14.8 C
New York
Wednesday, April 17, 2024

Earthlink calendar spreader maintains pessimistic stance

Today’s tickers: ELNK, HBC, CECO, XLE, C, CMCSK, SWKS & ARNA

ELNK Earthlink , Inc. – The internet service provider has experienced a 5% decline in shares today to $6.29. ELNK popped onto our ‘hot by options volume’ market scanner after one investor initiated a calendar roll. At the March 7.5 strike price 5,200 puts were sold for a premium of 95 cents each, while at the April 7.5 strike price 5,200 puts were purchased for 1.15 per contract. Maybe this investor sees Earthlink continuing to fall through next month, and therefore has rolled his in-the-money long-put position previously established in March into the next month’s contract.

HBC HSBC Holdings Plc ADS – As with many other financials today, shares of HBC have rallied 4% to $27.05. One trade of interest occurred at the March 30 strike price where an investor appears to have purchased a straddle by picking up 7,500 calls for 15 cents apiece and 7,500 puts for 3.20 per contract. You may be thinking, given where shares are with today’s rally – why on earth would someone pay a combined premium of 3.35 in the hope that shares of the bank swing to either breakeven point located at $33.35 on the upside and at $26.65 on the downside? While it is possible that this investor’s motivation for the trade is to see profits amass on falling share price, we believe there may be a different explanation. Perhaps this trader had previously sold the options leaving him short and now he is buying back the contracts in order to close out his short position. It appears that about 7,500 of the existing open interest for calls and puts at the March 30 strike was built up between February 5th and 6th. Thus, we propose that this investor may have originally sold the straddle in February and is not buying it back before the March contract expires on Friday.

CECO Career Education Corporation – Shares of the global education company have fallen 12% to $20.24. CECO is an on-ground provider of education at various levels and also has a significant presence in online education. The company edged onto our ‘hot by options volume’ market scanner after one investor established plays in the March and April contracts. At the March 22.5 strike price it appears that one investor initiated a credit spread by purchasing 5,000 calls for 38 cents apiece while selling 5,000 in-the-money calls at the March 20 strike for 1.20 each. The net credit to the trader amounts to 82 cents, and in this case creates an upside point for the stock beyond which the investor does not wish to see the company’s price rise. The investor faces losses between $20.82 through $22.50 at which point the pain is maximized at a per share loss of 1.68. In the April contract we observed call selling at the April 22.5 strike price where 3,000 sold for 1.06 each, while the April 25 strike had more than 2,000 calls traded for 30 cents apiece.

XLE Energy Select Sector SPDR – The energy ETF has rallied more than 2% to $42.50 today and popped onto our ‘most active by options volume’ market scanner after one investor initiated a calendar spread. At the March 37 strike price 17,000 puts were sold for 5 cents each which funded, in part, the purchase of 17,000 puts at the April 35 strike price for 48 cents per contract. The net cost of the trade amounts to 43 cents and yields a breakeven point at $34.57. The recent rise in share price made this bearish play cheaper for the investor because put premiums have fallen. This investor appears to believe that the energy sector will pull back from gains made last week through today. Even though the original 37 strike price in March is currently out-of-the-money, this investor rolled his position through to the April contract at the deeper out-of-the-money 35 strike price which suggests a more pessimistic view from this trader as we head into spring.

C Citigroup, Inc. – Shares have surged 36% to $2.42 today and have attracted the attention of many an option trader to the Citigroup playing field. Call activity outweighs that of puts by 2-to-1 which can indicate bullishness. However, we note that at the September 3.0 strike price one investor shed 55,000 calls for a premium of 51 cents per contract. Perhaps this investor is banking gains with the rise in shares today or it is possible that he is taking a more bearish stance on Citigroup. The call sale in September contrasts with the greater picture seen on C today which appears to be heavy buying across the board. Some of the more populated strikes worth mentioning were the March 2.5 strike where some 55,000 calls were picked up for an average of 17 cents each, and the June 5.0 strike where about 38,000 puts were purchased for 2.61 apiece. The March 2.5 calls expire this coming Friday, and thus shares will need to continue upwards by an additional 3% to land in-the money, and another 10% in order to reach the breakeven on the trade at $2.67.

CMCSK Comcast Corporation – Shares of the cable services provider experienced a 2.5% rally earlier in the day before a reversal of around 1% to $12.17. Perhaps the rise in share price was spurred on by news that Sony Electronics and Comcast have unveiled a co-branded retail store which is set to open tomorrow. The idea behind the new Sony Style Comcast Labs is to provide consumers a destination where they can learn about the latest technologies as well as have a hands-on experience with new digital devices. One options investor took a bullish stance on Comcast today by selling 10,000 puts at the April 10 strike price for 15 cents per contract. By selling the puts this trader is implying that he does not believe shares will fall below the breakeven on the trade at $9.85 by expiration.

SWKS Skyworks Solutions Inc. – Maker of mixed signal semiconductors that allow wireless connectivity from handsets, Skyworks Solutions doesn’t usually lend itself to options trading. Overall, only 32,000 calls and puts exist in open interest, while the stock has ranged from $11.00 to $4.00 over the passage of the last year. Today its shares are 3% lower at $7.50 and it’s at this same strike that two notable options transactions have taken place. We would rather that for the sake of convenience that the trades supported one another, but we can’t say for sure that they do. Using call options expiring Friday, an investor paid 20 cents to acquire around 2,500 contracts securing buying rights at a fixed $7.50 by Friday’s expiration. The volume is almost twice that of the number of established positions at the strike price and so we can’t say that an investor is using today’s share price pullback to close out a short position. This looks unusually bullish for whatever reason. However, an investor also sold around 9,000 calls at the same strike expiring in April, where again a Spartan number of existing positions are open. The 55-cent premium allows a short-seller (and stock buyer) to watch a rally in the underlying share price to above $8.00 per share before losing money while if they don’t remain above the strike price the cal writer simply holds on to the premium. Implied volatility at 73% is a little lower than the 88% historical volatility on the underlying share price.

ARNA Arena Pharmaceuticals, Inc. – The clinical-stage biopharmaceutical Company has seen its shares fall 15% to $4.33 today and were downgraded from ‘hold’ to ‘sell’ at Canaccord Adams. ARNA edged onto our ‘hot by options volume’ market scanner after one investor established a bullish play in the April contract. It looks as though this trader took advantage of the 15% loss on the share price by selling 7,000 in-the-money puts at the April 5.0 strike price for a premium of 1.93, while offsetting this position by purchasing 7,000 puts at the April 2.5 strike for 68 cents apiece. The investor pockets a credit of 1.25 on the trade and appears to believe that shares will rise and remain above $5 by expiration next month. The puts purchased at the 2.5 strike cap potential losses for this investor at a maximum of 1.25 should shares continue to fall all the way to $2.50. As the broader market experiences a rise this bullish investor sees through the turmoil for ARNA today and his trade implies that he believes it is only a matter of time before Arena catches up and makes gains as well.

Notify of
Inline Feedbacks
View all comments

Stay Connected


Latest Articles

Would love your thoughts, please comment.x