Friday Options Update: CIT, LEH, CMC, MAS, JCG, TXN, CY, MSFT

August 15, 2008

Rebecca Engmann Darst contributed to this report.

CIT Group (CIT) – A sizable 1-by-2 call spread, possibly put on by a well-capitalized individual or an institution, caught our attentions today as it would seem to imply a slow-but-sure road to recovery for CIT Group, the provider of commercial and real estate financing. Shares in CIT Group are down 60.9% for the year to date, but have recovered 51% of their value from July 15 lows – outpacing the gains seen in other S&P financials, a group that CIT Group has otherwise lagged mercilessly behind for much of this year. Shares have reversed early losses and now read 1.7% higher at $9.36. The long 1-by-2 call spread activity in the January ’09 contract involved a trader buying 1 $10 strike call for $2.10 and selling two 15-strike calls for 70 cents, resulting in a net debit of 70 cents per trade. Essentially the trader is looking for continued upside past the $10.70 level in the first of the year, but is confident that the share price won’t breach $15 – half the position at this strike in a 1-by-2 call spread is uncovered short, leaving the trader vulnerable to exercise (and unlimited losses) in the event of a share price rally. The volume here appears to have involved about 19,000 lots at the lower strike and about 38,000 lots at the upper strike, making the size of the trade worthy of note in its own respect – the volume here represented 16 times the normal level of activity seen in CIT Group shares.

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