by Option Review - June 25th, 2012 2:05 pm
Today’s tickers: STZ, RIMM & NRG
STZ - Constellation Brands, Inc. – Shares in the world’s largest wine company are leading the few gainers in the S&P 500 Index this morning, bucking the broader market trend as U.S. equities extend losses for a third session in four. Constellation Brands increased as much as 14.0% to $22.10 today on reports global brewing giant, AB InBev, may buy the portion of Mexican brewing company, Grupo Modelo SAB, it does not already own in a transaction that could be valued at $20 billion and include a payment to Constellation Brands. Heavier than usual trading traffic in the July $20 strike call on Friday afternoon ahead of the chatter is worth noting as double-digit gains in the underlying has at least one strategist sitting on triple-digit gains on a particularly well-timed bullish options position. Open interest in the July $20 strike call suggests some 1,550 contracts were purchased for a premium of $0.40 apiece on Friday afternoon, roughly one hour and forty minutes prior to the closing bell. These contracts are currently trading at $2.30 apiece as of 12:20 p.m. ET, a more than five-fold increase in the value of the call options over the weekend. Meanwhile, news of the potential deal spurred fresh bullish positioning in Constellation Brands calls this morning with buyers snapping up Aug. $20, $22.5 and $25 strike calls to position for further upside in the stock. The front-month July $22.5 strike call is the most heavily traded so far today, with upwards of 2,500 calls in play against fewer than 1,000 open contracts. Constellation Brands is scheduled to report first-quarter earnings prior to the opening bell on Friday.
RIMM - Research in Motion Ltd. – Investors continue to dump Research in Motion, sending shares in the Blackberry maker down as much as 8.3% today to a fresh multi-year low of $9.03 after analysts at Morgan Stanley downgraded the stock to underweight from equalweight. Weekly…
by Option Review - January 23rd, 2012 1:48 pm
Today’s tickers: HD, LVS, SBUX & NRG
HD - Home Depot, Inc. – The home improvement retailer’s shares have been on fire during the most recent six month period, with the stock last week soaring to $45.50 – the highest level in nearly a decade – on the heels of a more than 55.0% rally since August. A sizable ratio put spread initiated on Home Depot this morning may be the work of an investor hedging a long position in the shares, or, alternatively, an outright bearish stance looking for shares to pull back somewhat ahead of May expiration. Home Depot was cut to ‘Hold’ from ‘Buy’ at Edward Jones over the weekend and shares in the name today trade 0.95% lower on the session at $44.09 just before 12:00 p.m. in New York. It looks like the put player purchased around 2,500 puts at the May $42 strike for an average premium of $1.54 each and sold 5,000 puts at the lower May $38 strike at an average premium of $0.72 apiece. Average net premium paid to initiate the ratio spread amounts to $0.10 per contract, thus implying profits or downside protection kick in if shares in HD decline 5.0% to breach the effective breakeven point on the downside at $41.90. Maximum potential profits of $3.90 per contract are available on the position if the price of the underlying drops 13.8% from the current price of $44.09 to settle at $38.00 at expiration. The sale of twice as many of the lower-strike put options greatly reduces the cost of downside protection, which may insulate a longer-term HD optimist from losses in the stock’s value given the potential for a broad market correction or disappointing company-specific news to weigh on the shares ahead of May expiration. Home Depot is scheduled to report fourth-quarter earnings ahead of the opening bell on February 21.…
by Option Review - August 31st, 2011 3:24 pm
Today’s tickers: T, LYB, XLY & NRG
T - AT&T, Inc. – The cost of buying AT&T put options that expire at the end of the week exploded after the U.S. Justice Department filed suit to block the telecommunications company’s proposed $39 billion acquisition of Deutsche Telekom’s T-Mobile USA, Inc., on grounds the deal would hamper competition in the wireless market. Shares in Dallas, Texas-based AT&T fell as much as 5.5% on the news to $28.00, while options implied volatility jumped 30.0% to 27.97%. Frenzied options trading ensued on AT&T during a news conference held to explain the lawsuit. Nearly 200,000 option contracts have changed hands on the stock as of 1:25 pm in New York. Put options are more active, with around 1.5 puts trading on AT&T for each single call option in play this afternoon.
Trading traffic in the weeklies suggests investors are scrambling for near-term downside protection and asking questions later. Puts granting the right to sell shares in the wireless provider at $29.00 were purchased roughly 1,000 times for just $0.08 apiece around one hour into the trading session, but news of the lawsuit saw premium required to buy those puts sky-rocket to $1.02 in under 60 minutes. All told, more than 7,100 of the September ’02 $29 strike puts changed hands against open interest of 1,432 contracts thus far today. It looks like the majority of the contracts were purchased for an average premium of $0.25 apiece. Investors piled into puts at the Sept. ’02 $28 strike, as well, driving volume up past 9,600 contracts by lunchtime. On the flip-side, traders expecting the stock to rebound somewhat before the week is out, picked up nearly 3,000 calls at the Sept. ’02 $29 strike at an average premium of $0.16 each, and another 1,000 calls…
by Option Review - August 18th, 2011 4:11 pm
Today’s tickers: NRG, SCG & STX
NRG - NRG Energy, Inc. – The wholesale power generation company popped up on our ‘hot by options volume’ market scanner this morning due to heavier-than-usual trading traffic in its call options. Shares in NRG Energy, Inc. are down 2.7% at $21.66 in early-afternoon trade, outperforming the S&P 500 Index which is off 3.7%. Investors driving up September contract call volume on the stock do not expect shares in the Princeton, NJ-based company to rebound with any conviction ahead of expiration next month. Options players exchanged more than 4,700 calls at the September $23 strike against previously existing open interest of just 875 contracts. It looks like all of the contracts were sold at a premium of $0.50 each. Call sellers walk away with the full $0.50 in premium as long as the options expire worthless with shares trading below $23.00 at expiration. Selling spread to the September $24 strike where some 244 calls sold for a premium of $0.30 apiece. If these are naked shorts, traders face losses should the stock rally above the effective breakeven prices of $23.50 and $24.30 at expiration, respectively.
