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Thursday, July 25, 2024

Genworth Financial Rallies Amidst Reversal Positioning Through Options

Today’s tickers: GNW, ERTS, RCL, WFT, PETM, BBY, AKAM, KR, & FITB

GNW – Bearish option trades belie the more than 6% rally in shares of the financial security company to $8.59 during today’s trading session. It appears that one investor has spread the sale of 10,000 calls at the December 10 strike price for 1.00 apiece against the purchase of 10,000 puts at the September 7.5 strike for about 56 cents each. The bearish reversal play occurred in the midst of plain-vanilla put purchasing at the September 7.5 strike, where approximately 8,000 puts were picked up for 56 cents per contract. Perhaps investors enacting such trades are bracing for a pullback in the price of GNW by expiration in September. The long puts will begin to generate profits if the stock slips 19% lower through the breakeven point at $6.94. The investor responsible for the bearish reversal has received a net credit of 44 cents and may add to his profits if the September 7.5 strike puts land in-the-money by expiration. The short call position in the December contract leaves the investor vulnerable to potentially unlimited losses above the effective breakeven point at $10.56, unless of course the trader holds a long position in the underlying. If the trader owns the stock, then he may be near-term bearish and long-term bullish. The short call position would serve the same purpose as a covered call. If GNW trades above $10.00 by expiration, the investor may shed the position in the underlying and walk away with profits earned on the appreciation in the value of the stock. – Genworth Financial, Inc.

ERTS– Bullish reversals on the developer of video game software caught our attention today amid a rally of nearly 4% on the stock to $21.11. Investors were seen shedding puts in order to finance the purchase of out-of-the-money calls in the December contract. Approximately 2,500 puts were sold at the December 16 strike for 43 cents each, while another 2,500 puts were surrendered at the higher December 17 strike for 62 cents apiece. Traders utilized premium enjoyed on the sale of puts to get long of 5,000 calls at the December 25 strike price for an average premium of 93 cents. The average net cost of purchasing the calls amounts to about 40 cents per contract. A rally in ERTS of 20% will allow call-holders to begin to amass profits above the average breakeven point at $25.40. Finally, plain-vanilla bullish call buyers looked to the December 24 strike price to scoop up 4,700 calls for 1.20 each. – Electronic Arts, Inc.

RCL– Investors in the global cruise company have seen the stock surge more than 6% during the trading session to $17.47. Bullish reversals were employed by option traders hoping to profit on further upside movement in the stock by expiration in September. It appears that approximately 8,000 puts were shed at the September 15 strike for an average premium of 64 cents each in order to partially finance the purchase of 8,000 calls at the September 17.5 strike for 1.36 apiece. The net cost of getting long the calls amounts to 72 cents per contract. The calls are nearly in-the-money, but an additional 4% rally is required in order for investors to breakeven at a price of $18.22. Plain-vanilla call buying was also apparent at the September 17.5 strike where it seems approximately 5,000 calls were coveted for 1.36 each. Calls purchased without the discount produced by the simultaneous sale of put options increases the breakeven point to $18.86, and requires an 8% rally in shares before traders may realize profits. – Royal Caribbean Cruises Ltd.

WFT– The provider of equipment and services used in the production of oil and natural gas wells jumped onto our ‘most active by options volume’ market scanner this afternoon after bullish option traders flooded the September and January 2010 contracts. Shares of WFT are currently higher by more than 2% to $18.67 despite reports that the firm’s EBITDA for the most recent quarter reached a three-year low. Bullish investors employed various strategies in order to position for continued upward movement in the price of shares. The nearer-term September 19 strike price had 4,000 calls purchased for an average premium of 1.15 apiece, which were spread against the sale of 4,000 calls at the higher September 22 strike for 26 cents per contract. The net cost of the call spread amounts to 89 cents and yields maximum potential profits of 2.11 to the trader if shares rally to $22.00 by expiration. Investors observed in the January 2010 contract chose to execute plain-vanilla call buying, which imposes no upper limit on maximum possible gains like in the call spread previously described. Approximately 3,500 calls were purchased at the January 24 strike price for 1.00 apiece. Super-bullish traders picked up nearly 11,000 calls at the higher January 25 strike for an average premium of 76 cents per contract. Investors long the higher strike calls will begin to bank profits if shares of WFT rally at least 38% from the current price to breach the breakeven point at $25.76 by expiration. – Weatherford International Limited

