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Sunday, February 5, 2023


Put Spread Eyes Sharp Pullback In CAT Shares

Today’s tickers: CAT, PANL, LIFE & SLXP

CAT – Caterpillar, Inc. – The machinery maker’s shares may surrender much of the gains posted during the October rally, according to one bearish strategy initiated in the December contract this morning. Shares in Caterpillar are in the red this afternoon, along with all of the other Dow 30 names, to trade 3.5% lower at $92.50 as of 12:45 pm ET. It looks like one investor initiated a roughly 3,000-lot bearish put spread, buying the Dec. $90 puts, and selling the same number of Dec. $75 options, for an average net premium outlay of $3.07 per contract. The trader may profit at expiration next month if CAT’s shares fall 6.0% to breach the average breakeven price of $86.93. The investor may pocket maximum potential profits of $11.93 per contract should shares Caterpillar plunge 18.9% to trade below $75.00 at December expiration day. CAT’s shares last traded below $75.00 back on October 7. The stock presently trades 37.0% higher than its October 4 52-week low of $67.54.

PANL – Universal Display Corp. – Shares in Universal Display Corp. rallied as much as 11.75% to an intraday high of $55.25 after the company posted better-than-expected third-quarter earnings. The provider of components and technologies used in the production of flat-panel displays earned $0.12 a share, excluding some items, which beat the average expectation that the firm would break even for the quarter. Shares in PANL are off their highs off the morning to stand 8.2% better on the day at $53.49 as of 11:25 am ET. One options player appears to be positioning for shares in Universal Display Corp. to continue to climb through November expiration. It looks like the investor purchased a 1,000-lot Nov. $55/$60 call spread at a net premium of $2.10 per contract. Profits are available on the spread should PANL’s shares rally another 6.7% to surpass the effective breakeven price of $57.10. The bullish trade yields maximum potential profits of $2.90 per contract to the investor in the event that shares in Universal Display surge 12.2% over the current price of $53.49 to trade above $60.00 at expiration. Options implied volatility on the stock is down 20.1% to arrive at 81.9% in the first half of the session.

LIFE – Life Technologies Corp. – Put options on biotechnology company Life Technologies Corp. are more active than usual this morning. Shares in the name are down better than 3.0% to stand at $40.37 as of 11:30 am ET, but it does not appear that put players are taking bearish stances on the stock. On the contrary, it looks like investors are selling puts, perhaps because they expect shares in Life Technologies to stem losses over the next few months. Volume in LIFE puts is heaviest at the Feb. 2012 $35 strike, where roughly 3,000 contracts changed hands against open interest of 637 positions. It looks like the majority of the puts were sold for an average premium of $1.06 apiece. Sellers of the options walk away with premium in hand at expiration in February as long as shares in the biotechnology company settle above $35.00. Nearer-term optimism cropped up in the Dec. $40 strike put, where one trader sold 219 lots to pocket premium of $1.50 per contract. The investor keeps the full amount of premium received, around $32,850, if LIFE’s shares exceed $40.00 at expiration day next month. But, the trader is on the hook to purchase 21,900 shares at an effective price of $38.50 each should the puts land in-the-money at December expiration.

SLXP – Salix Pharmaceuticals, Ltd. – The drug maker’s shares increased 8.4% to $37.56 in the first half of the session after the company said it earned $0.77 a share in the third quarter, excluding one-time items, which came in above the average forecast of $0.63 a share. Salix Pharmaceuticals also agreed to pay $300 million in cash to purchase privately held Oceana Therapeutics, an acquisition the company expects to complete in December. Despite the sharp rally in the price of the underlying, it appears one investor is positioning for the stock to surrender those gains, and then some, ahead of November expiration. The buyer of the 1,000-lot Nov. $30/$34 put spread for a net premium outlay of $1.50 per contract may profit at expiration next week if shares in Salix drop 13.5% to breach the effective breakeven price of $32.50. Maximum potential profits of $2.50 per contract are available to the put player in the event that the drug maker’s shares plunge 20.1% to trade below $30.00 at expiration. The stock last closed below $30.00 back on October 4. Another bearish trader appears to have purchased 229 puts at the Nov. $35 strike for an average premium of $1.80 each. The put buyer may profit if SLXP’s shares settle below the breakeven price of $33.20 at expiration.

Caitlin Duffy
Equity Options Analyst


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