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Thursday, August 18, 2022


Options Trades Nn HSBC Signal Investor Optimism

Today’s tickers: HBC, TEVA, TLB & CAVM

HBC – HSBC Holdings PLC – Shares in the financial services provider increased 2.9% to $50.30 at the start of the trading week on news Europe’s largest bank by market value agreed to sell its upstate New York branch network to First Niagara Financial Group for around $1 billion. The London-based company said it plans to cut $3.5 billion in costs over the next two years by trimming 10% of its workforce and closing offices. HSBC posted better-than-expected first-half earnings ahead of the opening bell this morning. Options players cheered HSBC today by ditching downside protection, selling puts and engaging in light call buying in the front month. Approximately 4.1 put options are changing hands on HSBC for each single call option in action today. Investors expecting shares to exceed $49.00 through August expiration sold roughly 2,300 puts at the August $49 strike for an average premium of $0.74 apiece. Open interest at that strike suggests traders purchased around 2,000 of the Aug. $49 puts on Friday at an average premium of $1.41 each. Put sellers may be purging protective or bearish positions on HSBC post-earnings, or may be selling the puts outright to rake in available premium on the options. Investors engaging in the latter strategy keep the full amount of premium received as long as HSBC’s shares exceed $49.00 through expiration day in a few weeks. Similar put-selling took place at the August $48 strike where some 1,555 puts sold for an average premium of $0.39 a-pop, while 1,000 puts were sold at the August $47 strike at an average premium of $0.19 per contract. Meanwhile, investors expecting shares in the financial services company to continue to rise picked up some 560 in-the-money calls at the August $49 strike at an average premium of $1.35 each, and purchased around 620 calls at the August $50 strike for an average premium of $0.68 apiece. Call buyers profit at expiration if shares in HSBC rally above breakeven prices of $50.35 and $50.68, respectively. Options implied volatility on the stock is down 12.7% to arrive at 21.43% post earnings.

TEVA – Teva Pharmaceutical Industries, Ltd. – Traders flocked to options covering Teva Pharmaceutical Industries this morning after the company’s experimental multiple sclerosis drug, laquinimod, failed to meet the main goal of a recent clinical trial. Shares in the world’s largest generic drug maker dropped 6.35% on the news to $43.68 by 12:10 pm ET. Teva’s shares have fallen 23.5% since the end of January. A three-legged options combination play on the drug maker this morning suggests one strategist expects the price of the underlying to rebound somewhat by the end of the year. It looks like the investor sold 2,000 puts at the Dec. $40 strike for a premium of $1.45 each, purchased 2,000 calls up at the Dec. $45 strike for a premium of $2.28 per contract, and sold 4,000 puts at the Dec. $50 strike at a premium of $0.75 a-pop. The trader pockets a net credit of $0.67 per contract on the three-way trade, which he keeps as long as shares in Teva exceed $40.00 through expiration day. Additional profits are available to the investor should shares rally 3.0% over the current price of $43.68 to exceed $45.00 at expiration. The transaction may yield maximum potential profits of $5.67 per contract to the trader in the event that Teva’s shares surge 14.5% to settle at $50.00 at expiration in December. The rise in demand for TEVA options on the heels of disappointing clinical trial results helped lift the stock’s overall reading of options implied volatility 16.6% to 26.99% by 12:20 pm in New York trade.

TLB – Talbots, Inc. – Shares in the retailer of women’s apparel, shoes and accessories jumped 16.8% to an intraday high of $4.04 on news private-equity firm Sycamore Partners LP disclosed the purchase of a 9.9% stake in the company, making the firm the second-largest shareholder in Talbots. Options covering the retailer are popular with bullish speculators positioning for the price of the underlying to extend gains. Trading traffic is heaviest out at the January 2012 $5.0 strike where more than 2,500 calls changed hands against previously existing open interest of 1,070 contracts. It looks like investors purchased the majority of the calls for an average premium of $0.33 apiece. Call buyers profit if shares in Talbots surge 31.9% over today’s high of $4.04 to surpass the effective breakeven price of $5.33 at January expiration. Shares in Talbots last traded above $5.33 in May. The stock currently trades at a 70% discount to its September 30, 2010, 52-week high of $13.43.

CAVM – Cavium Networks, Inc. – Semiconductor processors provider, Cavium Networks, popped up on our scanners in the first 10 minutes of the session after one investor dabbled in puts expiring later this month. Shares in the Mountain View, CA-based company slipped 1.4% to $34.00 by 12:30 pm ET. The options player responsible for nearly all of the activity on CAVM today appears to be taking profits on a previously established position and extending bearish sentiment on the stock ahead of the company’s second-quarter earnings report after the final bell on Tuesday. Put open interest at the August $37 strike suggests 3,000 puts were purchased at that strike for $1.90 apiece last Tuesday morning. Today, an investor sold 3,000 puts at that strike for a premium of $3.30 each. Net profits on the sale amount to $1.40 per contract. Next, it looks like the trader initiated a fresh bearish stance on the stock by purchasing 3,000 puts at the August $34 strike for a premium of $1.65 per contract. Profits are available on the new put position if shares in Cavium Networks drop 4.9% from the current price of $34.00 to breach the effective breakeven price of $32.35 by expiration day.

Andrew Wilkinson

Senior Market Analyst


Caitlin Duffy

Equity Options Analyst


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