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Traders Nibble At Diamond Foods Call And Put Options As Shares Sell Off

Options brief will resume December 12, 2012.

Today’s tickers: DMND, IR & SCHW

DMND - Diamond Foods, Inc. – Shares in Diamond Foods fell more than 11% on Monday morning to an intraday low of $13.12 following the company’s fourth-quarter earnings release after the closing bell on Friday. The stock last month slipped to $12.85, the lowest level since the company revealed it must restate two years of earnings, lost its bid to purchase the Pringles brand, and replaced top executives. Options on the maker of Emerald nuts and other consumer food products are far more active than usual today, with some positions looking for shares in the name to slump to fresh lows and others preparing for a near-term rebound in the price of the underlying. The put-to-call volume is hovering around 2-to-1 just after midday in New York, and the bulk of trading traffic is in the weekly contracts. Traders exchanged more than 3,350 of the Dec. 14 ’12 $13.5 strike puts this morning, buying most of the contracts for an average premium of $0.58 apiece. The $13 strike weekly put options attracted heavy volume as well, with some 1,700 lots in play versus zero open positions. Traders buying the $13 strike contracts paid an average premium of $0.34 per contract in the early going, and stand ready to profit at expiration in the event that Diamond’s shares decline 6% from the current price of $13.48, to trade below the breakeven point at $12.66. Meanwhile, fresh interest in the Dec. 14 ’12 $13.5 strike calls today indicates some traders may profit from a near-term pop in the share price. Upwards of 3,900 of the $13.5 strike calls have changed hands as of 12:30 p.m. ET, and it appears much of the volume was purchased for an average premium of $0.40 apiece. Call buyers make money if shares in Diamond Foods settle above the average breakeven price of $13.40 at expiration.

IR - Ingersoll-Rand PLC – Options volume on industrial machinery maker, Ingersoll-Rand, rose well above the stock’s daily average this morning due to heavy trading traffic in front month puts. Rising interest in these contracts may be the work of traders locking in gains. IR’s shares touched a new 52-week high of $50.03 in the early going, marking a near 70% move to the upside since December 2011. Shares are currently down 0.25% on the day at $48.58, reversing earlier gains that stemming from reports that the company plans to spin off its commercial and residential security businesses within the next year. Options traders homed in on the Dec. $48 and $49 strike puts this morning, trading around 1,500 of the $48 strike puts and 750 of the $49 strike contracts in the first half of the session. It looks like the bulk of the volume at each striking price was purchased at average premiums of $0.40 and $0.74 apiece, respectively. Put buyers may be hedging long stock positions, or establishing outright bearish bets that IR’s shares will pullback in the near term. Traders long the $48 strike puts make money if shares in Ingersoll-Rand decline 2% from the current price of $48.58 to breach the average breakeven point at $47.60 at December expiration.

SCHW - Charles Schwab Corp. – Shares in Charles Schwab have increased roughly 4% during the past four weeks, and front-month call buying on the name this morning suggests one or more traders are positioning for the price of the underlying to extend gains this month. The stock currently trades flat on the session at $13.41 as of 1:00 p.m. in New York. Volume in SCHW options is heaviest at the Dec. $13 strike, where some 2,800 calls changed hands against open interest of 1,604 contracts. Time and sale data indicates the bulk of the call volume was purchased in the first five minutes of the trading session for an average premium of $0.50 each. Call buyers profit if Schwab’s shares top the average breakeven price of $13.50 at December expiration.

 

Caitlin Duffy
Equity Options Analyst


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