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Saturday, March 2, 2024

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Transportation ETF Sees Bearish Options Combo

Today’s tickers: IYT, WYN, BBBY, XLU, ERTS, MSFT, ALTH & MT

IYT – Shares of the IYT are currently down 0.5% to $71.43. One option trader appears to have exchanged 19,500 contracts on the ETF to take a bearish stance through expiration in December. The three-legged trade executed on the IYT today exceeds the existing open interest of 13,323 lots by more than 6,000 contracts. The trader likely holds a long position in the underlying shares of the fund because of the placement of the options play. It appears the investor funded a put spread by selling out-of-the-money calls short. He sold 6,500 calls at the December 76 strike for 2.45 apiece. The put spread involved the purchase of 6,500 puts at the December 73 strike for 5.10 each against the sale of 6,500 puts at the lower December 67 strike for 2.70 per contract. The investor is left with a net credit of 5 pennies, which he will ultimately retain in full as long as shares of the IYT remain beneath $76.00 through expiration. Additional gains – or downside protection on a long stock position – have already kicked in for the trader given the breakeven price of $73.00 on the trade. The put spread provides maximum protection if shares decline 6% from the current price to $67.00 by expiration in December. – iShares Dow Jones Transportation Average Index –

WYN – The hospitality company appeared on our ‘hot by options volume’ market scanner this afternoon due to greater than normal call activity. Bullish option traders made moves on the stock despite the slight 0.25% dip in shares to $16.01. Traders looked to the November 20 strike where approximately 1,000 calls look to have been bought for an average premium of 45 cents each. The higher November 22.5 strike had about 8,000 calls coveted by investors who paid an average of 19 cents per contract. Call-buyers at the higher strike may garner profits if shares surge 42% from the current price to surpass the breakeven point at $22.69 by expiration in November. Wyndham has traded beneath the breakeven price described since May 20, 2008. We note that option traders exchanged 21,290 contracts on WYN today, which represents 36% of the existing open interest on the stock of 59,774 lots. – Wyndham Worldwide Corp. –

BBBY – The home-furnishings retailer received an upgrade to ‘neutral’ from ‘sell’ at FTN Equity today ahead of its second-quarter earnings report scheduled for release after the market closes this evening. Earnings estimates for the firm range from 42 cents to 47 cents per share. BBBY has edged 0.25% higher during the session to stand at the current price of $39.55. Option traders appear to be bracing for declines in the stock. Plain-vanilla put purchases were made at the October 39 strike where 1,600 lots were picked up for an average premium of 1.37 apiece. Another investor employed a ratio put spread to hedge against potential disappointing news after the closing bell. The spread involved the purchase of approximately 2,500 puts at the October 40 strike for 2.06 each, marked against the sale of 5,000 puts at the lower October 37 strike for 85 cents per contract. The net cost of the bearish position amounts to 36 cents. The breakeven point of $39.64 has already been breached given the current share price of $39.55. The put-spread will continue to yield downside protection in case the stock falls as low as $37.00 by expiration in October. – Bed Bath & Beyond, Inc. –

XLU – Shares of the utilities exchange-traded fund have improved 0.5% today to $29.62. The XLU ticker symbol jumped onto our ‘most active by options volume’ market scanner after large chunks of calls were coveted by bullish investors. The January 32 strike had 30,000 calls purchased for an average premium of 33 cents apiece. The investor responsible for the transaction likely expects the XLU to rally at least 9% by expiration so he may accrue profits above the breakeven price of $32.33. The January 31 strike was also active with about 37,800 call options picked up for 65 cents premium per contract. Profits are available in the event that shares of the ETF rise 7% to surpass the breakeven point at $31.65 by January’s expiration day. – SPDR Utilities Select Sector ETF –

ERTS – Demand for call options on the video game software company is booming this morning perhaps due to unconfirmed takeover rumors that the ERTS could be acquired by Microsoft (MSFT). Shares surged nearly 5% to $19.40, spurring heavier than normal options activity on the stock. Bullish investors stampeded toward the October contract right out of the gate this morning and looked to the October 20 strike to purchase more than 9,300 calls for an average premium of 57 cents apiece. Optimism spread to the higher October 21 strike where 5,000 calls were coveted for 38 cents each. Finally, super-bullish traders picked up more than 4,200 calls at the October 22 strike by shelling out 21 cents per contract. Investors long the higher strike calls will begin to accrue profits if shares of ERTS rise 14.5% to surpass the breakeven price of $22.21 by expiration next month. Swirling rumors and increased options activity today pushed option implied volatility on Electronic Arts up 25% to the current intra-day high of 54% volatility. – Electronic Arts, Inc. –

MSFT – Meanwhile shares in MSFT are higher today at $25.95 and option activity suggests this may yet continue. In the April 25 strike put options a seller of around 4,000 contracts stands out where the premium received is 1.87. This investor seems prepared to buy shares of the software-maker within seven-months if it remains below this strike through expiration, while if it does rally the premium remains in his wallet. Elsewhere call option activity seemed to suggest a near-term rise above $25 with activity in the January contract suggesting investors were putting on call spreads at around 1.75. That would imply a breakeven share price of $26.75 and a maximum gain of 3.25 per contract. – Microsoft Corp. –

ALTH – Profit taking by one Allos Therapeutics optimist was observed this morning through the use of 20,000 put options in the October contract. Shares of ALTH are currently trading slightly higher by less than 0.5% to $8.60. It appears the investor originally sold 10,000 puts short at the October 5.0 strike on September 4, 2009, for a premium of 50 cents apiece. ALTH was trading at $7.52 at the time of the sale and have since climbed 14% to the current price. Thus, the trader was able to purchase-to-close the short position today by buying all 10,000 lots back for just 20 pennies each. Net profits enjoyed on the transaction amount to 30 cents per contract for a total of $300,000. Hungry for additional profits, the trader employed a similar strategy by shedding 10,000 puts at the higher October 7.5 strike, to receive 52 cents per contract. The investor will be able to bank gains on the new short put position if he can buy back the options for less than 52 cents by expiration. Risks inherent in the trade are that shares sink lower and drive up put premiums. If the October 7.5 strike puts land in-the-money by expiration the investor may have shares of the underlying put to him at $7.50 each. Losses would amass in the event that the biopharmaceutical company’s shares slip through the breakeven point to the downside at $6.98. – Allos Therapeutics, Inc. –

MT – The steel producer has experienced a slight 0.5% dip in shares to $39.64 during the trading session. Near-term options activity indicates bullishness by traders targeting out-of-the-money calls in the October contract. It appears 1,500 calls were picked up at the October 43 strike for an average premium of 77 cents each. Heavy call volume was generated at the higher October 44 strike where more than 7,000 contracts were exchanged by 11:00 am (EDT). Approximately 5,300 calls were purchased for 55 cents premium per contract. Traders buying the calls will bank profits if shares of ArcelorMittal rise 12% from the current price to breach the breakeven point at $44.55. Shares of MT last traded higher than the breakeven point back on October 3, 2008, when the stock was at $44.90. – ArcelorMittal –


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