JNJ Options Indicate A Big Dividend Play Is Under Way
Talk about watching paint dry! The pits are not exactly hopping today, but
there has been some interesting volume in Applied
Micro Circuits Corp.
(
AMCC |
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PowerRating) put options. A large institutional
customer bought the AMCC March 45 puts for 6 1/2 and sold the February 55 puts
for 11 3/4. Looks to us like the institution had purchased the Feb doubles
(55s) either for protection, when the stock was higher, or made a shrewd
purchase. Either way, we’ve seen 16,000 of the Feb 55s trade, vs. 11,000
of the March 45 puts.
Another trade worthy of note is what traders call a dividend play. Today we
saw a dividend play go up in Johnson & Johnson
(
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PowerRating), in which we saw 6000 Feb 80 calls trade at 11:02 am CST vs. a
like number of Feb 90 calls. The prices were $16 for the Feb 80s and $6 for
the Feb 90s. Now why, might you ask, would someone trade the 80 — 90 call
spread for $10, two days before expiration? The answer is to capture the $.32
dividend that JNJ pays tomorrow! Here’s how that works.
The buyer of the 80 — 90 call spread exercises their 80 calls tonight.
Tomorrow, they look to see how many of their short 90 calls were exercised
against them. For each 90 call that they do not get hit on, they make $.32 x
100 shares, or $32, less the cost of carrying JNJ until Feb expiration (about
$0.01 per share).
The seller of the 80 — 90 call spread exercises their 90 calls tonight and
hopes the owners of the 80 don’t hit them. Basically, the traders are hoping
the owners of their short calls are either sleeping and thus, missed their
opportunity to exercise, or that the owners of their shorts are someone that
cannot afford to exercise and turn a $6 call into a $90 stock. Since the open
interest for the 80 calls is 2879, and 5633 open interest for the 90s, it is
reasonable to assume a reasonable number of both series will not be
exercised.
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