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Friday, July 19, 2024

AeroVironment Calls In Play As Shares Take Off

Today’s tickers: AVAV, YHOO & JCI

AVAV – AeroVironment, Inc. – Shares in the maker of drones are ripping higher on Wednesday morning, up as much as 15.5% in the early going to $23.85, the highest level since October of 2012, on reports activist investment firm, Engaged Capital LLC, has taken a roughly 5% stake in the company. Options traders betting the stock continues to move higher in the near term snapped up call options on AeroVironment. It looks like traders picked up more than 400 now in-the-money calls at the Jul $22.5 strike for a premium of $0.40 apiece during the first 30 minutes of the trading session. Intraday gains in the price of the underlying since those contracts were purchased has pushed the price tag on the $22.5 strike calls up to $1.25 each as of 11:20 a.m. ET. Bulls also appear to have purchased roughly 400 in-the-money calls at the Aug $22.5 strike for an average premium of $0.66 per contract in the early going. Premium required to purchase the Aug $22.5 calls has more than doubled since this morning to $1.60 as of the time of this writing. Finally, around 380 calls changed hands at the Aug $25 strike versus zero open interest, with most of the volume purchased for an average premium of $0.49 each. Traders long the Aug $25 strike calls stand ready to profit at expiration next month should shares in AVAV rally 8.4% over the current price of $23.51 to exceed the average breakeven point at $25.49.

YHOO – Yahoo! Inc. – Options volume is soaring on Yahoo today, with more than 125,000 contracts traded on the stock by 11:35 a.m. in New York versus average daily volume of around 37,000 contracts. Most of the action is in YHOO calls, with shares in the Internet media company up better than 7.5% to touch a five-year high of $28.91 following the company’s second-quarter earnings report as well as blowout earnings reported by Chinese e-commerce company, Alibaba, in which Yahoo holds a sizable investment. One options strategist appears to be positioning for the price of the underlying shares to rally substantially by the start of next year, buying a 3,000-lot Jan 2014 $31/$36 call spread at a net premium of $0.88 per contract. The bullish trade starts making money if shares in Yahoo rally another 10% over today’s high of $28.91 to top the effective breakeven point at $31.88. Maximum potential profits of $4.12 per contract are available on the spread in the event that Yahoo’s shares jump 25% to $36.00 by January expiration.

JCI – Johnson Controls, Inc. – Shares in Johnson Controls are in positive territory today, up 0.25% on the session at $37.25 as of 11:50 a.m. ET, but options changing hands on the stock indicate at least one trader is bracing for shares to potentially decline following the company’s third-quarter earnings report ahead of the opening bell tomorrow. The Jul $37 strike puts are the most actively traded options by volume on JCI thus far today, with more than 4,000 contracts in play versus open interest of 852 contracts. It looks like one trader purchased most of the volume earlier in the session for an average premium of $0.51 apiece. The bearish options make money if shares in Johnson Controls decline 2.0% from the current price of $37.25 to breach the average breakeven point on the downside at $36.49 by expiration at the end of the week.


Caitlin Duffy
Equity Options Analyst

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