Today’s tickers: LULU, XLE, OIH, JPM, IOC, CYB, AMSC, MW, SVU & JTX
LULU – Lululemon Athletica, Inc. – Investors are hoarding put options on athletic apparel maker, Lululemon Athletica, ahead of the firm’s third-quarter earnings report scheduled for release after market close. LULU’s shares rallied as much as 3.8% to an intraday high of $27.84. The stock is currently up 2.75% to $27.56 with 45 minutes remaining in the trading session. Some analysts expect the Canada-based company will record earnings of 19 cents per share on revenue of $111 million. Option traders hedged against an earnings disappointment by purchasing puts. Approximately 6,800 put options were coveted by investors at the January 25 strike for an average premium of 1.23 apiece. Put-buyers are positioned to profit if shares fall through the breakeven price of $23.77 by January’s expiration day. Mounting investor anticipation for third-quarter earnings and the increase in demand for option contracts on the stock boosted option implied volatility throughout the session. Volatility rose 10.85% from an opening reading of 59.93% to an intraday high of 67.52%.
XLE – Energy Select Sector SPDR ETF – Shares of the exchange-traded fund comprised of companies in the oil, gas, and energy equipment industries, fell 1% during the trading day to $54.30. A massive put spread by one investor indicates shares of the XLE may decline further by the time the quarterly December contract options expire on December 31st, 2009. It appears the bearish trader purchased 74,800 puts at the December 53 strike for 95 cents apiece, spread against the sale of 74,800 puts at the lower December 48 strike for 13 pennies each. The net cost of the pessimistic play amounts to 82 cents per contract. The investor likely holds a long position in the underlying stock. The puts serve to protect the value of the stock position in case shares continue to decline. Downside protection kicks in if shares of the XLE decline beneath the breakeven point at $52.18 by expiration on the final day of 2009.
OIH – Oil Service HOLDRs Trust – Shares of the OIH exchange-traded fund rallied 1.25% to $112.69 today. We observed bearish options activity on the fund despite the bullish movement in the price of the underlying. A put spread enacted in the January 2010 contract suggests some investors feel the need for downside protection through expiration next year. It looks like 1,500 puts were purchased at the January 110 strike for 4.70 apiece, marked against the sale of 1,500 puts at the lower January 105 strike for a premium of 2.90 each. The net cost of the bearish play amounts to 1.80 per contract. Protection on a long underlying stock position, should the investor hold one, kicks in if shares of the OIH decline beneath the breakeven price of $108.20 by expiration.
JPM – JPMorgan Chase & Co. – Option trading on JPMorgan was very active in the early hours of the session. Shares of the financial holding company slipped 0.5% lower to $41.04 as of 12:30 pm (EDT). A ratio call spread in the January 2011 contract suggests one investor expects JPM to recover significantly in the next 13 months. The trader purchased 6,000 calls at the January 2011 50 strike for 2.72 apiece, and sold 12,000 calls at the higher January 2011 65 strike for 65 cents premium each. The net cost of the ratio play amounts to 1.42 per contract. JPM’s shares must surge 25% before the investor breaks even at $51.42. Maximum potential profits of 13.58 per contract accrue if the stock leaps 58% from the current price to $65.00 by expiration in January 2011. We note that shares last traded above $51.50 on June 4, 2007, and have never traded above $60.00.
IOC – InterOil Corp. – The oil and gas exploration and development company attracted bullish players to the option field today. Shares rallied 2% to a new 52-week high of $65.33. Investor activity on the stock implies shares are likely to appreciate in the next several months. Near-term optimism appeared in the January 2010 contract where one trader initiated a call spread. The investor purchased 1,000 calls at the January 70 strike for a premium of 4.30 apiece, marked against the sale of the same number of calls at the higher January 85 strike for 1.10 each. The net cost of the spread amounts to 3.20 per contract. Profits accumulate for the trader if shares breach the breakeven price of $73.20 by expiration. Maximum potential profits of 11.80 per contract are available if IOC’s shares surge 30% to $85.00. Another investor extended a previously established bullish position by initiating a calendar roll. The investor appears to have sold 8,000 calls at the in-the-money January 60 strike for 9.00 per contract in order to buy the same number of calls at the March 75 strike for 8.10 each. It is unclear when the original call position was created. However, viewing the transaction in isolation, the investor banks a 90 cent credit per contract on the trade.
CYB – Wisdomtree China Yuan Fund – The yuan currency fund has had a narrow trading range for the longest time on account of the fact that it’s pegged to the dollar. However, one option investor appears to be rolling up a calendar spread using options aimed at benefitting should the Chinese allow the yuan to rise in value. The fund is actually a shade lower in price today at $25.25 and this investor appears to have sold around 14,000 calls at the April expiration in exchange for those expiring in July at the higher 26 strike. The April position looks like it has been in place for some time, which means that today’s sale is likely a closing transaction. The investor was credited with seven cents to initiate the call exposure at the higher strike price. A thawing in the Chinese attitude to allowing its currency to compete on free terms would help this investor.
AMSC – American Superconductor Corp. – Near-term bulls targeted December contract call options on the electrical components and equipment maker today. Shares jumped more than 4.5% to $37.22 by midday (EDT). Investors positioning for a new 52-week high in shares of American Superconductor purchased 1,800 calls at the December 40 strike for an average premium of 34 cents per contract. Traders holding the calls are hoping shares rise 8.5% to breach the breakeven point at $40.34 before the contracts expire next Friday. The demand for options on AMSC lifted option implied volatility to 50.8% from the previous day’s closing reading of 49.4%.
MW – Men’s Wearhouse, Inc. – Specialty retailer, Men’s Wearhouse, suffered significant share price erosion in after-hours trading on Tuesday on news the company expects a fourth-quarter loss of 15-19 cents per share. The stock is trading 12.5% lower to $19.13 this morning despite the fact that the men’s clothing chain posted third-quarter profits of 37 cents per share, which exceeded average analyst estimates of 30 cents per share. Investors threw in the towel, at least in the near-term, by shedding 1,000 calls at the December 20 strike for an average premium of 25 cents apiece. Traders exchanged more than 3,100 contracts, or 23% of total existing open interest on MW of 13,513 lots, by 10:15 am (EDT).
SVU – Supervalu Inc. – The operator of U.S. grocery retail stores appeared on our ‘hot by options volume’ market scanner this morning due to contrarian options activity in the January 2010 contract. Shares are trading 1% lower to $13.05. Investors scooped up roughly 3,000 call options at the in-the-money January 12.5 strike for an average premium of 1.19 apiece. Bullish call buying suggests shares may not fall too much further in the next month and a half. Traders long the calls breakeven if SVU’s shares rebound through $13.69 by January’s expiration day.
JTX – Jackson Hewitt Tax Service Inc. – Narrower-than-expected second-quarter losses of 66 cents per share at the tax preparation firm fueled the 18.5% rally in shares this morning to $4.90. Shares were also boosted by news the firm plans to operate in more Wal-Mart stores than previously expected. Option implied volatility collapsed 20.07% to 75.24% following earnings.
