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New York
Friday, December 1, 2023

Straddle-Seller Takes To AIG

Today’s tickers: AIG, PHM, TKLC & CECO

AIG – American International Group, Inc. – The insurer’s shares, which fell 2.5% to trade at $23.31 this afternoon, may remain range-bound through year-end, according to one options position established in the December contract. AIG was cut to ‘Hold’ from ‘Buy’ with a 12-month share price target of $26.00 at Sandler O’Neill today. It looks like one investor sold a 5,000-lot straddle at the Dec. $24 strike for a gross premium of $3.45 per contract. The straddle-seller keeps the full amount of premium received on the transaction as long as shares in AIG settle at $24.00 at expiration day next month. Some amount of premium is safe in the investor’s wallet as long as shares trade within the $20.55 to $27.45 range implied by the position. But, the investor risks uncapped losses to the upside above the upper breakeven price of $27.45, and losses to the downside in the event that shares slip beneath the lower breakeven point at $20.55, at expiration in December. The position was not tied to stock.

PHM – PulteGroup, Inc. – The homebuilding company popped up on our scanners this morning after one investor initiated a large bullish position that may be profitable if PulteGroup’s shares realize double-digit gains by expiration next month. Shares in PHM are currently up 1.8% at $5.58 as of 11:50 am in New York, perhaps on a positive note about the sector from an analyst at Wells Fargo. It looks like one trader purchased a block of 12,000 call options at the Dec. $6.0 strike for a premium of $0.35 each, in the first hour of the trading week. The investor stands ready to profit should shares in PulteGroup rally another 13.8% over the current price of $5.58 to surpass the effective breakeven point on the upside at $6.35 by expiration. Shares in PHM last traded above $6.35 at the beginning of August.

TKLC – Tekelec – Shares in the provider of communication network software and systems surged 11.8% to a six-month high of $11.07 this morning on news investors led by private-equity firm, Siris Capital Group LLC, agreed to buy Tekelec for $780 million. Shareholders in the Morrisville, North Carolina-based Company will reportedly receive $11.00 a share in cash in the deal. Relatively large call open interest in the November contract suggests some strategists saw the value of previously established bullish positions on Tekelec sky-rocket on the move in the underlying shares today. The Nov. $9.0 strike call has more than 3,100 open positions. It looks like one investor purchased some 2,000 of those call options back on October 18, for a premium of $0.10 apiece. These same contracts are today selling for $2.00 a-pop. The investor responsible for the 2,000-lot position appears to be holding on to the contracts, but could potentially sell the calls at present for huge net profits of $1.90 per contract. In terms of fresh prints in TKLC calls, the Nov. $11.0 strike contract is most active, with nearly 990 call options having changed hands so far in the session. Investors appear to have purchased most of these calls for an average premium of $0.125 each this morning. News of the deal send options implied volatility on Tekelec crashing down 83.85% to 10.7% by 11:40 on the East Coast.

CECO – Career Education Corp. – Put selling on the for-profit provider of education services may represent a vote of confidence by at least one options strategist positioning for shares in Career Education Corp. to exceed $7.00 through November expiration. The stock was hammered in the most recent six-month period, declining around 75.0% off its 52-week high of $27.60 on June 2, down to a more than 10-year low of $6.92 last Thursday. CECO’s shares are in recovery-mode today, gaining 5.25% in the first half of the session to trade at $8.40 as of 11:15 in New York. Options traders exchanged some 4,400 puts at the Nov. $7.0 strike against open interest of 1,544 contracts. It appears the majority of these put options were sold for an average premium of $0.10 apiece. Investors selling the puts keep the full amount of premium as long as shares in CECO exceed $7.00 through expiration day later this month. Like-minded traders sold the Nov. $7.0 strike put more than 1,100 times on Friday to receive an average premium of $0.25 each. Investors may wind up having shares of the underlying put to them at average prices of $6.90 and $6.75, respectively, should the put options land in-the-money at expiration. Options implied volatility on the stock is down 6.5% to arrive at 93.3% this morning.

Caitlin Duffy
Equity Options Analyst


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