Traders Construct Bullish Positions Ahead Of Home Depot Earnings
by Option Review - November 14th, 2011 1:54 pm
Today’s tickers: HD, IBM, AVP & AREX
HD - Home Depot, Inc. – Options on Home Depot are among the most actively traded among single U.S. stocks ahead of the company’s third-quarter earnings release before the opening bell tomorrow. Shares in the home improvement retailer increased as much as 1.3% in the first half of the session to a new six-month high of $38.54, but currently trade flat on the day at $38.06 as of 12:05 PM in New York. Options traders have exchanged more than 65,000 call and put options on the stock, but are so far favoring calls, with more than 3.8 of the contracts changing hands for each single put in play today. Trading traffic is heaviest at the Nov. $39 strike, where more than 22,000 calls have traded against open interest of 7,424 positions. It looks like the majority of these calls were purchased for an average premium of $0.43 per contract. Call buyers may profit at November expiration later in the week should shares in Home Depot rally 3.6% over the current price of $38.06 to surpass the average breakeven point on the upside at $39.43. Shares in Home Depot last traded above $39.43 back in February. Options implied volatility on the stock is up 11.8% to stand at 30.6% ahead of earnings.
IBM - International Business Machines, Inc. – IBM options are humming with activity today following billionaire investor Warren Buffett’s interview on CNBC’s Squawk Box. Shares in IBM rallied 1.3% to $189.84 at the start of the session after Buffett revealed that Berkshire Hathaway acquired a 5.5% stake in the company, mostly during the third quarter. The acquisition of IBM stock reportedly cost Buffett’s cash-rich company $10.7 billion for 64 million shares. Investors positioning for shares in IBM to continue to climb this year snapped up call options in the December expiry. It looks like investors picked up 1,500 calls at the Dec. $190 strike for an average premium of $4.81 apiece, and purchased another 1,700 calls at the higher Dec. $200 strike at an average premium of $1.09 a-pop. Call buyers are prepared to profit should IBM’s shares rally another 2.6% and 5.9% to surpass the average breakeven prices of $194.81 and $201.09, respectively, by expiration day next month. Meanwhile, the purchase of a roughly 2,000-lot Nov. $185/$190 put spread at an average net premium of $1.74 per contract indicates at least one strategist is prepared…