Today’s tickers: FDO, CHS, KWK, JCG, LVS, XOM, HRB & HOLX
FDO – Family Dollar Stores, Inc. – Shares of the operator of general merchandise retail discount stores rallied 1.4% this afternoon to touch an intraday- and new 52-week high of $43.50. Put activity on the stock, which is likely the work of an investor locking in recent gains in Family Dollar’s shares, pushed the FDO ticker symbol onto our ‘hot by options volume’ market scanner today. Alternatively, the spread could have been enacted by an investor expecting FDO’s shares to cool ahead of October expiration. Regardless of the motivation for the transaction, the put player picked up 5,000 puts at the October $43 strike for premium of $2.20 each, and sold 10,000 puts at the lower October $40 strike for an average premium of $1.075 apiece. The average net cost of putting on the trade amounts to just $0.05 per contract. The transaction could be a cheap way for an investor who is long shares of the underlying to lock in profits enjoyed during the present rally. Or, if the transaction is the work of a trader initiating an outright bearish bet that shares are set to decline by expiration, they will start to amass profits if shares slip beneath the effective breakeven price of $42.95, and may walk away with maximum potential gains of $2.95 per contract should shares settle at $40.00 at expiration. The larger proportion of short puts in the spread suggests the investor is not expecting FDO’s shares to collapse in the next several months.
CHS – Chico’s FAS, Inc. – Trading in options on the retailer of private branded clothing and accessories was largely dominated by pessimistic investors who appear to be expecting the firm’s shares to continue to slide. CHS shares fell as much as 5.5% during afternoon trading to touch down at a new 52-week low of $8.30 ahead of the company’s second-quarter earnings report scheduled for release ahead of Wednesday’s opening bell. It looks like the majority of options traders populating the stock are throwing in the towel by shedding out-of-the-money calls in the August contract. Bears sold more than 5,100 calls at the August $10 strike for an average premium of $0.05 per contract. Another 1,200 calls were sold at the August $9.0 strike for an average premium of $0.28 a-pop. Investors may be cutting their losses by ditching previously established bullish positions, or could be initiating outright bearish stances by selling short the calls. Traders selling the calls outright keep the premium received on the transaction as long as CHS shares fail to rebound above the strike prices described through expiration on Friday.
KWK – Quicksilver Resources, Inc. – Options investors expecting Quicksilver Resources’ shares to continue to rally ahead of September expiration are coveting call options this afternoon with the independent energy company’s shares surging 5.00% to $11.93 as of 3:20 pm ET. Bullish players purchased some 7,200 calls at the September $12 strike for an average premium of $0.69 per contract. Investors long the calls are prepared to make money should Quicksilver’s shares increase another 6.4% to exceed the average breakeven point at $12.69 by September expiration. Optimism spread to the higher September $13 striker where approximately 1,000 calls were picked up for an average premium of $0.30 a-pop. Higher-strike call buyers profit if the oil and gas company’s shares jump 11.5% to trade above $13.30 by expiration day next month.
JCG – J. Crew Group, Inc. – J. Crew popped up on our ‘hot by options volume’ market scanner after one investor appears to have initiated a contrarian transaction using December contract put options. Shares of the retailer of high-quality clothing and accessories for men, women and children rallied 2.5% this afternoon to secure an intraday high of $33.69. The options player purchased a plain-vanilla debit put spread on the stock today ahead of the firm’s second-quarter earnings report slated for release after the closing bell on August 26. The trader picked up 2,500 puts at the December $30 strike for an average premium of $2.18 each, and sold the same number of puts at the lower December $25 strike at an average premium of $0.89 apiece. Net premium paid to enact the spread amounts to $1.29 per contract. Thus, the investor stands ready to make money should shares plummet 14.8% from the current price of $33.69 to breach the effective breakeven point to the downside at $28.71 by December expiration day. The put player is positioned to accumulate maximum potential profits of $3.71 per contract in the event JCG’s shares plunge 25.8% lower to trade under $25.00 by expiration. Analysts at UBS cut their target share price on JCG to $36.00 from $39.00 yesterday and rate the retailer as ‘neutral’.
