Today’s tickers: : V, GE, DRYS, VIX, SIRI, PCLN, AMZN & TGT
V – Visa Inc. – Shares of the retail electronic payments network have slipped over 3% to $54.09. Despite the decline, a call spread was established by one investor looking for a near-term rally. At the February 55 strike, 4,772 calls were purchased for 1.30 each, while at the March 60 strike price, 4,772 calls were sold for a premium of 1.20 per contract. Thus, the net cost to the trader amounts to 10 cents yielding a breakeven share price of $55.10 before any profits are realized. The calls currently have a 40% chance of landing in-the-money by expiration, thus this trader was wise to sell the calls in March because he effectively lowered his breakeven point by 1.20. While this investor paid 10 cents for the call spread, an investor looking to take a similar bullish position on Visa today could do so at a 15 cent credit per contract, as premiums have fallen over the course of the day.
GE – General Electric Company – Option traders were active on GE today as shares have declined by 4% to $10.97. One trade of note was a calendar roll established by selling an existing 13,000 in-the-money puts at the February 12 strike price for a premium of 1.49 apiece against the opening purchase of 13,000 puts at the lower March 11 strike price for 1.26 per contract. Today’s low on GE of $10.71, has come within a nickel of the 52-week low on the stock of $10.66. Elsewhere, traders purchased 10,500 calls at the March 12.5 strike price for 34 cents each, perhaps an indication of mild optimism going forward. At the June 20 strike, traders sold over 10,000 calls for a premium of 10 cents per contract. These calls only have a 5% chance of landing in-the-money by expiration at present valuations. Additionally, implied volatility on GE jumped 18% over the holiday weekend to today’s 85% level.
DRYS – Dryships, Inc. – Shares of the dry-bulk carrier are once again hurting, down 16% to $4.00 today. As strains on global trade continue to hurt the shipping industry, DRYS investors sought further protection in the February contract. Traders picked up over 6,600 puts at the February 2.5 strike for 10 cents apiece. Premiums at the strike have doubled since Friday even though there is currently only a 4% chance that the contracts will land in-the-money by expiration in just 3 days.
VIX – CBOE Volatility Index – Just when you thought it couldn’t get any worse, a wave of selling pressure hit global equities caused by further reports of economic weakness and the deepest contraction in New York area manufacturing activity on record. Investors keep looking for a floor in American equities only to find that the floorboards in overseas markets are rapidly being removed. Wall Street’s so-called ‘fear gauge’ skyrocketed from the outset in response and rallied 16% to 49.85. On the CBOE a customer paid a premium of 3.4 for around 14,000 put options expiring in May offering rights to sell the VIX at a fixed 35.0. This investor is fast out of the gate today to buck the trend and is at odds with the rest of the community. We wonder why the rush to establish this position today. While the VIX index has halved since the hairy days in November when equities were last at a trough, much of the reason for calm comes in the form of government action. The current wave of equity selling is provoked by fears that such measures are too little and tool late, perhaps representing little more than a drop in the ocean.
SIRI – Sirius XM Radio Inc. – We don’t usually color activity on penny stocks, but we found Sirius on our market scanner today after it secured a $500 million loan from John Malone at Liberty Media. Option trading in Sirius on Friday was huge and it appeared that investors were taking a cheap and long-run shot at the company’s revival before next January’s option expiration. Some 20,000 calls at the 2.50 strike price were traded at that expiration ahead of desperate discussions aimed at rescuing the company from its debt burden. Today a further 2,945 contracts have been bought for a nickel while its shares have doubled over the weekend to just 20 cents. Thanks to an extremely elevated reading of implied options volatility at that strike price (193%), the current reading of delta implies a one-in-three chance of shares in Sirius XM trading back up to $2.50 by that time.
PCLN – Priceline.com Inc. – Shares of the online travel company are off by 3% to $70.40, but appeared on our ‘hot by options volume’ market scanner after one bullish trader initiated a call spread in the April contract. This trader established the spread by buying 15,500 calls at the April 85 strike price for 2.36 each, and selling 15,500 calls at the 90 strike for a premium of 1.33. In order to partially finance this optimistic play, the same investor looks to have sold 15,500 puts at the April 45 strike price for a credit of 62 cents. The decision to sell puts short at the 45 strike price was likely due to the fact that PCLN’s 52-week low is $45.15 and delta on the trade yields a 6% chance of the puts landing in-the-money by expiration in April. Thus, this investor effectively reduced the net cost of the call spread to 41 cents per contract. Shares still need to rally by 20.1% just to reach the breakeven strike price of $85.41 while this bullish investor stands to make a maximum profit of 4.59 if shares can climb to the April 90 upper strike on the spread.
AMZN – Amazon.com – A call spread initiated this morning indicates one bullish trader at work in the February contract, despite the 2% decline in shares to $61.76. This investor is hoping shares will rally before expiration this coming Friday, as he purchased about 2,300 calls at the February 65 strike for 58 cents each, and sold 2,300 calls for a penny apiece at the February 70 strike price. The net cost of the trade is 57 cents, and therefore this investor will begin to profit at a breakeven of $65.57. He stands to make a maximum profit of 4.43 should shares climb all the way to the upper strike price at $70.00. This investor clearly hopes that the fears apparent in today’s broad market decline won’t stick around all week and might afford him the chance of bailing out for a gain ahead of expiration.
TGT – Target Corporation – Despite the slight dip in shares by 2% today to $29.48, one investor has made a bullish move on the retailer. At the April 42.5 strike price, one trader purchased 7,500 calls for 17 cents apiece. This optimistic position yields a breakeven price of $42.67, at which point the calls begin to produce profits. While the overall implied volatility reading on Target’s options stands at 71%, the April series carries a reading of 57%, which is far more in-line with the pattern exhibited on the share price, which carries a historic reading of 55%. So the investor is not necessarily overpaying to establish a bull position. Nevertheless, it’s a position that now requires a hefty 44% share price gain before reaching the strike price.
