Today’s tickers: TTWO, ORCL, URBN & GG
TTWO – The maker of the “Grand Theft Auto” series of video games surged more than 5.5% during the session to arrive at the current price of $10.75. The software developer reported a loss of 66 cents per share for the third-quarter, which was narrower than the 68 cent loss expected by some analysts. Options action in the December contract appears to be the work of an investor selling volatility by enacting a short straddle. It seems the trader put on the trade by shedding 5,000 calls at the December 10 strike price for a premium of 1.60, and then simultaneously selling 5,000 puts at the same strike, receiving a premium of 1.10 per contract. The gross premium enjoyed on the transaction amounts to 2.70. The trader will retain the full 2.70 premium if shares settle at $10.00 by expiration in December. Because the trader now holds short positions in both calls and puts, he is vulnerable to losses if shares surpass the upper breakeven point at $12.70 by expiration, or if shares slip beneath the lower breakeven price of $7.30. Option implied volatility plummeted from yesterday’s reading of 83% to the current value of 57% following third-quarter earnings for TTWO. – Take-Two Interactive Software, Inc. –
ORCL – Investor demand for December contract put options caught our eye this morning amid a 1% decrease in shares of the software company to the current price of $21.79. Perhaps some traders have decided to take cautiously bearish stances on the stock after news reports revealed that the completion of Oracle’s acquisition of Sun Microsystems (JAVA) could be delayed by the European Commission (EC). The commission’s deadline to rule on the deal is this Thursday. However, the EC could launch an investigation that may take as many as four months, according to some reports. Plain-vanilla put buying was employed at the December 21 strike price where about 5,000 lots were picked up for an average premium of 1.30 apiece. Volume at the lower December 20 strike surpassed 19,000 contracts as traders appeared to have purchased 15,000 married put options for an average premium of 95 cents each. The purchase of shares of the underlying stock in conjunction with protective put options suggests that some investors expect the stock to appreciate by expiration in December. The puts provide downside protection on the long position in case shares decline 12.5% and breach the breakeven price at $19.05. Option trades on ORCL indicate that investors are taking caution given the uncertainty over the EC’s ruling. Such uncertainty is reflected in the steady rise in option implied volatility throughout the week from Monday’s low of 29% to the current reading of 34.5%. – Oracle Corp. –
URBN – Plain-vanilla put buying on the lifestyle merchandiser caught our eye amid a 1% move lower in the price of shares to $27.41. The puts may have been purchased by bearish investors looking to profit on continued downward movement in the price of the underlying, or could be the work of traders seeking protection on long stock positions. The October 27 strike price had about 4,100 puts picked up for a premium of 1.59 per contract. Downside protection (or profits) would kick in if shares continued to fall by 7% to breach the breakeven point at $25.41 by expiration next month. – Urban Outfitters, Inc. –
GG – Gold-mining companies are enjoying a rally today possibly sparked by increased risk-aversion. Shares at Goldcorp are higher by 6.6% at $38.51 while option volume is also active. But curiously the option activity is centered on the put side of the fence indicating one of two things. Either investors are buying stock and loading up on protection at the same time – a married put – or there is some suspicion that the rally will not gain traction. Gold is traditionally viewed as a safe haven during times of risk-aversion. With shares at a four-week high, investors were drawn to the September 35 strike puts where 27,500 contracts were traded at around 50 cents each. Current open interest at this strike is a mere 3,008 lots. The choice of strike is unusual given that it only offer a further two weeks of protection in the event that shares fell roughly 9% following today’s rally. In the October contract put premiums at the 34 strike almost halved to 1.00 this morning providing fresh impetus to bearish plays. – Goldcorp Inc. –
