More Profits on Urban Outfitters

By option_review

June 16, 2009

350

Today’s tickers: URBN, URE, IPG, WDC, JPM, STEC & ATHR

URBN– The clothing-haven for hipsters jumped to the top of our ‘hot by options volume’ market scanner this afternoon after one Urban-bear was observed taking profits in the January 2010 contract. It appears that this individual originally established a 40,000 lot put spread on July 22, 2008, at a net cost of 4.50. The trader partially unraveled the spread on November 13, 2008, leaving open interest of approximately 28,000 lots at each of the strike prices involved in the spread. Today he has once again targeted his urban-hunting ground to go in for the kill by closing out the position completely. The January 15 strike price saw 26,500 put options purchased for a premium of 1.19 apiece spread against the sale of 26,500 deep in-the-money puts at the January 30 strike for 10.04 per contract. The gross premium realized on this leg of the trade amounts to 8.85. Subtracting the 4.50 paid to initially purchase the bearish put spread yields profits of 4.35 or approximately $11,527,500. – Urban Outfitters, Inc.

URE– The bruised and battered real estate ETF has deflated more than 4.5% today to $3.50. In just a few short days, it will have been one full year since the fund was trading a staggering 841% higher at $32.94. One investor, who has no doubt witnessed the plunge in the price of the underlying over the course of the year, has taken a bearish stance on the stock today. This individual looks to have sold short 25,500 puts at the July 3.0 strike price for a premium of 15 cents per contract or $382,500. If the price of the URE falls beneath $3.00 by expiration, the trader appears happy to have the underlying shares put to him at an effective price of $2.85 each. Otherwise, he retains the full premium received on the transaction if the puts land out-of-the-money by the third Friday of next month. – ProShares Ultra Real Estate

IPG – Shares of the advertising and marketing services firm have declined more than 2% today to stand at $5.53. Despite the current erosion in the price of the underlying, one option trader was observed getting bullish on the stock through expiration in October. Hoping for a significant recovery in shares, the investor purchased 31,500 calls at the October 7.5 strike price for an average premium of 35 cents per contract. The price of the stock must rally 42% from the current price in order for profits to amass starting at the breakeven point at $7.85. Shares have not climbed higher than the breakeven point since September 26, 2008. – Interpublic Group of Companies, Inc.

WDC– The maker of hard-disk drives, which in March acquired SiliconSystems, today announced the launch of its first suite of hardware through its new unit. The new computer storage systems supposedly feature faster read/write speeds and carry increased capacity. The company claims that the latest technology is a perfect multimedia and data content storage venue and hopes to use its global sales and distribution channels to help reach a new audience outside of SiliconSystems’ established reach. Shares in the company are lower by 1.2% at $24.57 in early going and option traders appear to have a thing about the July 22.5 puts where option volume today has swollen to more than four times closing open interest. Bearish option plays started early in the session where investors paid 75 cents to claim selling rights at a fixed share price of $22.50 ahead of July’s expiration. Western Digitals have about doubled since March topping out above $25 recently. Near-term support at $23.00 appears to be the big hurdle while implied volatility is up nearly 20% today at 56%. Much of today’s put buying pressure appears to center on a recommendation to do so judging by the trading pattern of volume. – Western Digital Corporation

JPM – The banking institution’s shares have recovered from a slight decline at the start of the trading day and are currently up less than 1% to $34.09. Options activity observed on the stock suggests mixed sentiment by medium- to-long-term investors populating our screens. One bullish trader looked to the September 34 strike price to sell 5,500 puts for a premium of 3.70 per contract. The trade has rewarded the investor with rich, nearly in-the-money, put premium. In exchange, the investor is obliged to have shares of the underlying put to him by expiration at an effective price of $30.30 each if the puts land in-the-money. In contrast to the put-selling activity, a bearish trader was seen scooping up approximately 7,300 puts at the December 30 strike price for 3.45 each. This transaction could indicate that this trader expects JPM’s share price to erode significantly over the next six months. In order for the investor to garner profits to the downside, the stock would need to decline 22% from the current price and fall beneath the breakeven point at $26.55 by expiration. We note that shares of JPM have not traded beneath $30.00 since April 20, 2009. – JPMorgan Chase & Co.

STEC – The manufacturer of custom memory solutions appeared on our ‘top option implied volatility % gainers’ market scanner this morning as volatility on the stock climbed 29% from yesterday’s reading of 62% to as high as 80%. Currently, volatility has come off slightly to 74% amid a more than 30% rally in the price of the underlying to $23.28. STEC significantly increased its forecast for second-quarter earnings to a range of $0.32 to $0.36 versus previous guidance of $0.20 to $0.22 per diluted share. The bullish announcement by the firm sent shares flying right through the existing 52-week high of $21.43 and attracted bullish call buyers to the STEC-arena. The now in-the-money June 22.5 strike price had 1,500 calls bought for an average premium of 91 cents apiece while the higher June 25 strike had 1,000 calls purchased for 37 cents per contract. Investors long the June 22.5 strike calls are hoping shares rise a paltry 13 cents in order to breach the breakeven point at $23.41 by Friday. – STEC, Inc.

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