SCG - SCANA Corp. – The holding company for subsidiaries engaged in the generation and sale of electricity to retail customers is a bright spot in an otherwise dark day for equities. Shares in Cayce, SC-based Scana Corp. are currently up 1.5% at $39.18 after dealReporter cited industry sources that said the company may consider putting itself up for sale. One options strategist expecting shares in the name to rally in the months ahead initiated a debit call spread, buying 1,500 calls at the November $40 strike for a premium of $1.10 each, and selling the same number of calls up at the November $45 strike at a premium of…
by Option Review - October 30th, 2009 4:25 pm
Today’s tickers: ACL, VIX, FEED, ODP, NRG, NVTL, LVS & MSTR
ACL – Alcon, Inc. – Medical supplies producer, Alcon, attracted long-term bullish option traders to the May 2010 contract. Shares slipped slightly lower by 0.5% to $144.02 by noontime (EDT). It looks as though one investor financed the purchase of a call spread by selling put options. The three-legged trade involved the sale of 4,200 puts at the May 120 strike for about 4.20 apiece. Next, the investor purchased the same number of call options at the May 155 strike for 7.25 each, spread against the sale of 4,200 calls at the higher May 165 strike for 4.50 per contract. The trader receives a credit of 1.45 each on the strategy. The full credit is retained by the investor as long as shares of ACL remain higher than $120.00 through expiration in May. Additional profits accumulate if the stock surges 7.5% to surpass the breakeven point at $155.00. Maximum additional profits available to the investor amount to 10.00 per contract, attainable if shares add 15% to $165.00 ahead of expiration in May.
VIX – CBOE Vix index – With equity prices sadly wilting by noon on Friday, investors were threatening to completely reverse Thursday’s giddy 2% advance. Traders were despondent after a 0.5% drop in consumer spending last month, which soured the tone following Thursday’s stimulus-stuffed GDP gain. The fear-gauge expanded by 8% to 26.70 as a result and one large options player appears to have placed a trade suggesting that volatility will be omnipresent – at least through year-end. The investor sold 10,000 December expiration puts at the 25 strike for a 1.75 premium, while buying half as many puts in the January expiration at the same strike. If the underlying Vix index settles at expiration above a value of the 25 strike price, the puts would expire worthless. This suggests this investor sees a rocky close to the year with volatility remaining elevated. The purchase of 5,000 puts for a 1.95 premium expiring 30 days later suggests the investor sees a calmer start to next year.
FEED – AgFeed Industries, Inc. – Shares of the Chinese feed and commercial hog producing company are trading 2.5% higher today to stand at $4.73. The firm received a ‘buy’ recommendation at EVA Dimensions yesterday. Option traders took to the May 2010 contract to initiate bullish positions on the stock. It…
by Option Review - June 25th, 2009 5:25 pm
Today’s tickers: EXC, NRG, PALM, ANF, CAL, AMTD & PAYX
EXC – The company has been increasingly less successful in trying to persuade shareholders at NRG – NRG Energy– to tender their shares to the company in what has become an ugly battle. Shares in both companies are on the rise today at $51.08 (Exelon) and $23.70 (NRG). Two sizeable footprints were left for analysts to explore in options trading. Here’s what we think is happening. Perhaps the easier half of the trade is a nearby July 22.50/17.50 put spread on shares of NRG. An investor bought 50,000 higher strike puts at 72 cents and sold 25,000 puts at the 17.50 for a nickel per contract. The investor likely expects that management at NRG will be successful in convincing its investors that the Exelon deal isn’t a good fit. The CEO mailed his thoughts urging investors to remain loyal to his leadership. In the event that the takeover fades, as appears the case, this investor might benefit from some of the hot money hopping out of the stock. Exelon options were a little more convoluted. An investor appears to have bought 50,000 July calls at the 55 strike at 39 cents and taking a sizeable credit on the sale of the same amount of calls expiring in August at the 50 strike. He’s possibly thinking that the near-term prospects for the company in the event of a botched deal would buoy the shares. Thereafter some of the optimism might fade. – Exelon Corp.
PALM – Shares of the Pre-maker, which launched earlier in June, are stable at $13.96 ahead of earnings data after the closing bell on Thursday. The fact that sales of the Pre won’t materially impact the bottom-line earnings numbers means we may have to wait longer for further developments from the company. However, investors have been in a buying tizzy for stock in the company all year and have driven shares from $1.14 to $15.25 recently. The options market, however, has been forced to maintain a careful eye on developments given the depths to which the shares plummeted earlier this year and still attributes a relatively high reading of implied volatility of 90% on options on the stock. That makes hedging a little more expensive that it ought and heading into earnings today, one investor appears to have tried to do so by implementing a put…