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J.M. Smucker Co. Calls In Demand Despite Earnings Jam


Today’s tickers: SJM, MS & NILE

SJM – J.M. Smucker Co. – Shares in the maker of branded food products fell as much as 9.8% to $70.50 today after third-quarter earnings missed expectations and the Company cut its full-year earnings estimate. The sharp correction in the shares may be temporary, by the looks of trades placed in J.M. Smucker Co. options straight out of the gate this morning. Investors snapped up calls across several expiries, perhaps taking advantage of deeply discounted premiums on the contracts in the view that shares may rebound. March expiry call buyers targeted the $75 strike, buying around 280 lots for an average premium of $0.60 each. Traders long the calls may profit at expiration next month if shares in the peanut butter producer rally 6.5% over the current traded price of $71.00 to exceed the effective breakeven point at $75.60. Same-strike price calls in the April contract were purchased 200 times at an average premium of $1.10 apiece, positioning buyers to profit above a breakeven share price of $76.10. Meanwhile, third-quarter results and the revision to full-year guidance seem to have sparked concern in other strategists buying SJM puts. Traders positioning for shares to extend losses purchased around 150 of the Mar. $65 strike puts at a premium of $0.41 each, and picked up around 220 July $70 strike put options at an average premium of $3.50 per contract.

MS – Morgan Stanley – It looks like some Morgan Stanley options players paid heftier premiums than necessary for downside puts this morning. Reports that Moody’s may cut its rating on MS by up to three notches sent shares in the financial services firm down as much as 4.0% to $18.20, sparking demand for downside protection. The shaky start to the trading day was short-lived, however, as better-than-expected economic data spurred a market rally and lifted shares in Morgan Stanley 0.30% to $19.02 by12:35 p.m. in New York. But, before equities staged their mid-morning comeback, shares in Morgan Stanley were among those names in selloff mode. Options traders positioning for the pullback to continue had purchased around 15,000 puts at the Mar. $17 strike for an average premium of $0.58 each. The intraday recovery, however, has pushed the price tag on the puts down to $0.41 per contract. Premium required to secure the right to sell shares in MS at $17.00 at expiration has dipped nearly 30.0% since the puts were purchased. In contrast, traders that saw an opportunity to get long calls at reduced premiums during the earlier selloff picked up roughly 6,000 May $20 calls at an average premium of $1.12 each. These call options currently cost 23.0% more, or $1.38 per contract, as of 12:45 p.m. ET. Of course, circumstances for these put and call buyers could always reverse as evidenced by the market shifts already observed today.

NILE – Blue Nile, Inc. – Put activity on the online jewelry retailer suggests some traders are preparing for the price of the underlying to hit fresh 52-week lows by March expiration. Shares in Blue Nile today fell as much as 19.9% to $33.51 after the Company reported weaker-than-expected fourth-quarter earnings and guidance for the first quarter and full year. The stock has somewhat recovered as of 12:00 p.m., but remain deeply in the red, down 12.05% at $36.79. Analysts at a number of firms lowered their price targets on the stock today, including analysts at Deutsche Bank who cut their target to $21.00 from $24.00. Bearish options looking for shares in Blue Nile to further tarnish in the next few weeks picked up around 930 puts at the Mar. $30 strike for an average premium of $0.63 apiece. The majority of these contracts were purchased in a single block of 758 contracts in the first hour of the session. Put buyers may profit at expiration next month should shares in the online retailer decline another 20.2% to breach the effective breakeven price of $29.37. Shares in Blue Nile dipped to as low as $30.32 in the past 52 weeks, but haven’t traded below $29.37 since March 2009.


Caitlin Duffy

Equity Options Analyst


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