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Friday, April 19, 2024

Bearish Player Strangles Visa, Inc.

 Today’s tickers: V, ABC, HTHT & DAL

V – Visa, Inc. – The credit card issuer and global electronic payment services provider popped up on our scanners this morning after one bearish options strategist sold a strangle in the January 2011 contract. It looks like the investor responsible for the transaction sees Visa’s shares slipping lower, while still trading within a certain range through expiration next month. Shares in Visa were down less than 1.25% around the time the strangle was put on, but have since plunged more than 4.00% to $77.39 as of 12:55pm in New York. As of midday, it looks like this trader’s directional play enhanced with the sale of a strangle, is now working in his favor. The strangle-strategist sold 2,100 calls at the January 2011 $85 strike for a premium of $1.02 each, and sold the same number of puts at the January 2011 $65 strike at a premium of $0.23 apiece. Gross premium pocketed on the transaction amounts to $1.25 per contract. The strangle was tied to the sale of 42,000 shares of the underlying stock at $79.60 each, which makes sense given the 0.20 delta on the calls. The investor keeps the full premium on the trade as long as shares trade within the boundaries of the strike prices described through January 2011 expiration. The short stance in shares is a sign this individual expects Visa’s shares to fall over the next several weeks, while the sale of the Jan. 2011 $65 strike puts indicates that he does not see shares collapsing more than 15% to a new 52-week low. As with any short strangle, the investor may absorb losses if shares move against him. Losses on the strangle start to accumulate if Visa’s shares rally above the upper breakeven price of $86.25, or should shares slip beneath the lower breakeven point at $63.75, ahead of January expiration day. In hindsight, the strangle was nicely timed. Selling the same Jan. 2011 $65/$85 strangle now yields gross premium of $0.95 per contract versus the far richer $1.25 per contract enjoyed by this early-bird investor.

ABC – AmerisourceBergen Corp. – Call options on the pharmaceutical services firm are in high demand today with shares in AmerisourceBergen Corp. trading 0.85% higher on the day at $32.21 as of 12:40pm. ABC was added to Goldman Sachs’ conviction buy list yesterday. Near-term bulls expecting shares to continue higher ahead of expiration on Friday scooped up 2,300 now in-the-money calls at the December $32 strike for an average premium of $0.43 apiece. Investors picked up another 4,000 call options at the higher December $33 strike for an average premium of $0.12 a-pop. Call buyers at this strike are prepared to make money should ABC’s shares rally another 2.825% over the current price of $32.21 to surpass the average breakeven point to the upside at $33.12 ahead of expiration in a couple of days. More than 4,100 calls changed hands at the December $33 strike thus far in the session, which is far greater than the 565 contracts comprising previously existing open interest at that strike. Bullish sentiment spread to the January 2011 $32 strike where traders coveted another 1,000 in-the-money call options for an average premium of $1.10 apiece. The sharp rise in demand for call options on AmerisourceBergen today lifted the stock’s overall reading of options implied volatility 18.3% to 26.95% by 12:45pm in New York.

HTHT – China Lodging Group, Ltd. – The economy hotel chain operator based in Shanghai enticed one bullish options player to sell a sizable chunk of put options in the March 2011 contract today. Shares in China Lodging Group are up more than 2.15% this afternoon to arrive at $20.13 as of 12:30pm. It looks like the trader sold 3,856 puts at the March 2011 $17.5 strike to pocket an average premium of $1.075 per contract. The investor keeps the full amount of premium received on the transaction as long as China Lodging Group’s shares trade above $17.50 through expiration day in March. HTHT’s shares have traded at or above $17.50 since August 12, 2010. The more than 3,920 option contracts that have changed hands on the stock thus far today exceed the 2,966 contracts of overall previously existing open interest on China Lodging. Options implied volatility on the stock is lower by 4.9% to stand at 53.95% in early afternoon trade.

DAL – Delta Air Lines, Inc. – Shares in Delta Air Lines are down 2.9% this morning to stand at $12.69, but it looks like one long-term bullish player is taking advantage of the pullback in the price of the underlying stock by picking up a debit call spread in the June 2011 contract. It appears that a like-minded optimist purchased the same call spread on Delta Air Lines during trading on Tuesday. Delta’s shares slipped after the second-largest carrier cut the upper end of its operating margin projection for the current quarter to 6% from 7%, and said capacity in 2011 will likely rise no more than 3% as the firm focuses on paying down debt. The call-spreader is positioning for shares of the Atlanta-based company to rally sharply by the middle of next year. The trader picked up roughly 3,000 calls at the June 2011 $15 strike for an average premium of $0.91 each, and sold about the same number of calls at the higher June 2011 $20 strike at an average premium of $0.16 a-pop. Net premium paid to initiate the spread amounts to $0.75 per contract. Thus, the investor is poised to profit should shares in Delta Air Lines jump 24.1% over the current price of $12.69 to surpass the average breakeven point at $15.75 by expiration day in June. Maximum potential profits of $4.25 per contract are available to the trader if Delta’s shares surge 57.6% to $20.00 before the options expire next year. Meanwhile, near-term call activity appears to be the work of traders throwing in the towel on the U.S. carrier ahead of expiration on Friday. Approximately 2,350 calls were sold at the December $13 strike for an average premium of $0.15 each.

Andrew Wilkinson

Senior Market Analyst


Caitlin Duffy

Equity Options Analyst

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