LVS – Las Vegas Sands Corp. – Frenzied trading in Las Vegas Sands’ options ensued as shares of the operator of casino resorts jumped nearly 4.5% to reach a new 52-week high of $30.15. Bullish investors hoping to see the upward momentum continue are scooping up call options on the stock. As of 12:15 pm ET, more than 3.1 call options on LVS changed hands for each single put option traded. Trading traffic is heaviest in near-term in- and out-of-the-money calls. Investors purchased approximately 12,500 now in-the-money calls at the August $30 strike for an average premium of $0.37 each. More than 20,500 calls changed hands at that strike by 12:40 pm ET, exceeding the 16,498 lots of previously existing open interest at that strike. Investors buying the contracts outright are poised to profit should Las Vegas Sands’ shares trade above the average breakeven price of $30.37 by August expiration. Bullishness spread to the higher August $31 strike where traders picked up about 3,600 calls for an average premium of $0.105 a-pop. Call buyers make money if, by expiration day, the casino operator’s shares increase 3.2% to surpass the average breakeven price of $31.105.
XOM – Exxon Mobil Corp. – A three-legged bullish play on the oil and gas company this morning indicates one investor is preparing for the price of the underlying stock to climb higher ahead of October expiration. Exxon’s shares rallied 1.70% to $60.90 by 11:50 am ET perhaps following the Federal Reserve’s report of better-than-expected industrial production for the month of July. It looks like the bullish player initiated a risk reversal in conjunction with an added financing vehicle. The trader shed 10,000 now in-the-money calls at the August $60 strike for an average premium of $0.73 each and sold 10,000 puts at the October $52.5 strike at a premium of $0.43 apiece in order to buy 10,000 calls at the October $62.5 strike for premium of $1.16 a-pop. The sale of the August $60 strike calls and the October $52.5 strike puts offsets the premium required to purchase the August $62.5 strike calls. The trader essentially put on the trade for free and is positioned to make money if Exxon’s shares continue to rally in the next few of months. The sale of the in-the-money call options at the August $60 strike may represent a calendar roll of the nearer-term lots up to the higher strike price in the October contract given the large amount of open interest at the August $60 strike. XOM’s shares must increase at least 2.6% in order for the investor to start to amass profits above the effective breakeven price of $62.50 by October expiration. Options implied volatility on XOM fell 8.2% to 19.78% by 12:10 pm ET.
HRB – H&R Block, Inc. – Shares of the provider of tax, retail banking, accounting and business consulting services and products rose 1.3% during the first half of the trading session to touch an intraday high of $14.24. However, one seemingly pessimistic player opted to purchase a chunk of put options today despite the improvement in the price of the underlying shares. It looks like the investor purchased roughly 4,000 puts at the January 2011 $11 strike for an average premium of $0.49 per contract. The put buyer, if it’s the case that the transaction represents an outright bearish bet that HRB shares are set to decline, makes money if the firm’s shares plummet by the start of 2011. The bearish trader profits if H&R Block’s shares collapse 26.2% lower to trade below the effective breakeven price of $10.51 by expiration day. We note that HRB’s shares have not come close to breaching $11.00 at any point in recent history. Perhaps the investor is less bearish than the transaction appears to be at first glance. While the put purchase does not appear to be tied to stock, the trader may already be long shares of the underlying. This type of scenario would suggest the investor is merely picking up cheap downside protection today rather than bracing for an HRB-Armageddon.
HOLX – Hologic, Inc. – Call options are in high demand on the developer, manufacturer and supplier of medical imaging systems and diagnostic and surgical products today with shares trading 2.5% higher at $14.97 as of 1:05 pm ET. Bullish traders started picking up calls this morning, buying roughly 1,390 lots at the September $15 strike for an average premium of $0.81 apiece. Investors long the calls make money if Hologic’s shares increase another 5.6% to surpass the average breakeven price of $15.81 by September expiration day. Optimism spread to the higher September $16 strike where some 1,500 calls were coveted at an average premium of $0.41 each. Hologic’s shares must surge 9.6% over the current price of $14.97 to surpass the effective breakeven point on the calls at $16.41 by expiration. Finally, nearer-term bullish purchased about 1,000 calls at the August $15 strike at an average premium of $0.24 a-pop. Investors holding these contracts are poised to profit should HOLX shares trade above $15.24 by expiration on Friday.
