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Tuesday, February 27, 2024

Cisco lower ahead of earnings: Put selling noted

Today’s tickers: CSCO, NYT, DRYS, INTC, VIX, MON, USB, CROX, IPG, ELN, & WFC

CSCO Cisco Systems, Inc. – Shares are off slightly by less than 1% to $19.42 ahead of earnings expected for release from the company this Wednesday. We observed a rash of put selling in the June and July contracts, a bullish sign from option investors on the stock. The in-the-money June 20 strike price saw some 4,700 puts sold for a premium of 1.40 apiece while the in-the-money July 20 strike also had about 4,500 puts sold for 1.61 per contract. Finally, the deeper in-the-money July 21 strike had some 4,400 puts shed for a rich premium of 2.23 apiece. Perhaps put-sellers see Cisco rebounding through the summer months.

NYT The New York Times Company – The media company has experienced a share price surge of more than 8.5% to $5.87 amid reports that the New England newspaper, The Boston Globe, is safe for now as NYT has not filed its intention to close the newspaper. NYT appeared on our ‘hot by options volume’ market scanner late in the trading day as one investor appears to have sold 5,000 in-the-money puts at the July 7.5 strike price for a premium of 2.12 apiece in order to fund a bull call position in the October contract. The put premium helped fund the purchase of 15,000 calls at the October 10 strike for about 37 cents each. The trade yields a net credit of about 1.01 to the investor given the richer put premium received on the sale (1*2.12 – [3* 0.37] = 1.01). NYT plans to continue talks with its unions in order to avoid closing The Globe. The deadlines for negotiations have been extended to Sunday.

DRYS DryShips, Inc. – Shares of the shipping company have gained 13% to arrive at the current share price of $9.35. The drybulk carrier received a target share price increase to $12.00 from $10.00 by an analyst at Jeffries & Co. as well as an upgrade to ‘outperform’ at Oppenheimer. Bulls hungry for a continued near-term rally on DRYS picked up 12,500 call options at the May 11 strike price for an average premium of 25 cents apiece. The overall tone on the Greek fleet was optimistic as investors showed their preference for call options by trading calls more than five times to every put option in play. It will be interesting to monitor bullish sentiment on DRYS especially because the company reported a first-quarter loss of about 93 cents per share and continues to hold an amazing amount of debt.

INTC Intel Corp. – The semiconductor chip-maker received a target share price increase to $19.00 from $15.00 by analysts at Morgan Stanley who labeled the company as ‘overweight’ from ‘equal-weight’ today amid a more than 5% share price rally to $16.63. One investor skipped ahead to the January 2010 contract in order to take a bullish stance on INTC. He looks to have sold a straddle at the January 20 strike price by simultaneously selling 8,000 calls for about 96 cents apiece and by selling 8,000 puts at the same strike for around 4.71 per contract. The gross premium enjoyed on the trade amounts to 5.67 and will be full retained by the investor if shares settle at $20.00 by expiration in nine months. The parameters of the trade are such that losses would be incurred at any share price greater than the breakeven point to the upside at $25.67 or at any price less than the breakeven point to the downside at $14.33. The trade appears to be fairly well positioned as shares would need to breach the 52-week high of $24.87 on the stock for the investor to accrue losses to the upside. Additionally, to incur losses to the downside, INTC shares would need to decline to within $2.41 of the 52-week low for the chip maker of $11.92.

VIX CBOE Vix Index – A sharp rise in equity prices has not had the expected impact on the market’s fear-gauge today. The CBOE Vix index has only recently fallen back into the red after gains earlier. Currently the Vix stands at 35.27. In the June contract an investor appears to have bought 6,000 put options in anticipation of a lower fear-reading during May. The 45 cent cost associated with the puts was offset by a nickel from the sale of the same amount of June 50 strike puts. So long as the fear gauge doesn’t reverse anytime soon this investor is sitting pretty, but should Wall Street’s favorite adage of ‘sell in May and go away’ make an unscheduled appearance, volatility might yet resurface once again. In the June 30/37.5 call spread mid-market price action gets in the tone of the spread. It’s appears that this investor is seeking a possible rebound in implied volatility over coming weeks paying a net 4.0 points to get long of the 30 strike.

