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Tuesday, February 27, 2024

Penn Gaming joins casino-movers – put options in action

Today’s tickers: PENN, CIT, EXPE, RF, XRT, FITB, UNH, UNG & MU

PENN – Shares of the gaming and racing company have lifted 8% to $30.79 amid gains experienced by a number of casino operators today. PENN edged onto our ‘hot by options volume’ market scanner after one investor initiated a put spread in the October contract. The spread was established through the purchase of 6,550 puts at the October 25 strike price for 2.02 each against the sale of 6,550 puts at the lower October 20 strike for a premium of 79 cents. The net cost of the transaction amounts to 1.23 and yields a maximum potential profit of 3.77 if shares declined to $20.00 by expiration. Such a trade could represent downside protection by an individual who is long the stock. Or, it could potentially represent a medium-term bearish position by a trader hoping to profit in the event of a 22% decline in shares through the breakeven point at $23.77 by expiration. – Penn National Gaming, Inc.

CIT – The bank holding company’s shares have rallied nearly 7% to $3.38 today, attracting some bullish option players seeking to benefit from further gains in the stock. Call-volume at the near-term June 5.0 strike price ballooned upward by more than 48,000 as investors purchased at least 37,200 contracts for an average premium of 23 cents each. The calls will begin to yield profits to investors if the underlying shares can increase 55% from the current price and surpass the breakeven point at $5.23 by expiration. Optimism spread to the July 5.0 strike where 5,500 calls were coveted for 40 cents apiece. Finally, the October 5.0 strike attracted some bullish action as well as some 2,000 calls appear to have been bought for 65 cents per contract. Option implied volatility climbed as high as 192% during the trading day up from Friday’s closing value of 151%. – CIT Group, Inc.

EXPE– Shares of the online travel company have climbed more than 6% to $15.88 amid renewed takeover chatter reported by one source. Option traders on EXPE have braced themselves for bullish movement in the stock as some 2,300 calls were purchased at the near-term June 17.5 strike price for an average premium of 35 cents per contract. In order to profit from a long-call position by expiration shares of Expedia must double today’s rally in order to breach the breakeven point at $17.85. Approximately 7,900 lots exchanged hands on the stock throughout the day which represents more than 25% of the existing open interest of 30,854 contracts. – Expedia, Inc.

RF – Pessimism regarding the struggling banking company continues today as option traders sell calls and buy puts as far out as the January 2011 contract amid a share price decline of nearly 5% to $3.85. Options activity observed does not bode well for RF as the nearer-term January 2010 5.0 strike price saw 3,500 calls sold for a premium of 93 cents apiece. One year later, the January 2011 contract appears even more gloomy as investors sold some 10,100 calls at the January 5.0 strike for 1.67 each. The final nail in the coffin came in the form of 5,000 calls sold at the January 2011 7.5 strike for 1.00 each spread against the purchase of 5,000 puts at the January 2.5 strike price for 1.04 apiece. This pessimistic trader paid a net 4 cents in order to amass profits to the downside beginning at a breakeven price of $2.46. – Regions Financial Corp.

XRT– Shares of the retail ETF are trading higher by more than 3% today to stand at $27.00 ahead of the Redbook Retail Sales data due out tomorrow morning. The XRT ticker symbol jumped to the top of our ‘most active by options volume’ market scanner after a number of large-volume chunks of put options were traded on the fund. It appears that one investor – who is likely long the stock – has beefed up on downside protection in the September contract while shedding puts in the near-term June contract. We believe the trader originally got long of 18,000 puts for 70 cents each at the June 24 strike price on April 30, 2009. Today, he has sold all 18,000 lots at the same strike for 35 cents apiece in order to close out his position. In order to reestablish downside protection he initiated a ratio put spread this morning. The lot of 18,000 puts purchased at the September 24 strike price cost the investor 1.50 per contract and were spread against the sale off 27,000 puts at the September 21 strike for an average premium of 77 cents apiece. The net cost of the ratio spread amounts to 69 cents (2*1.50 – 3*0.77 = 0.69) and begins to yield protection to the downside at a breakeven share price of $23.31. The maximum potential profit of 2.31 would be attained if shares were to decline to $21.00 by expiration. – SPDR S&P Retail ETF

FITB– Shares of FITB are trading down by approximately 1% to $6.82 amid mixed movements in shares of TARP and non-TARP recipients alike today. We observed some bullish option trades on the stock as more than 7,000 in-the-money puts at the August 7.5 strike price were sold for an average premium of 1.87 apiece. Perhaps investors expect shares to rally higher by 9% by expiration such that the puts land out-of-the-money. Traders receive the 1.87 premium and stand ready to have shares put to them at an effective price of $5.63 should the puts remain in-the-money by expiration. Further along in the November contract, it looks as though one investor received a 2.20 credit by selling 5,715 puts at the November 9.0 strike for 3.50 apiece spread against the purchase of 5,715 calls at the same strike price for 1.30 each. If this is indeed the case, the investor is looking for shares of FITB to gain 32% from the current price such that the calls land in-the-money by expiration. – Fifth Third Bancorp

UNH – A recent rally in the fortunes of the health-insurance group, where investors believe health care reforms might benefit the industry, seem to have run out of steam at around $30.00 per share. Shares at UNH are 2.2% to the better today at $26.90, but one option trader appears to be positioning for gains only as high as the recent high-water mark. A one-by-two ratio call spread was established using July expiration options in which twice as many 30 strike bullish contracts were sold to offset the cost of 7,500 calls at the 25 strike. So instead of paying a hefty 3.10 premium for the 25 strike calls, which would infer a breakeven to the investor of $28.10, the investor in this case paid a net 1.37 premium thus reducing the outlay and reducing the breakeven to $26.37. The nature of a ratio spread leaves the investor exposed to potential losses, which in this case would kick-in at a share price in excess of $33.63. – UnitedHealth Group Inc.

UNG – Shares of the natural gas ETF have dipped slightly by more than 1% to $13.54. Despite the present-day decline, option traders are hoping for a rally by expiration as we head into heating season. The October 14 strike price attracted the highest volume on the fund as approximately 23,000 call options exchanged hands at that strike by lunchtime. Over 10,000 calls were coveted at the October 14 strike for an average premium of 2.21 apiece. Investors looking to amass profits on the calls seem to believe that shares of UNG will climb about 20% from the current price in order to surpass the breakeven point at $16.21 by expiration. One investor looking for a more significant rally over the next five months appears to have spread the sale of 3,000 puts at the October 11 strike price for 1.00 each against the purchase of 3,000 calls at the October 20 strike for a premium of 80 cents apiece. The trader receives a credit of 20 cents on today’s trade and will continue to amass profits on the long call position, as well as attain the right to exercise the calls, should they land in-the-money by expiration. – United States Natural Gas ETF

MU– The Flash memory, DRAM and SRAM manufacturer hasn’t had a positive earnings result in at least 10 quarters, which has helped drive its share price in to the ground. Today shares are 3.1% better as they trade at $4.65 and well off the $1.59 low seen a couple of months ago as investors despaired. We spy a significant number of calls in play today as investors apparently write call options expiring in January at the 6.0 strike. While there is a large number of open contracts at that strike totaling more than 46,000 lots it’s hard to say whether investors today are banking gains on the stock or just writing premium against a long position. For sure the earnings outlook doesn’t look any brighter, although retailing stocks are amongst the best performers today. The premium achieved through today’s sale is 1.0 per contract and would therefore imply a breakeven at a share price of $6.00. – Micron Technology Inc.

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