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Saturday, December 2, 2023

LyondellBasell Bulls Dabble in Chemical Maker’s Call Options

Today’s tickers: LYB, EEM, JACK & MWW

LYB – LyondellBasell Industries NV – Two sizable bullish options trades on the chemical manufacturer indicate strategists expect shares in LyondellBasell Industries to rise significantly over the next four months. Shares in the Rotterdam-based company increased as much as 2.9% today to secure an intraday high of $39.22 on a positive note from analysts at Morgan Stanley. A ratio call spread in the September contract was one of the two bullish plays initiated on LYB during the first half of the session. The investor responsible for the transaction purchased 6,500 calls at the September $40 strike for a premium of $2.90 each, and sold 13,000 calls up at the September $46 strike at a premium of $0.95 apiece. The net cost of putting on the spread amounts to just $0.10 per contract. Profits are available on the position if shares in the chemical company rally another 2.2% over today’s high of $39.22 to surpass the average breakeven price of $40.10 by expiration day in September. Maximum potential profits of $5.90 per contract pad the investor’s wallet in the event that shares surge 17.3% to settle at $46.00 at expiration. Shares in LYB traded as high as $48.12 at the beginning of May, the highest since the company’s emergence from Chapter 11 bankruptcy protection in 2010. The short stance in twice as many September $46 strike calls lowers the net cost of the trade substantially, but also adds an element of risk for the investor. Losses on the uncovered calls kick in if the price of the underlying stock jumps 32.3% in the next several months to surpass the upper breakeven price of $51.90 at expiration. Next, it appears a different bullish strategist purchased 10,000 calls at the June $39 strike for a premium of $1.80 each, and sold the same number of calls out at the September $45 strike for an average premium of $1.275 a-pop. The trader paid a net premium of $0.525 per contract on the spread and is perhaps hoping to get long the stock at $39.00 at expiration in June. The sale of the longer-dated calls lowered the effective breakeven price down to $39.525 from a share price of $40.80 had the trader simply purchased the nearer-term calls outright. Imagine the investor gets long the stock at $39.525. Under this scenario, he faces maximum potential gains of 13.85% if shares in LYB rally above $45.00, and the stock is called from him at expiration in September. Of course, this is just one possible outcome. Both the June $39 strike and the September $45 strike calls could expire worthless at their respective expiration dates, and set the trader back $0.525 in premium per contract.

EEM – iShares MSCI Emerging Markets Index Fund – A massive put spread initiated on the emerging markets fund this morning suggests one big player is positioning for a sharp pullback in the price of the underlying through July expiration. Shares in the EEM, an exchange-traded fund that tracks equity market performance in the global emerging markets, are down 0.60% at $46.56 in early-afternoon trade. The investor responsible for the transaction may be employing the spread to take an outright bearish stance on the fund over the next couple of months, or as a means of hedging exposure to the fund itself or to the emerging markets. It looks like the trader purchased 51,000 puts at the July $45 strike at a premium of $1.35 each, and sold the same number of puts at the lower July $40 strike for a premium of $0.35 apiece. Net premium paid to initiate the spread amounts to $1.00 per contract. The investor makes money, or realizes downside protection, in the event that shares in the EEM decline another 5.5% to breach the effective breakeven price on the spread at $44.00 by expiration day in July. Maximum potential profits of $4.00 per contract, or $20.4 million, are available to the put-spreader if the price of the underlying fund falls 14.1% to trade below $40.00 at expiration. Shares in the emerging markets ETF last traded below $44.00 in September 2010, and have exceeded $40.00 since last July.

JACK – Jack in the Box, Inc. – Investors are hungry for Jack in the Box call options today ahead of the fast food company’s second-quarter earnings announcement tomorrow after the close. JACK’s shares are down roughly 1.00% to stand at $20.20 as of 1:30pm. Pre-earnings bulls traded more than 2,700 calls at the June $22.5 strike against open interest of just 845 contracts. It looks like nearly all of the calls were purchased for an average premium of $0.25 each. Most of the volume was generated by one buyer of 2,000 of the calls this morning. Call buyers profit if shares in Jack in the Box surge 12.6% over the current price of $20.20 to top the average breakeven price of $22.75 by expiration day in June. The rise in demand for calls on JACK helped lift the stock’s overall reading of options implied volatility 10.5% to 41.84% this afternoon. Shares in the owner of Qdoba Mexican Grill have not closed above $22.75 since March 30, 2011.

MWW – Monster Worldwide, Inc. – Shares in the global online employment services site are on the mend this morning following a steep 9.3% drop on Monday to as low as $14.95. The stock earlier rallied to an intraday high of $15.24, but currently trades just 0.15% higher on the session at $15.01 as of 11:45am in New York. Monster Worldwide popped up on our ‘hot by options volume’ market scanner due to heavy trading activity in June contract put options. More than 5,400 puts have changed hands at that strike on previously existing open interest of 452 contracts. Trading traffic is mixed, but it looks like put players are selling more of the options today. Bulls selling the options pocket an average premium of $0.31 per contract, and keep the full amount of premium received as long as shares in Monster Worldwide exceed $14.00 through expiration day next month. MWW’s shares have traded above $14.00 since October 2010. Put sellers stand ready to have shares of the underlying put to them at $14.00 each, or effectively at $13.69 apiece after factoring in premium received on the sale of the put options, should the puts land in-the-money at expiration in June. Investors face losses on the position if MWW’s shares fall 8.8% from the current price of $15.01 to breach the average breakeven point on the downside at $13.69 at expiration. Options implied volatility on the stock has come down 10.4% to 40.63% just before midday on the East Coast.

Andrew Wilkinson

Senior Market Analyst


Caitlin Duffy

Equity Options Analyst


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