MON Monsanto Company – Shares of the global provider of agricultural products have jumped nearly 4% to $88.55 attracting bullish investors to the options market on the stock. Optimistic investors purchased approximately 8,500 call options at the June 90 strike price for a hefty premium of 4.20 apiece. The delta on the trade reveals a 49% chance that the calls will land in-the-money by expiration. However, shares will need to rally by an additional 6% from the current price in order to breach the breakeven point of $94.20 at which point investors begin to amass profits on the trade.

USB US Bancorp – The financial services company is up by more than 8% to stand at $19.40 today. Our attention was drawn to the September contract where one investor is hoping for continued bullish movement in the stock over the next four months. It appears that he established a bull call spread by purchasing 5,000 in-the-money calls at the September 17.5 strike price for 4.37 each spread against the sale of 5,000 calls at the September 22.5 strike for a premium of 1.89 per contract. The net cost of the call spread amounts to 2.48 and yields a maximum potential profit of 2.52 if shares can rally all the way up to $22.50 by expiration. Interestingly, it looks as though a separate trader sandwiched his position between the parameters of the call spread by selling nearly 5,000 calls at the September 21 strike price for about 2.46 each. The trade is less bullish than the spread strategy as this investor is looking for the September 21 strike calls to land out-of-the-money by expiration rather than have shares rise up to the higher September 22.5 strike.

CROX Crocs, Inc. – Investors of the footwear and apparel products company have seen shares explode by 31% to $3.02 and can now say ‘see you later alligator’ to the 52-week low for the stock of just 79 cents per share. More than half of the 48,131 contracts of existing open interest on CROX exchanged hands today as investors traded more than 26,700 lots by lunchtime. Traders heavily favored call options which were traded more than 20 times for each put in action. Bullish croc-stock-fans bought more than 4,300 calls at the June 4.0 strike price for an average premium of 52 cents apiece. Shares would need to rise by about 50% from the current price to the breakeven point at $4.52 in order for individuals to profit by expiration. Optimism spread as high as the June 5.0 strike price where about 3,000 calls were traded at a cost of 41 cents per contract. Over the next couple of months, shares would need to more than double to breach the breakeven share price of $5.41 by expiration. Option implied volatility has skyrocketed to 215% up from the closing value recorded on Friday of 161%. The footwear retailer is scheduled to release its first-quarter earnings on this Thursday.

IPG Interpublic Group of Companies, Inc. – The advertising and marketing services company has experienced a 3% share price decline to stand at $6.12. Despite the bearish move in price, option traders were observed getting bullish on the stock in the June contract. At the June 7.5 strike price some 1,300 calls were picked up for an average premium of 25 cents apiece. However, the big-boys looked to the June 10 strike and bought 10,000 calls for about 10 cents per contract. Shares would need to rise by 65% from the current price in order to breach the breakeven point on the trade of $10.10 by expiration.

ELN Elan Corporation PLC – The neuroscience-based biotechnology company appeared on our ‘hot by options volume’ market scanner this morning amid unconfirmed takeover speculation as well as a steep share price rally of more than 16.5% to $6.88. The bullish movement in the share price has attracted fresh call buying interest on ELN and the call-to-put ratio of more than 21-to-1 indicates that investors have traded more than 21 call options for each put option in action today. At the near-term May 7.0 strike price bullish investors looking for a continued rise in shares picked up more than 8,600 calls for an average premium of 30 cents each. More optimistic traders bought some 1,100 calls at the May 8.0 strike for about 19 cents per contract. Option implied volatility has exploded upwards as high as 100% from the reading of 76% taken on Friday, although currently volatility has come off slightly to stand at the current value of 97%.

WFC Wells Fargo & Co. – Shares have jumped more than 8% to $21.19 today amid gains experienced by many other members of the TARP-gang ahead of the stress-test results due out this Thursday. While option investors are very active on WFC today, put-selling in the near-term May contract caught our attention early on in the trading day. About 20 minutes after the bell rang this morning one investor looks to have shed some 21,000 puts at the May 14 strike price for about 25 cents apiece. Perhaps this individual does not feel the need for downside protection so far out-of-the-money and today he is taking whatever premium he can get ahead of May expiration in just a few weeks.

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