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Call Seller On Activision Blizzard Eyes Pullback In 2012

Today’s tickers: ATVI, CECO, TRGT & RENN

ATVI - Activision Blizzard, Inc. – Shares in video game developer Activision Blizzard went the way of the broad market this morning, declining 2.05% to $11.99 in the first half of the trading session. Activity in Activision options indicate one strategist doubts shares will rebound in the first half of 2012. It looks like the trader sold two chunks of 3,717 call options at both the May 2012 $12 and $13 strikes to pocket premiums of $1.00 and $0.54 per contract, respectively. The investor responsible for the transaction retains the full amount of premium as long as shares in ATVI trade below $12.00, and the calls land out-of-the-money at expiration day in May.

CECO - Career Education Corp. – Put selling on the provider of for-profit education services suggests one investor is betting shares in Career Education Corp. are unlikely to realize sharp losses during the next five weeks to January 2012 expiration. Shares in CECO are up 0.60% to stand at $7.18 in early-afternoon trade. The investor responsible for generating nearly all of the volume in Career Education Corp. options today appears to have sold 5,700 puts at the Jan. 2012 $6.0 strike for a premium of $0.35 each. The trader walks away with the full amount of premium in hand as long as CECO’s shares exceed $6.00 at expiration day next year. But, if shares drop and the put options land in-the-money, the investor may be obliged to purchase 500,000 shares of the underlying at $6.00 each regardless of where shares trade in the open market. The premium received for bearing this risk acts as a limited buffer against losses on the downside. Losses kick in if shares in CECO plunge 21.3% to breach the effective breakeven price of $5.65 at expiration.

TRGT - Targacept, Inc. – Shares in the biopharmaceutical company rallied as much as 4.3% to an intraday high of $7.80, one week after the company announced it was initiating two clinical studies of a product candidate, TC-5619, to evaluate its possible use in treating certain symptoms of schizophrenia and ADHD in adults. Options trades on TRGT this week and last suggest some investors are gearing up for shares in the drug maker to head higher in the first half of 2012. On Friday, one investor stepped in to purchase a large 10,000-lot $17.5/$30 call spread in the May 2012 contract. Today it appears a like-minded optimist purchased a 3,000-lot May 2012 $10/$17.5 strike call spread for a net premium of $1.00 per contract. The strategist stands ready to profit should shares in Targacept surge 41.0% to exceed the effective breakeven price of $11.00 at expiration day next year. Maximum potential profits of $6.50 per contract are available on the spread should shares in TRGT jump nearly 125.0% to top $17.50 by expiration in May. Targacept’s President and CEO, J. Donald deBethizy, Ph.D., is scheduled to present tomorrow afternoon at The Oppenheimer & Co. 22nd Annual Healthcare Conference in New York City.

RENN - Renren, Inc. – The Chinese social networking internet platform popped up on our market scanners this morning after a sizable transaction printed in the Jan. 2012 contract call and put options. It looks like one investor may have sold a straddle on Renren to position for shares in the name to settle at $4.00 at expiration next month. Shares in Renren today fell 2.2% to stand at $3.60 as of 12:55 PM in New York. It appears one investor sold 5,000 calls at the Jan. 2012 $4.0 strike for a premium of $0.25 each, and sold 5,000 puts at the same strike at a premium of $0.65 apiece. The strategist pockets gross premium of $0.90 per contract, which he keeps as long as RENN’s shares settle at $4.00 at expiration in January. The short straddle may work against the trader and result in losses if shares in the Internet stock settle above the upper breakeven price of $4.90 or slip beneath the lower breakeven point at $3.10, at expiration. Renren’s shares have not exceeded $4.90 since November 14, and have not dipped below $3.10 since the company had its IPO in May.

 

Caitlin Duffy

Equity Options Analyst


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