, which currently trades on average over 5 million shares per day, and over 1 billion shares per year. Further, from 2004-06, he managed the trading and risk management for PEAK6 Investments L.P.'s lead market-maker operation on the former PCX exchange, which traded more than 10,000 contracts per day. Pyle is the "Mad About Options" resident expert. He is also a regular contributor to "Options Physics."