Massive, deep in the money January '13 Call purchases are Bullish...
The one purchase that caught my eye that was mentioned on twitter was a 4,400 contract buy of January 2012, $2.50 Calls at $6.80 per share.
1. If a long bought it with the intent to exercise he is buying 440,000 shares at $9.30 per share. That looks like institution positioning to me. They must feel pretty confident about success. That will be a $4,092,000.00 purchase. Nice, very nice.
2. If a short is buying he is effectively covering 440,000 shares at $9.30 per share. That short cannot be too confident about failure. He is throwing in the towel and covering at high prices.
We know this becuase the open interest would have reflected the trade. I took a screen shot yday of the open interest and it is unchanged compared to today. So the initial trade we all saw yday would have created an OI increase, if it were exercised it would show a decrease.
The part we do not know is it a new buyer or a short covering. There was no offset option trade that I saw.
When you buy a Call option, you are paying for the option to buy (exercise) the stock at the given strike price from the moment you purchase the option to the day it expires. At the expiration date the option becomes worthless. Cheers.
They essentially bought stock at market today without moving the sp and with no downside if successful; but bigger picture is they essentially guaranteed a $2.50 exit price upon failure compared to those who paid today's market price. I'd take $2.50 for my stock, if the trial fails. Really smart way to take a position.
Today they paid $6.80 per share for the option to buy shares at $2.50 until Friday. If the stock fails and drops to under $2.50 they will not exercise the option. They will have lost $6.80 per share.
If they exercise the option they have to pay $2.50 more to get those shares for an effective price of $9.30 per share. If it fails after they have the shares, they will only be able to sell them for the market price.
They are not guaranteed an exit price of $2.50 per share.