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Thursday, March 28, 2024

Bears Augment Put Positions On Consumer Discretionary ETF

Today’s tickers: XLY, REGN, WM & CMC

XLY – Consumer Discretionary Select Sector SPDR Fund – Bears are hoarding put options on the Consumer Discretionary SPDR Fund following the release of dismal employment figures ahead of the open this morning. We noted growing interest in XLY puts on Tuesday and Wednesday of this week, which suggested traders were hungry for varying degrees of protective or bearish positions on the sector. Shares in the XLY, an exchange-traded fund that tracks the performance of the Consumer Discretionary Select Sector of the S&P 500 Index, are down 1.9% in early-afternoon trade to stand at $36.42. The fund’s shares have fallen roughly 13.0% since hitting a 52-week high of $41.78 in the first full trading week of July. The sizable positions initiated in XLY puts earlier in the week, pale in comparison to the large bearish prints in the options today. It looks like one or more investors purchased some 34,750 puts at the October $30 strike for an average premium of $0.41 apiece. Put buyers profit if shares in the XLY plunge 18.75% from the current price of $36.42 to breach the average breakeven point on the downside at $29.59 by expiration day next month. Much of the 17,564 puts represented in open interest at the October $30 strike were purchased Tuesday for an average premium of $0.36 each. Traders long the put options may see the value of their positions appreciate if the price of the underlying fund continues to push lower in the next seven weeks to October expiration day.

REGN – Regeneron Pharmaceuticals, Inc. – Demand for Regeneron calls jumped after the New York Times reported five more patients using Roche’s cancer drug Avastin to treat eye diseases were blinded. Shares in the biotechnology company Regeneron, which is seeking FDA approval of its Eylea ophthalmic solution to slow the progression of wet age-related macular degeneration and improve vision in those patients, surged 15.4% to an intraday high of $68.60 today. An FDA panel already voted unanimously to recommend approval of Eylea back in June. Investors expecting shares in REGN to continue to climb picked up calls across multiple expiries. Near-term bulls snapped up more than 515 in-the-money calls at the September $65 strike for an average premium of $1.87 each, while another 415 calls were purchased for an average premium of $1.52 apiece at the September $70 strike. Traders long the calls make money if REGN’s shares exceed the average breakeven prices of $66.87 and $71.52 at expiration, respectively. Investors buying around 200 November $85 strike calls at a premium of $1.19 per contract may see the value of their options increase as the FDA’s November 18 decision date nears.

WM – Waste Management, Inc. – Shares in the provider of integrated waste services had recovered sharply off their August 9 two-year low of $27.75 in the past few weeks, but the arrival of a new calendar month and renewed fear in the markets sent the stock back down. Bearish action in October contract put options suggests one strategist expects the selloff in Waste Management will continue. Shares in the Houston, Texas-based company are down 2.7% to stand at $31.22 as of 11:30 am ET. More than 6,400 put options changed hands at the October $31 strike against previously existing open interest of 1,254 contracts. It looks like nearly all of the puts were purchased by one investor at a premium of $1.85 a-pop. The trader profits if shares in Waste Management fall another 6.6% to breach the effective breakeven point on the downside at $29.15 by October expiration day. Options implied volatility on the stock is currently up 10.8% at 44.26%.

CMC – Commercial Metals Co. – Call options on the manufacturer of steel and metal products attracted at least one bullish strategist this morning, perhaps after an August 15 filing with the SEC showed that billionaire Carl Icahn increased his holdings in the Irving, Texas-based company to 9.98% from 7.98%. Shares in Commercial Metals Company are down 1.8% to arrive at $11.25 as of 11:45 am in New York. The stock has lost nearly 40.0% of its value since February. One investor snapped up some cheap deep out-of-the-money call options on CMC, which could get expensive very quickly in the event of a rebound in the price of the underlying. It looks like the trader purchased 1,000 calls up at the October $15 strike for a premium of $0.10 apiece. At expiration, shares would need to be trading at a 34.2% premium to the current price of $11.25 in order for the investor to break even on the position at $15.10. But, shares need not rally all the way up to $15.10 for the speculative play on CMC to be profitable ahead of expiration. The value of the calls may increase if shares or implied volatility on the stock climbs, which could allow the trader to sell the contracts at an advantageous price.


Andrew Wilkinson

Senior Market Analyst

ibanalyst@interactivebrokers.com

Caitlin Duffy

Equity Options Analyst

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