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Good Fortune For Buyers Of Calls Ahead Of P.F. Chang’s/Centerbridge Deal

 

Today’s tickers: PFCB, INTC & DPZ

PFCB - P.F. Chang's China Bistro, Inc. – Shares in Asian-themed restaurant operator, P.F. Chang's China Bistro, jumped 30.0% to $51.56 today after Centerbridge Partners LP agreed to take the Scottsdale, Arizona-based Company private in a deal valued at $1.09 billion, or $51.50 per share. The sharp move to the upside in shares of PFCB has some resulted in big gains for some traders sitting on bullish positions in the front month options. A couple of weeks ago the May $45 strike call was purchased more than 2,000 times at a premium of $0.30 apiece. The stock closed April 16th at $39.50 such that buyers of the $45 strike calls required a 15.0% move up in the shares to breakeven above $45.30 by expiration. Instead, shares in P.F. Chang's rallied more than 30.0% since the contracts were purchased, resulting in massive paper profits of $6.20 per contract given the calls currently display a last-traded price of $6.50 each. The trader or traders long the $45 calls are still holding onto the contracts as of 11:45 a.m. in New York. P.F. Chang's China Bistro, Inc. reported first-quarter earnings and revenue slightly below expectations prior to the opening bell this morning.

INTC - Intel Corp. – Bullish positions are building in the weekly options on Intel Corp., with shares in the chip giant up better than 2.0% at $29.02 in the first half of the session, helping to lift the Dow Jones Industrial Average to the highest in four years. Intel's shares traded up to their highest level since 2004 today and it looks like some strategists are positioning for the stock to extend gains this week. Volume in the weekly calls is heaviest at the May 04 '12 $29 strike, where more than 6,500 contracts are in play versus open interest of 1,824 positions. It looks like most of the calls were purchased this morning for an average premium of $0.09 apiece. Intraday price action has lifted premium on these contracts, which currently tout a price tag of $0.15 apiece, as of 12:05 p.m. ET.

DPZ - Domino's Pizza, Inc. – Shares in the second-largest U.S. pizza chain are not participating in the market rally today, with shares trading down more than 14.0% this morning to an intraday low of $32.40, after the Company posted lower-than-expected first-quarter revenue and earnings. Options traders populating Domino's Pizza today appear to be initiating both bullish and bearish positions in the front month. One strategist looking for shares to extend losses in the near term snapped up around 700 puts at the May $35 strike this morning at a premium of $1.10 apiece. The put buyer stands ready to profit at expiration in a few weeks should DPZ shares decline 1.7% from the current price of $34.50 to breach the effective breakeven point on the downside at $33.90. Meanwhile, a block of 1,000 puts in play at the lower May $34 strike were likely sold for a premium of $0.80 each. The put seller may keep the full amount of premium received on the position if the pizza provider's shares settle above $34.00 at May expiration.

 

Caitlin Duffy

Equity Options Analyst


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