Schaeffer's Options Center

Electronic Arts Inc. (ERTS) has seen a surge in option volume today. Specifically, more than 140,000 contracts have changed hands, arriving at more than 18 times the stock's average daily option volume of just 7,669 contracts. What's more, the bulls appear to be in control, as nearly 98% of this activity has crossed on the call side, according to WhatsTrading.com.

Digging a little deeper reveals a trader entered a rather large long call spread at ERTS' January 2011 25 and 30 strikes. The trade is comprised of 60,000 January 2011 25 calls, which traded at the ask price of $0.61, and 60,000 January 2011 30 calls, which crossed at the bid price of $0.14. The total outlay for this long call spread is $0.47, or $47 per contract. While this position could hit its maximum potential profit much earlier if ERTS moves sharply in the right direction, the trader stands to pocket $4.53, or $453 per contract, if the stock closes at or above $30 per share when these options expire in January 2011.

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With a vote on the health care reform bill imminent, many U.S. health care insurers fell after the opening bell this morning, according to Reuters. WellPoint, Inc. (WLP) was one such insurer, falling 1.2%. The health insurer has also been the focus of increased option activity today, with volume of 36,000 contracts trading -- double WLP's usual volume.

Zeroing in on particular plays, one spread in particular caught my attention. Late this morning, a block of 500 April 65 puts traded at the ask price, suggesting they were bought. At the same time a block of 500 April 57.50 puts crossed the tape between the bid and ask prices, making it difficult to determine whether they were bought or sold. However, if they were sold, it appears this trader initiated a long put spread on WLP.

In a long put spread, the speculator is bearish, but with a downside target. As such, the player purchases an at- or in-the-money put, while simultaneously selling an out-of-the-money put. By doing this, the player is able to reduce the cost of initiating the play.

In this instance, the bearish bettor believes WLP will remain below the $65 level until April expiration; however, he doesn't foresee the insurer falling below $57.50. If this prediction remains true, then the sold put will expire worthless, and the player will be able to profit from his in-the-money put position.

At last check, WLP was exploring the $63.90 area.

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Best Buy Co., Inc. (BBY) was the center of some brisk option activity Wednesday, with the retailer seeing volume soar to 34,000 contracts -- nearly double the daily average. Option players showed a preference for calls, with 26,000 of these bullish bets changing hands.

The March 41 call received the most attention, with 10,410 contracts traded. Overnight, open interest at this strike swelled by 7,943, pointing to the addition of fresh positions. What's more, 60% traded at the ask price, implying a good portion of the contracts at this strike were bought to open. By buying to open the March 41 call, speculators are betting that BBY will muscle past the $41 level by March expiration -- which happens after the closing bell this Friday.

This optimism toward BBY is a bit of a change of pace, with the International Securities Exchange (ISE) reporting a 10-day put/call volume ratio of 1.66, in the 65th percentile. In other words, speculators on the ISE have been initiating puts at a faster rate than usual lately.

Elsewhere on the street, sentiment is evenly split toward BBY, with 13 analysts rating the equity a "buy" or better, and the other 13 calling BBY a "hold" or worse, according to Zacks.

Technically speaking, BBY has rallied nearly 9% since the start of March. At last check, BBY had gained 0.65%, to sit at $40.37.

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Lazard Capital this morning downgraded Chesapeake Energy Corporation (CHK) to "hold" from "buy," citing lower oil and natural gas forecasts for 2011. In light of the news, the shares of the commodities concern have surrendered about 4.6%, triggering a mad dash for put options on the stock.

So far today, CHK has seen roughly 24,000 puts cross the tape – nearly quadrupling its expected daily volume of about 6,500 contracts. The security's now-near-the-money April 23 put has seen almost 6,100 contracts exchanged – 40% of which have traded at the ask price, implying they were likely bought. However, with more than 18,500 puts already open at the soon-to-be front-month strike, we can't yet tell how much of today's activity will translate into fresh bearish positions.

Judging by the latest data from the International Securities Exchange (ISE), today's preference for CHK puts is a growing trend in the option pits. The stock's 10-day put/call volume ratio of 0.79 ranks in the 90th annual percentile, suggesting that speculators on the ISE have initiated bearish bets over bullish at a much faster pace than usual lately.

Further echoing the mounting pessimism, the equity's Schaeffer's put/call open interest ratio (SOIR) has skyrocketed in recent weeks. More specifically, the security's SOIR of 0.50 stands higher than 60% of all other readings taken during the past year, indicating that short-term option players are adding puts at a more rapid clip than calls.

At last check, CHK has given up about $1.10 to hover just south of the $24 level.

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Put traders converged on Clean Energy Fuels Corp. (CLNE) on Wednesday, with single-session volume soaring to more than five times the norm. More specifically, the alternative energy issue saw close to 3,800 puts change hands yesterday, compared to its predicted daily volume of fewer than 750 contracts. However, digging deeper into the data reveals that not all of the activity was of the bearish variety.

The security's out-of-the-money April 20 put attracted the most attention, with roughly 3,275 contracts exchanged. Put open interest at the round-number strike advanced by more than 2,900 contracts overnight, pointing to the addition of fresh positions. However, the majority of the soon-to-be front-month puts traded closer to the bid price, suggesting they were likely sold.

By writing the April 20 puts, the sellers are betting the shares of CLNE will remain atop the $20 level through options expiration on Friday, April 16. In this instance, the 20-strike puts will expire worthless, allowing the sellers to keep the initial premium received – which also represents the maximum potential reward on the play.

While yesterday's bullish bettors may have taken the less conventional route, the latest data from the International Securities Exchange (ISE) further reflects a growing optimism among the options crowd. CLNE sports an ISE 10-day call/put volume ratio of 3.23, indicating that speculators during the past two weeks have bought to open more than three times as many CLNE calls as puts.

At midday, CLNE has added 3.2% to explore the $21.70 neighborhood.