Analyst upgrade has investor spreading calls

Today’s tickers: TSCO, GE, FXI, DRYS, COF, WYE & PFE TSCO – Tractor Supply Co. – The largest retail farm and ranch store chain in the U.S. received a boost from Wedbush Morgan, who raised TSCO’s target share price from $33 to $36 after earnings for 2008 for the company were reported after hours yesterday. Our ‘hot by options volume’ market scanner picked up TSCO today due to heavy call volume. One investor initiated a call spread, purchasing 5,000 calls at the April 35.0 strike for 3.30 and selling 5,000 at the April 45.0 bringing in 65cents per contract, yielding a net price of 2.65. The trade highlights the benefit of spread trading to help mitigate changes in implied volatility. This investor stands to profit from this strategy if shares reach breakeven at $37.65, and will realize a maximum gain of 7.35 per contract if shares can blow through analyst’s expectations to $45 per share. The outright purchase of lower strike calls in this case at a 58% implied reading of volatility is susceptible to a declining uncertainty should shares rise. Our IB Options Calculator (available free for download at this link) can help understand exactly how implied volatility can impact theoretical option prices. GE – General Electric – CEO Jeffrey Immelt attempted to put speculation about the tug-of-war between dispersing dividend payments vs. maintaining their AAA credit rating to rest today. Immelt announced that GE is committed to allocating a $1.24 dividend-per-share for the year, and stated that though 2009 will likely be “extremely difficult” for many sectors of the Fairfield, CT based behemoth, he is confident in their ability to continue to persevere despite overall market turmoil. Despite feeling the strain of the credit crisis that afflicts most financial institutions, GE continues to profit from other operations boasting a solid $48billion in cash on their balance sheet. Though shares of the giant have tumbled nearly 40% since September of ’08, it appears that cost-cutting and restructuring plans, coupled with their ability to continue to reward shareholders via dividend payments, may bolster investor confidence. Option patterns all week have been bearish while today the tone is less so. The most popular option involves the February 14 strike call where volume of 22,000 has traded where the prevailing range so far is 30 to 64 cents. Some traders placed call spreads including the 16 strike and so see upside albeit limited to the $16.00…