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Bullish Bets On TD Ameritrade Generating Big Paper Profits

 

Today’s tickers: AMTD, TPX & DKS

AMTD - TD Ameritrade Holding Corp. – Large bullish bets in August expiry options on online broker, TD Ameritrade, are trading for a third consecutive week, with shares in the name up 11% since the beginning of March to stand at $20.72 as of midday in New York on Friday. Big prints in Aug. $23 strike calls attracted some attention on February 28th, after roughly 40,000 of those contracts were purchased for a premium of $0.25 apiece. The following week on March 5th, another 40,000 contracts changed hands at the Aug. $23 strike at a premium of $0.35 each. This morning, it looks like another 20,000 of the Aug. $23 strike call options were purchased at a premium of $0.65 apiece. The contracts purchased at the end of February have more than doubled in value and the calls picked up last week have appreciated substantially as of the time of this writing. Continued gains in the price of the underlying ahead of August expiration may generate additional paper profits on these positions. Upside calls purchased on AMTD this morning make money at August expiration as long as shares in the online broker surge 14% to exceed the breakeven price of $23.65.

TPX - Tempur-Pedic International, Inc. – Shares in premium mattress maker, Tempur-Pedic, jumped 9.0% to $46.44 on Friday morning after the Federal Trade Commission cleared the company’s planned acquisition of Sealy Corp. in a transaction valued at approximately $1.3 billion. The sharp move in the price of the underlying shares sparked heavy trading traffic in TPX options at the start of the session; overall volume is above 13,000 contracts as of 11:00 a.m. ET, versus the stock’s average daily volume of around 11,750 contracts. One strategist appears to be taking a bearish stance on the stock through April expiration, with shares in TPX having increased 45% year-to-date and more than 120% since June of 2012. It looks like the trader initiated a ratio put spread, buying 300 puts at the April $44 strike and selling 600 puts at the April $40 strike, all for a net premium outlay of $0.40 per contract. The spread starts making money if shares in Tempur-Pedic decline 6.0% off today’s high of $46.44 to breach the effective breakeven point on the downside at $43.60. Maximum potential profits of $3.60 per contract are available on the position should shares in the mattress manufacturer drop roughly 14% to $40.00 by April expiration.

DKS - Dick’s Sporting Goods, Inc. – Shares in the sporting goods retailer are trading lower for an fourth consecutive session, down 1.9% to stand at $49.40 as of 12:20 p.m. ET ahead of the company’s fourth-quarter earnings report on Monday prior to the opening bell. Options activity on Dick’s Sporting Goods this morning suggests some traders are taking advantage of the pullback in the price of the underlying to initiate bullish trades on the stock. March and April expiry calls changed hands on DKS in the early going, with more than 2,000 contracts in play at both the Mar. $50.5 and $53 striking prices, and another 950 call options at the Apr. $50 strike. Time and sales data suggests most of the volume in the Mar. $50.5 and $53 strikes was purchased at average premiums of $0.95 and $0.40 apiece, respectively. Traders long the Mar. $53 strike calls may profit at expiration next week in the event that Dick’s shares surge 8% after earnings to exceed a breakeven price and fresh 52-week high of $53.40. Finally, options traders paid an average premium of $1.62 per contract for more than 750 of the April $50 strike calls today. These contracts make money as long as the stock gains at least 4.5% to trade above $51.62 at April expiration.

 

Caitlin Duffy
Equity Options Analyst


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