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Strategists Put Call Options To Work As CEO Comments Spark Monster Rally


Today’s tickers: MWW, TD & CP

MWW - Monster Worldwide, Inc. – Shares in the online employment solutions provider are off to the races today, rallying nearly 20.0% this morning to $7.78 after the Company’s CEO said it is looking at strategic alternatives to increase shareholder value. The positive comments spurred a rush into Monster Worldwide options, with front month calls seeing most of the action. Trading traffic is heaviest at the Mar. $8.0 strike where more than 9,600 calls have changed hands against open interest of just 838 contracts. Strategists speculating the bullish move in Monster’s shares is likely to continue in the near term, appear to have purchased the majority of the $8.0 strike calls for an average premium of $0.30 each. Call buyers may profit at expiration as long as MWW’s shares rally another 8.5% over the current traded price of $7.65 to exceed the average breakeven point at $8.30. Bullish positioning spread to the April expiry calls, as well, with around 1,000 contracts purchased at the $9.0 strike for a premium of $0.20 a-pop. Traders long these contracts stand ready to profit at expiration next month in the event that Monster Worldwide’s shares surge 20.3% to top the effective breakeven price of $9.20. Shares in MWW last traded above $9.20 back in November, having at that point erased nearly half of its value based on the April 2011 52-week high of $17.73. The stock closed Wednesday at $6.94, down 60.0% off the April high.

TD - Toronto-Dominion Bank – A large spread in Toronto-Dominion Bank put options may be read as a sign of caution on the financial services provider despite the release of better-than-expected first-quarter earnings ahead of the opening bell this morning. It looks like one investor purchased a put spread that yields maximum possible profits if the shares sustain double-digit declines over the next seven weeks to expiration. Shares in TD Bank are currently up 2.4% on the morning’s earnings beat and announced boost in dividend to stand at $83.45 as of 12:20 p.m. in New York. The put player appears to have purchased 7,827 puts at the April $80 strike, selling the same number of puts at the lower April $70 strike, for a net premium outlay of $0.90 per contract. The transaction may represent an outright bearish bet that shares are likely to pullback in the near term, or a protective spread to hedge a long position in the underlying stock. Shares in the name have rallied an impressive 20.0% in the most recent three month period. Perhaps the spread represents an insurance policy on those gains in case the stock should falter. The investor responsible for the transaction starts to make money – or realize downside protection – if shares in TD Bank decline 5.2% to breach the effective breakeven price of $79.10, with maximum potential profits of $9.10 per contract available on the strategy in the event of a more than 16.2% pullback in the shares to $70.00 or below by April expiration.

CP - Canada Pacific Railway Ltd. – Shares in the provider of rail freight transportation services rose 2.1% to $76.31 today, joining Canadian equities in rallying on the back of strong earnings reports and dividend increases from the country’s two largest lenders. Options activity on Canada Pacific Railway this morning suggests at least one strategist is positioning for the shares to extend gains and rally to fresh multi-year highs by June expiration. Trading traffic in CP options is heaviest out at the June $75 strike, where more than 3,900 in-the-money calls changed hands against open interest of 2,621 positions. It looks like the majority of the call options were purchased for an average premium of $4.67 apiece. Call buyers may profit if shares in Canada Pacific Railway climb 4.4% to trade above the average breakeven price of $79.67 by June expiration. Shares in CP last traded above $79.67 back in July 2007.

 

Caitlin Duffy

Equity Options Analyst


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