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Monday, February 6, 2023


Best Buy Option Investors Condone Broker Upgrade in Bullish Action

Today’s tickers: BBY, DNDN, GLD, BAC, AET, BA & NBR

BBY – Best Buy Co., Inc. – Shares of the world’s largest electronics retailer rallied 2% to $41.25 during the trading session after receiving an upgrade to ‘buy’ from ‘neutral’ at Goldman Sachs Group where analysts increased BBY’s target share price to $47.00 from $44.00. Options traders employed a few different bullish tactics to position for continued upward movement in the price of the underlying stock through expiration in April. Plain-vanilla call buyers targeted the April $44 strike to purchase 5,100 calls for an average premium of $0.55 apiece. These investors stand ready to accrue profits if Best Buy’s share price increases 8% from the current value to exceed the effective breakeven point on the calls at $44.55 by expiration day. Another options player rolled a previously established long call position from the March contract to the April contract in order to extend bullish sentiment on the stock. The trader sold roughly 4,000 in-the-money calls at the March $41 strike for a premium of $0.33 apiece, and purchased about the same number of calls at the higher March $42 strike for an average premium of $1.18 each. In isolation, the net cost of the roll amounts to $0.85 per contract, thus positioning the investor to profit above the breakeven share price of $42.85. Options implied volatility is up approximately 5.5% as of 12:10 pm (ET) to stand at 33.68%.

DNDN – Dendreon Corp. – The biotechnology company received a repeat performance of bearish options activity observed during the previous trading session. Yesterday we reported a put butterfly spread in the April contract on Dendreon. Today the same spread doubled in size. Shares of the biotech firm slipped 1.15% during the current session to trade at $35.75. As was the case yesterday, the spread involved the purchase of 5,000 puts at the April $30 strike for an average premium of $0.94 each [wing 1] and the purchase of another 5,000 puts at the lower April $20 strike for $0.38 apiece [wing 2]. The body of the butterfly centered at the April $25 strike where the bearish investor shed 10,000 puts for a premium of $0.46 apiece. The net cost of the spread is $0.40 per contract, which is a full 10 pennies more expensive than the butterfly spread initiated yesterday. Maximum potential profits of $4.60 per contract are available to the pessimistic player if Dendreon’s shares plummet 30% from the current price to settle at $25.00 at expiration. Profits start to accumulate if shares breach the upper breakeven price of $29.60 ahead of expiration day in April.

GLD – SPDR Gold Shares Trust – Shares of the gold exchange-traded fund, which mirrors the performance of the price of gold bullion, declined 2.15% to $107.93 today. Bullish call buying took place in the May contract today despite erosion in the value of the fund’s shares. It looks like traders purchased nearly 6,000 calls at the May $116 strike for an average premium of $0.97 per contract. Call-buyers are apparently expecting the price of gold to rally within the next couple of months to expiration. Investors holding the call contracts profit if GLD shares explode 8.375% over the current price to surpass the breakeven point at $116.97 by May expiration. Shares of the underlying fund last exceeded $117.00 back on December 4, 2009. Investors exchanged 220,000 option contracts on the GLD in the first half of the trading day.

BAC – Bank of America Corp. – Put option action dominated the April contract on Bank of America today, which is perhaps a signal by some bearish investors that its share price could continue to erode through expiration next month. Shares are currently trading 1.90% lower on the day to $16.76. It looks like pessimistic players purchased more than 30,000 puts at the April $13 strike for a premium of $0.06 apiece. These contracts could merely represent cheap downside protection for investors who are long shares of the underlying stock as opposed to a scenario in which put buyers are placing outright bearish bets that shares are set to sink. Put purchases continued at the higher April $16 strike where 11,600 contracts were picked up for a premium of $0.26 each. Another 7,800 in-the-money put options were coveted at the higher April $17 strike for an average premium of $0.65 each. We note that put open interest levels at each of the strike prices detailed above exceed put volume generated by investors today. This may mean the buying interest is the work of traders closing out short put stances. More than 220,000 option contracts changed hands on Bank of America by 12:40 pm (ET).

AET – Aetna, Inc. – Shares of the third-largest health insurer in the U.S. are up 2.05% to $33.92 this morning after the firm said it expects first-quarter operating profits per share to beat average analyst forecasts. Options traders populated the July contract on the stock with bullish transactions. Investors picked up 1,100 calls at the July $36 strike for an average premium of $1.90 apiece. Call-buyers at this strike are prepared to profit should Aetna’s shares rally 11.75% over the current price to surpass the effective breakeven point on the calls at $37.90 ahead of July expiration. Other options optimists coveted roughly 4,000 calls at the higher July $40 strike for a premium of $0.70 per contract. These investors make money if shares of the underlying stock surge 20% to breach the breakeven price of $40.70 by expiration day.

BA – The Boeing Company – Commercial jetliner manufacturing firm, Boeing, is increasing production of its largest jets in order to satisfy growing demand. The company cites market improvement and subsequent recovery for the airlines since the recession put a damper on travel. Shares of the underlying stock reacted to the positive production news by rising 1.25% to attain a new 52-week high of $71.76. Bullish investors dominated early options trading activity on the stock. Plain-vanilla call buyers purchased 1,200 lots at the April $75 strike for an average premium of $1.00 apiece. But, trading traffic was heaviest at the higher April $80 strike where traders picked up 2,700 call options for an average premium of $0.16 per contract. Investors holding the higher strike calls profit if Boeing’s shares jump 11.70% to surpass the breakeven price of $80.16 ahead of expiration next month.

NBR – Nabors Industries, Ltd. – The U.S. oil, gas and geothermal land drilling company’s shares added to yesterday’s nearly 5% decline in share price today by edging another 4.50% lower to stand at $19.70. Nabors’ share price suffered a 12% decline during the current trading week in part because analysts at UBS removed the stock as “short-term buy” due to a “soft gas environment and flat to down rig count” on Thursday. Bearish traders wasted little time populating the stock with put transactions this morning. Investors purchased 2,500 in-the-money puts at the April $20 strike for an average premium of $0.80 per contract. Options players purchased more than 5,700 puts at the lower April $19 strike for a premium of $0.45 apiece. Put-buyers at the April $19 strike make money if Nabors’ shares continue to decline beneath the breakeven price of $18.55 ahead of expiration day.


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