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Saturday, December 2, 2023

Talbots Put Options in Fashion with Bearish Players

 Today’s tickers: TLB, PFCB, VZ, NDAQ, MTL & HSNI

TLB – Talbots, Inc. – Bearish traders donning Talbots put options this afternoon appear to be positioning for shares of the women’s apparel, shoes and accessories manufacturer to continue falling in the next couple of months. The clothing maker’s shares are down 5.05% in the final minutes of the trading day to stand at $8.08. TLB was cut to ‘hold’ from ‘buy’ with a $10.00 share price target at Jefferies on Monday. Talbots’ February $7.0 strike put options are the most active today, with more than 6,000 contracts having changed hands at that strike ahead of the closing bell, versus previously existing open interest of 644 lots. Nearly all of the put options were purchased at that strike for an average premium of $0.19 each. Put buyers make money if TLB’s shares drop another 15.7% to trade below the average breakeven point at $6.81 by February expiration day. Longer-term bearish traders tried on May $7.0 strike put options for size, buying some 1,300 contracts for an average premium of $0.59 apiece. Talbots’ overall reading of options implied volatility ended the session 13.2% higher on the day at 52.01%.

PFCB – P.F. Chang’s China Bistro, Inc. – Put options are flying out of the kitchen at P.F. Chang’s this afternoon with shares of the Asian-inspired restaurant chain operator slipping 2.50% lower to $47.44 in the final 30 minutes of the session. Investor appetite for bearish put contracts follows reports out on Monday from the National Restaurant Association noting that, for the first time in three months, restaurant operators reported net declines in same-store sales and customer traffic levels in the month of November. Approximately 5,500 puts changed hands at the February $45 strike today versus paltry previously existing open interest of just 111 contracts at that strike. Volume in February $45 strike puts represents roughly 53% of the 10,415 lots of overall previously existing open interest on the restaurant operator. It looks like investors satisfied bearish outlook on the stock by buying the majority of the put options for an average premium of $1.65 a-pop. Put buyers make money if shares in P.F. Chang’s China Bistro drop 8.6% to breach the average breakeven point on the downside at $43.35 by expiration day in February. The restaurant operator is slated to report fourth-quarter results before the market opens on February 16, 2011. Demand for P.F. Chang’s puts helped lift the stock’s overall reading of options implied volatility 7.2% to 37.89% before the final bell. A couple of weeks ago, the company announced its co-CEO Bert Vivian, will retire at the end of 2011.

VZ – Verizon Communications, Inc. – Bulls are dominating activity in options on Verizon today with the price of the underlying stock rising as much as 1.15% to secure yet another new 52-week high of $36.85 this afternoon. Investors scooped up call options across several expiries during the session thus far, trading more than 2.9 calls on the stock for each single put option in play today. Traders expecting Verizon to continue to hit new highs ahead of January expiration day bought more than 1,600 calls at the January $37 strike for an average premium of $0.30 each. Another 1,150 calls were picked up at the higher January $38 strike at an average premium of $0.13 apiece. Investors holding these contracts are prepared to make money should Verizon’s shares increase another 3.5% to surpass the average breakeven price to the upside at $38.13 by January expiration. Traders long the closer-to-the-money January $37 strike calls are hoping to see shares rise 1.2% to trade above $37.30 by expiration day this month. Bullish sentiment on Verizon Communications spread to the February $37 strike where another 1,200 call options were purchased for an average premium of $0.62 apiece. These calls, which expire on February 18, 2011, will have plenty of life left in them when Verizon reports fourth-quarter results before the market opens on January 25, 2011. Call buying was also detected at the April $36 strike where some 2,500 in-the-money calls options were coveted for an average premium of $1.45 a-pop. Investors buying the longer-dated contracts are poised to profit should shares in VZ exceed the average breakeven price of $37.45 ahead of expiration day in April. Options implied volatility moved 6.4% higher by 1:45pm to stand at 19.23%.

NDAQ – NASDAQ OMX Group, Inc. – The global exchange group popped up on our ‘hot by options volume’ market scanner this morning after one strategist initiated a ratio put spread in the March contract. Shares in NASDAQ OMX Group are currently up 0.33% to stand at $24.19 as of 11:45am in New York trading. The put player may be utilizing the spread to hedge a long position in the underlying stock, or placing an outright bearish stance on NDAQ because he expects shares to decline in the next couple of months. The trader picked up 1,950 puts at the March $24 strike for a premium of $1.20 each, and sold 3,900 puts at the lower March $21 strike at a premium of $0.30 apiece. Net premium paid to establish the spread amounts to $0.60 per contract. Thus, the investor is prepared to make money, or realize downside protection, if shares in NDAQ fall 3.3% from the current price of $24.19 to breach the effective breakeven point to the downside at $23.40 ahead of March expiration. Maximum potential profits of $2.40 per contract are available to the options trader should NDAQ’s shares plunge 13.2% to settle at $21.00 at expiration day. The ratio of twice as many short put options exposes the investor to losses in the event that shares plummet more than 23.1% to breach the lower breakeven price of $18.60 by expiration in March.

MTL – Mechel OAO – The Russian mining, steel and power company attracted bullish options traders to the playing field today with the value of its shares rallying as much as 5.3% to a new two-year high of $32.47 in the first half of the trading session. Investors exchanged more than 3,500 call options at the January 2011 $32.50 strike, versus previously existing open interest of 894 contracts, by 12:40pm in New York. It looks like the majority of the calls were purchased for an average premium of $1.01 apiece by investors expecting Mechel’s shares to continue to appreciate in the next few weeks. Call buyers are poised to profit should shares in MTL increase another 3.2% over today’s high of $32.47 to surpass the average breakeven point to the upside at $33.51 by January expiration day. Bullish players also purchased roughly 800 calls at the higher January 2011 $34 strike at an average premium of $0.51 each. Investors holding these contracts make money in the event that Mechel’s shares jump 6.3% to trade above the average breakeven price of $34.51 by expiration. The overall reading of options implied volatility on the stock is higher by 3.9% to stand at 42.72% just before 12:50pm.

HSNI – HSN, Inc. – The retailer and interactive lifestyle network that offers an array of products through television home shopping programming received a medium-term bullish bet by one strategist positioning for HSNI shares to rally sharply ahead of March expiration. Shares in HSN, Inc. are currently down 1.75% at $30.92 as of 1:55pm. It looks like the investor sold 100,000 shares of the underlying stock at $30.32 each and purchased 4,000 March $35 strike calls at a premium of $0.85 apiece on a 0.25 delta. The delta neutral transaction positions the investor to bank serious profits if the price of the underlying stock rallies substantially in the next several months to expiration. HSNI is slated to report fourth-quarter earnings before the opening bell on March 2, 1011. The long calls provide the investor the option to purchase 400,000 shares of the underlying at $35.00 each should the contracts land in-the-money at expiration. Premium on those calls, should shares rise sufficiently, will accelerate to the upside at a much faster clip than the accumulation of losses on the short stock position given the much larger size of the call options. HSN, Inc. reached a 52-week high of $34.66 back on April 26, 2010.

Andrew Wilkinson

Senior Market Analyst


Caitlin Duffy

Equity Options Analyst

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