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Options On MetroPCS Pop Post Earnings

Today’s tickers: PCS, CTRP, PLL & TLM

PCS - MetroPCS Communications, Inc. – Shares in the wireless communications provider dropped like a rock this morning after the company’s profits for the second quarter came in below analyst estimates. MetroPCS shares surrendered 35.5% at times this morning to secure an intraday low of $10.44. The sharp correction in the price of the underlying spurred frenzied options trading in the front month. Investors engaged diverse strategies on the pay-as-you-go wireless operator, with some traders positioning for the price of the underlying to rebound and others betting bearish momentum has not yet run its course. Strategists expecting shares to recover somewhat ahead of expiration this month picked up more than 2,200 calls at the August $12 strike for an average premium of $0.30 a-pop. Call buyers profit if shares in PCS bounce 17.8% off its lowest point of the day to exceed the average breakeven price of $12.30 by August expiration. Like-minded optimists scooped up some 675 calls out at the September $13 strike for an average premium of $0.31 each. Meanwhile, bearish players purchased 1,400 puts at the August $11 strike at an average premium of $0.51 apiece, and picked up another 300 puts at the lower August $10 strike for an average premium of $0.19 per contract. Investors long the puts profit in the event that shares in PCS edge beneath the average breakeven prices of $10.49 and $9.81 by expiration, respectively. Finally, pre-earnings put buyers have a lot to smile about today. It looks like investors purchased around 4,000 puts at the August $14 strike for an average premium of $0.24 each on Monday. Securing the right to sell MetroPCS shares at $14.00 each today costs $3.20 per put option. In other words, the value of those put positions increased more than 13-fold overnight.

CTRP - Ctrip.com International, Ltd. – The provider of travel-related services in China attracted heavier than usual traffic in its options today after the Shanghai, China-based company’s forecast for third-quarter sales growth came in below the average analyst projection. Shares in Ctrip.com tanked post-earnings, sliding as much as 13.2% to an intra-session low of $39.05. It looks like the correction in CTRP shares enticed some buyers to the options arena, while other traders are taking a more cautious view on the stock. Investors itching for a near-term rebound in the price of the underlying purchased around 420 August $40 strike calls for an average premium of $1.64 each. Yet, nearly twice as many calls at the next strike price up – the August $41 strike – were sold at an average premium of $1.22 apiece. Buyers of the $40 strike call are hoping to see shares rally above $41.64, while sellers of the $41 strike call intend to keep the full $1.22 in premium as long as shares fail to exceed $41.00 at August expiration. As for CTRP put options, trading patterns are mixed but have a stronger bullish bias to them. Put volume is heaviest by far at the August $40 strike where more than 8,400 lots changed hands against open interest of 1,815 contracts. It looks like most of the puts sold for an average premium of $1.34 a-pop. Put sellers keep the full amount of premium received on the transaction if shares in the travel services company exceed $40.00 at August expiration. Traders short the puts stand ready to take delivery of CTRP stock at expiration in the event that the options land in-the-money. Options implied volatility on Ctrip.com International is down 13.5% on the day to arrive at 40.53% as of 12:15 pm ET.

PLL - Pall Corp. – Options activity on the supplier of filtration, separation and purification technologies suggests at least one strategist is positioning for shares in Pall Corp. to rally ahead of September expiration. Shares in the company are down 1.8% at $48.05 this morning. The stock was perhaps helped lower by competitor Parker Hannifin Corp.’s weaker-than-hoped for 2012 forecast released ahead of the opening bell this morning. Pall Corp. is slated to report fourth-quarter earnings after the close of trading on September 13. Pre-earnings optimism shone through in Pall Corp. options as more than 4,400 calls were purchased at the September $50 strike at a premium of $1.50 each. Bullish call buying at this strike may prove a profitable strategy in the event that shares in PLL rally 7.2% to exceed the effective breakeven price of $51.50 at expiration next month. Pall’s shares have lost 17.3% of their value since the start of July.

TLM - Talisman Energy, Inc. – Shares in the global oil and gas company are unlikely to sustain significant declines over the next six months, according to options strategists selling puts on the stock in the January 2012 contract this morning. The Canada-based company’s shares today trade 1.00% lower on the session at $18.14 as of 12:20 pm in New York. Talisman was raised to ‘Market Perform’ from ‘Underperform’ at Bernstein this week. Nearly all of the options activity on TLM thus far today centered in the Jan. 2012 $15 put, where more than 2,700 options changed hands against open interest of just 26 contracts. It looks like at least 2,500 of the puts sold for an average premium of $0.55 apiece. The put seller keeps the full amount of premium received on the transaction as long as Talisman Energy’s shares exceed $15.00 through expiration next year. Shrinking time value over the life of the options will work in favor of sellers. Subsiding levels of options implied volatility may also benefit put sellers. Investors short the puts could wind up having shares of the underlying stock put to them at an effective price of $14.45 each should the options land in-the-money at January expiration.


Andrew Wilkinson

Senior Market Analyst

ibanalyst@interactivebrokers.com

Caitlin Duffy

Equity Options Analyst


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