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Traders Construct Bullish Positions On Lowe’s, Ratio Call Spreads On REITs

Today’s tickers: LOW, GGP & AVB

LOW - LOW – Lowe’s Companies, Inc. – Home improvement retailer, Lowe’s Companies, has been on a tear during the past six months, with the price of the shares up 63.0% since October. The stock currently trades flat on the day at $30.24 after earlier rallying to a four-year high of $30.60 at the open. A burst of call buying on LOW this morning suggests at least one strategist expects the price of the underlying to extend gains in the near term. Most of the day’s volume in Lowe’s Cos. options changed hands at the April $32 strike, where more than 11,000 calls traded against open interest of 730 contracts. It looks like the majority of the calls were purchased for an average premium of $0.32 per contract this morning. Call buyers make money at expiration next month as long as LOW’s shares rally another 6.9% to exceed the average breakeven price of $32.32.

GGP - General Growth Properties, Inc. – Options activity on shopping mall REIT, General Growth Properties, Inc., as well as activity in AvalonBay Communities, Inc., a REIT that owns and operates multifamily communities, suggests one or more traders are positioning for shares in these names to increase during the next six months. Shares in GGP, one of the largest shopping mall REITs, may rally to fresh 52-week highs in the next six months, according to a sizable ratio call spread initiated in the first 30 minutes of the session. The stock surrendered earlier modest gains to trade 0.65% lower on the day at $16.76 as of 11:15 a.m. in New York. Shares are up 10.0% year-to-date. It looks like one trader initiated a ratio call spread, buying 3,000 calls at the Oct. $16 strike and selling 6,000 calls up at the Oct. $18 strike, all for a net premium outlay of $0.20 per contract. The spread prepares the trader to amass maximum potential profits of $1.80 per contract in the event that GGP’s shares increase another 7.4% to settle at $18.00 at expiration in October. Roughly 10 minutes prior to the GGP spread, a ratio call spread on AvalonBay Communities cropped up in October expiry calls on the REIT.

AVB - AvalonBay Communities, Inc. – Shares in AvalonBay touched a fresh multi-year high of $140.61 yesterday and it looks like one trader anticipates the price of the underlying will continue to reach new heights by October expiration. Like GGP’s shares, AvalonBay kicked off the session in rally mode, but quickly reversed course to trade 1.3% lower on Wednesday morning at $138.51 as of 11:30 a.m. on the East Coast. The bullish strategy initiated in AVB options straight out of the gate this morning is smaller in size than the spread on GGP, but looks for similar gains in percentage terms within the same time horizon. It appears the trader responsible for the AVB spread picked up 500 calls at the Oct. $140 strike and sold 1,000 calls at the Oct. $150 strike, done at a net premium of $0.30 per contract. Profits are available on the position should AvalonBay’s shares surpass the effective breakeven price of $140.30, while maximum potential profits of $9.70 per contract require the price of the underlying to surge 8.3% in the next six months to settle at $150.00 at expiration. The ratio call spread strategy greatly reduces premium required to establish directional bets on the REITs, but increases the risk of potential losses (versus a one-by-one call spread) in the event that shares rise far more than anticipated by expiration. In the case of the AVB spread, the trader faces losses on the position above the upper breakeven share price of $159.70.

 

Caitlin Duffy

Equity Options Analyst


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