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Options Traders Pounce On Overstock.com Calls As Shares Extend Rally

 

Today’s tickers: OSTK, COF & OSIS

OSTK - Overstock.com, Inc. – Shares in Overstock.com, Inc. are spiking for a second-consecutive session, helped higher today by an upgrade to ‘buy’ from ‘underperform’ at Bank of America-Merrill Lynch. The off-price online retailer rallied 22% to $19.25 this morning, adding to the 36% increase in the price of the underlying during Thursday’s trading session following the company’s better-than-expected first-quarter earnings report released ahead of the open yesterday. Options changing hands on Overstock.com indicate some traders are positioning for shares to extend gains in the near term. Upwards of 1,500 calls have traded at the May $20 strike versus zero open interest, with much of the volume purchased in the early going at an average premium of $0.48 apiece. Call buyers stand ready to profit at expiration should shares in OSTK settle above the average breakeven price of $20.48. Fresh interest is also on the rise in the $20 strike call options expiring in June and September. Positions established in the April $15 strike call and put options yesterday are generating profits for some options players today. Open interest in the $15 strike puts jumped by around 860 contracts overnight, and a review of Thursday’s trading activity indicates most of the puts were sold at a premium of $0.30 each. The puts are now far out-of-the-money, suggesting put sellers are likely to walk away with the full amount of premium received at expiration. Finally, April $15 strike calls purchased yesterday at $0.24 each are today changing hands at $3.90 apiece as of the time of this writing.

COF - Capital One Financial Corp. – Trading traffic in weekly call options on Capital One suggests one or more traders are gearing up for shares in the name to extend gains in the near term. Shares in COF are up more than 6.0% in early afternoon trading to stand at $56.10 after the company reported first-quarter earnings that exceeded analyst expectations following the close of trading on Thursday. Upside call buying in the weeklys looks for shares to continue higher, with the April 26 ’13 $55 strike calls changing hands 1,300 times versus open interest of 48 contracts. It looks like most of the $55 calls were purchased for an average premium of $0.84 each in the early going this morning. Traders long the calls at $0.84 are already seeing the value of the contracts move in their favor, with the last traded price on the contracts up at $1.40 as of 12:25 p.m. ET. Profits are available at expiration if shares in COF settle above the average breakeven price of $55.84. Meanwhile, traders with perhaps a less rosy outlook on COF shares during the next five trading sessions appear to have purchased around 420 of the April 26 ’13 $52.5 strike put options at a premium of $0.15 each. These contracts make money at expiration if the price of the underlying pares post-earning gains to trade below an effective breakeven price of $52.35.

OSIS - OSI Systems, Inc. – Put activity on the maker of medical monitoring and anesthesia systems look for shares in OSI Systems to tumble following the company’s third-quarter earnings report ahead of the open next Wednesday. Shares in OSIS are roughly flat at present, down just 0.05% to stand at $54.97 as of 12:30 p.m. ET. The stock has dropped more than 15% since the beginning of the year. Options traders positioning for the price of the underlying to extend losses in the near term appear to have purchased around 2,000 puts at the May $50 strike at a premium of $1.00 per contract. Profits are available on the bearish position should shares in OSI Systems decline more than 10% from the current level to trade below the breakeven price of $49.00 at May expiration. Shares last traded below $49.00 in November.

 

Caitlin Duffy
Equity Options Analyst


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