PETM– The leading retailer of pet food, supplies, and services in North America edged onto our ‘hot by options volume’ market scanner after a call spread was initiated in the September contract. Perhaps the more than 1% decline in shares to $21.67 today stems from the downgrade to ‘neutral’ PETM received at JPMorgan yesterday. Despite the decline in shares and the analyst downgrade, it appears that the trader responsible for the call spread is expecting the stock to improve by expiration in September. It looks as though 2,000 calls were purchased at the September 22.5 strike price for 84 cents each and spread against the sale of 2,000 calls at the higher September 25 strike for 20 cents premium. The net cost of the transaction amounts to 64 cents and yields maximum potential profits of 1.86 if shares rise to $25.00 by expiration. We have assumed that this trade is bullish given where shares are currently trading, but we also note that the calls traded to the middle of the market and could potentially represent a credit spread rather than the debit spread described above. A 7% gain in shares to the breakeven point at $23.14 would allow the investor responsible for the trade to begin to amass profits up to $25.00 at which point he will have realized maximum profits of 1.86 per contract or $372,000. – PetSmart, Inc.

BBY – Shares of the specialty retailer of consumer electronics have dipped lower by less than 0.5% to $36.75. Despite the slight decline in the stock, option traders populating BBY today emitted a bullish glow. The near-term August 39 strike price had more than 4,500 calls picked up for an average premium of 33 cents per contract. Investors holding these options are hoping to see shares surge 7% to the breakeven point at $39.33 by expiration day next Friday. Additional optimism was seen at the December 37 strike where 1,000 calls were purchased for 3.60 apiece. Finally, investors wary of potential near-term declines in BBY scooped up 2,500 puts at the August 35 strike for 45 cents per contract. Profits would begin to accumulate for put-purchasers if the stock slipped 6% lower and fell beneath the breakeven price of $34.55 by expiration. – Best Buy Co., Inc.

AKAM – The provider of services for improving the delivery of content and applications over the internet appeared on our ‘most active by options volume’ market scanner this morning amid bullish options activity in the August contract. Shares of AKAM have rallied approximately 1% to arrive at the current price of $18.61. The August 19 strike price had 6,000 calls coveted for an average premium of 45 cents apiece by traders hoping for continued upward movement in the price of the underlying. The stock must climb at least 4% higher before investors breakeven at $19.45. Call action was also observed at the higher August 20 strike where 3,400 lots traded for 23 cents per contract. Another 1,700 calls appear to have been purchased at the August 21 strike for 15 cents each. Akamai would need to rally about 14% from the current price in order for investors long the August 21 strike calls to begin to amass profits at the breakeven point at $21.15. – Akamai Technologies, Inc.

KR – The operator of retail food, drug, and department stores has experienced a 2% rally in shares during today’s trading session to stand at $21.24. The company received a new rating of ‘buy’ with a target price of $28.00 at Deutsche Bank yesterday. Bullish sentiment today stems from the fact that Kroger had its credit ratings at Standard & Poor’s placed on CreditWatch with positive implications. One investor responded to the positive news of late by initiating the purchase of 5,000 married puts. It appears that he purchased the underlying stock at approximately $21.16 and simultaneously picked up 5,000 puts at the September 20 strike price for an average premium of 45 cents apiece. The investor is now hoping for bullish movement in the stock. But, the puts protect the long position in case shares decline beneath the breakeven point at $19.55 by expiration. – The Kroger Company

FITB – Shares of the bank holding company have rallied nearly 4% to $10.16 today, prompting one investor to enact a large-volume bull call spread in the January 2010 contract. The transaction involved the purchase of 20,000 calls at the now in-the-money January 10 strike price for a premium of 1.75 apiece spread against the sale of 20,000 calls at the higher January 14 strike for 45 cents each. The net cost of the spread amounts to 1.30 and yields maximum potential profits to the investor of 2.70 per contract if shares climb to $14.00 by expiration. Shares of FITB must rally 11% higher in order for the investor to breakeven at $11.30. At that point a 24% increase in the stock would ensure that the trader banks the maximum available profits of 2.70 for a total of $5,400,000. – Fifth Third Bancorp

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