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Friday, April 12, 2024

MGM Mirage Losses Inspire Downside Plays in Options


Today’s tickers: MGM, ANF, JPM, XLP, XNPT, HANS & SIRI

MGM – MGM Mirage, Inc. – The Las Vegas Strip’s largest casino owner posted a wider-than-expected fourth-quarter loss of $0.25 per share, which underwhelmed analysts anticipating an average loss of just $0.14 a share. Mirage’s shares fell nearly 7% today to $10.85 following the earnings disappointment. One options investor, who does not expect MGM’s luck to change anytime soon, established a medium-term bearish trade on MGM to position for continued downward movement in the price of the underlying stock through June expiration. The trader purchased 2,000 puts at the now in-the-money June $11 strike for a premium of $1.68 apiece, and sold 2,000 puts at the lower June $8 strike for $0.52 each. The net cost of the debit put spread amounts to $1.16 per contract. Maximum available profits of $1.84 per contract accumulate for the pessimistic investor if the casino-operator’s share price slumps another 26.25% lower to $8.00 by expiration day.

ANF – Abercrombie & Fitch Co. – Short straddle plays initiated on clothing company, Abercrombie & Fitch, suggests investors expect ANF-shares to remain range-bound and anticipate lower volatility in the price of the underlying stock through March expiration. Shares of the teen and ‘tween haven for micro-mini jean skirts and pre-destroyed t-shirts rallied 1% to $35.72 today. However, straddle-sellers apparently foresee little movement for shares in either direction from the current value. Investors sold approximately 6,600 puts at the March $35 strike for an average premium of $1.44 apiece in combination with the sale of 6,600 calls at the same strike for $1.46 each. The average gross premium pocketed on the transaction amounts to $2.90 per contract. Traders retain the full premium received today if Abercrombie’s shares settle at $35.00 at expiration. Investors are vulnerable to losses, however, in the event that shares trade outside of the effective breakeven points. Losses accumulate should shares rally above the upper breakeven price of $37.90, or if the stock falls below the lower breakeven point at $32.10, ahead of expiration day in March.

JPM – JPMorgan Chase & Co. – A large-volume ratio call spread enacted on banking institution, JPMorgan Chase, indicates one big options player expects shares of the underlying stock to rally significantly by June expiration. The firm received an upgrade to ‘buy’ from ‘hold’ with a 12-month target share price of $49.00 at Sandler O’Neill today as JPM shares added 0.50% to stand at $40.22 by midday on the East coast. The optimistic investor responsible for the ratio spread transaction purchased 20,000 calls at the June $42 strike for a premium of $2.09 apiece and sold 40,000 calls at the higher June $47 strike for $0.67 each. The trader paid a net premium of $0.75 per contract, but stands to accrue maximum potential profits of $4.25 per contract if JPMorgan’s shares surge 16.85% from the current day’s price to $47.00 by expiration day in June. Shares must increase at least 6.30% before the trader breaks even on the transaction at $42.75. We note that shares traded as high as $47.47 back on October 14, 2009.

XLP – Consumer Staples Select Sector SPDR – Shares of the XLP, which is an exchange-traded fund that mirrors the total return of the Consumer Staples sector of the S&P 500 Index, are up a scant 0.05% to $26.92. Options action in the September contract today indicates one investor anticipates very little fluctuation in the price of the fund through expiration in seven months time. The trader initiated a short straddle strategy, which yields maximum profits if XLP shares settle at $26.00 at expiration. The straddle transaction involved the sale of 8,500 in-the-money calls at the September $26 strike for a premium of $1.60 apiece and the sale of 8,500 puts at the same strike for $1.05 each. The investor walks away with a gross premium of $2.65 per contract, and keeps the full amount if shares of the consumer staples fund expire at $26.00. The short position in both call and put options exposes the trader to potentially devastating losses should the XLP’s shares vacillate in either direction. Losses amass to the upside if shares exceed the upper breakeven price of $28.65, or if the stock trades under the lower breakeven point at $23.35, by September expiration.

XNPT – XenoPort, Inc. – Shares of pharmaceutical company, XenoPort, collapsed 65.25% to $6.81 this morning on news the U.S. Food and Drug Administration denied approval for Horizant, the firm’s new treatment for restless-legs syndrome. Bearish options activity is apparent at the March $7.5 strike where the majority of some 2,500 call options were sold for an average premium of $0.55 apiece. Non-existent open interest at that strike implies the calls were sold short. Investors retain the full $0.55 premium per contract if XenoPort’s shares fail to rebound up to $7.50 by expiration next month. Options traders expecting continued share price erosion purchased approximately 1,200 puts at the March $5.0 strike for an average premium of $0.15 each. Profits accumulate for put-buyers beneath the effective breakeven share price of $4.85. The increase in investor demand for option contracts on XNPT drove up overall implied volatility on the stock by 13.52% to 112.43% in early trading.

HANS – Hansen Natural Corp. – Beverage producer, Hansen Natural Corp., attracted bullish options traders to the February contract in early morning trading with shares of the underlying stock up 1.90% to $40.23. Investors expecting continued bullish momentum in the price per HANS-share bought approximately 1,700 calls at the now in-the-money February $40 strike for an average premium of $0.45 per contract. Call-buyers stand ready to accrue profits above the breakeven price of $40.45 through expiration day tomorrow.

SIRI – Sirius XM Radio, Inc. – Options are actively trading on Sirius XM Radio this morning with shares up 7.62% to $1.13 as of 10:20 am (EDT). Investors are displaying a clear preference for call options as more than 6.6 calls changed hands for each single put option in play. The surge in demand for option contracts on Sirius boosted options implied volatility as much as 30.90% at the start of the trading session to 114.35%.

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