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Friday, July 12, 2024

Options Trades Look For Sotheby’s Shares To Leap Higher After Earnings


Today’s tickers: BID, AIG & WDC

BID – Sotheby’s Holdings Inc. – The major indices opened Wednesday in positive territory on the heels of a positive revision to fourth-quarter GDP data; however, gains proved short-lived as stocks reversed course during Fed Chairman Bernanke’s testimony to Congress. Sotheby’s shares followed the broad market trend, erasing early gains to trade 2.5% lower on the session at $38.96 as of 11:55 a.m. in New York. The auctioneer is scheduled to release fourth-quarter earnings after the final bell this afternoon, and it looks like some options players are initiating bullish positions on the stock ahead of the report. Options are most active out at the April $45 strike, where more than 1,800 calls changed hands against open interest of 900 contracts. Traders appear to have purchased the majority of the calls for an average premium of $1.02 apiece. The single largest transaction, a block of 807 of the calls, traded to the middle of the market within minutes of the opening bell at $1.05 each. Investors paying an average premium of $1.02 per contract for the call options may profit at expiration in the event that BID’s shares jump 18.1% over the current price of $38.96 to surpass the average breakeven price of $46.02. Shares in Sotheby’s last traded above $46.02 back in July 2011. The auctioneer’s shares have moved up more than 30.0% year-to-date.

AIG – American International Group, Inc. – The insurer popped up on our ‘most active by options volume’ market scanner this morning after a large block of call options changed hands in the April expiry. More than 19,300 calls in total have changed hands at the April $32 strike against open interest of just 843 contracts, with the largest stake initiated in one block of 16,445 calls just before 11:40 a.m. in New York. Shares in AIG are up 0.75% this afternoon to stand at $29.18, adding to gains enjoyed earlier in the week. Analysts at Bank of America Merrill Lynch raised their share price target on AIG to $40.00 from $32.00 on Tuesday. Perhaps in anticipation of continued gains in the price of the underlying, one investor appears to have purchased the large block of 16,445 April $32 strike calls for a premium of $0.38 apiece. The trader makes money at expiration if shares in AIG surge 11.0% to trade above the effective breakeven price of $32.38. Shares have climbed more than 20.0% since the start of 2012, but are well below their 52-week high of $38.42, and trade at just a fraction of the February 29, 2008, intraday high of $954.00.

WDC – Western Digital Corp. – Shares in the hard-drive maker are bucking the trend today, trading up 1.7% this afternoon at $40.05, on news Toshiba Corp. agreed to acquire hard-disk manufacturing equipment from the Company. The single-largest block of options in play on Western Digital Corp. this morning appears to be the work of an investor positioning for shares in the Irvine, California-based Company to post double-digit gains in the next couple of weeks. A total of more than 5,900 calls have changed hands at the Mar. $44 strike as of 12:15 p.m., against open interest of 1,266 contracts. The bulk of the volume traded in a block of 4,700 call options purchased at a premium of $0.57 apiece. The call buyer may profit at expiration next month as long as shares in WDC climb at least 11.3% to top the effective breakeven price of $44.57. Interest is also building in far out-of-the-money call options in the April expiry, most notably in the $45 and $46 strike contracts.


Caitlin Duffy

Equity Options Analyst

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