Bulls Position for Near-Term Rally in TJX Companies

 Today’s tickers: TJX, TIVO, BP, CSC, ANF, GT & OCR

TJX – TJX Companies, Inc. – Near-term bullish options traders are betting on a rebound in shares of the operator of the largest off-price retail chains, T.J. Maxx and Marshalls, by picking up call options in the January contract this afternoon. Shares in TJX Companies fell 1.30% in the final hour of the session to $43.01, recovering off an earlier intraday low of $42.55. TJX shares are down 4.0% since December 30, and have lost a total of 8.9% since November 5, 2010, when shares touched a 6-month high of $47.21. Investors positioning for a rally in TJX Companies are perhaps hopeful shares will rebound following the release of December same-store sales data. Optimistic traders scooped up more than 2,600 calls at the January $44 strike for an average premium of $0.49 apiece. Call buyers at this strike stand ready to accrue profits should shares rise 3.4% to exceed the average breakeven price of $44.49 ahead of January expiration. Bullish sentiment spread to the higher January $45 strike where nearly 1,000 call options were purchased at an average premium of $0.24 a-pop. Higher-strike call buyers make money if TJX shares rally 5.2% to trade above the average breakeven point at $45.24 before the contracts expire in a couple of weeks.

TIVO – TiVo, Inc. – Massive prints in deep out-of-the-money call options on TiVo today appear to be the work of outright bullish players speculating that shares in the television technology firm could more than double by May expiration. Shares in TiVo are up sharply by 8.07% this afternoon to stand at $9.78 as of 2:40pm in New York. TiVo, Inc. is participating in the Citi 21st Annual Global Entertainment, Media and Telecommunications Conference today. Investors hoping to see TiVo’s shares rebound to prices not seen since April of 2010 purchased debit call spreads during the first half of the trading session. Approximately 20,000 calls were picked up at the May $17.5 strike for an average premium of $0.66 each, marked against the sale of about the same number of calls up at the May $20 strike at an average premium of $0.34 apiece. The average net cost of buying the spread amounts to $0.32 per contract. Call spreaders are poised to profit should shares in TiVo surge 82.2% over the current price of $9.78 to surpass the average breakeven point to the upside at $17.82 by May expiration day. Maximum potential profits of $2.18 per contract are available to TIVO-bulls in the event that the price shares jump 104.5% to exceed $20.00 before the contracts expire in five months time. Options implied volatility on stock is up 14.5% at 85.06% in the final 45 minutes of the trading session.

BP – BP PLC – The purchase of a large chunk of deep out-of-the-money put options on BP this afternoon appears to be the work of an investor taking profits off the table. Shares of the oil company are up 0.75% at $46.60 heading into the close. Approximately 16,000 puts were purchased at the April $35 strike today for a premium of $0.27 each. Put open interest of 18,404 contracts at this strike is sufficient to cover volume generated during the session. Upon examination, it looks like the majority of the open interest was created back on December 2 and December 6, 2010. On each of these dates, a chunk of roughly 8,000 puts changed hands at the April $35 strike at premiums that average out to $0.83 per contract. The put contracts traded to the middle of the market, thus making it difficult to determine whether they were bought or sold. However, the purchase of 16,000 of the puts today suggests those contracts were likely sold back in December. Buying-to-close the short stance in put options results in average net profits of $0.56 in premium per contract. In keeping with the assumption that this transaction is a closing purchase, the reading of put open interest at the April $35 strike should collapse down to around 2,000 lots overnight.

CSC – Computer Sciences Corp. – A stock and option combination play on the information technology firm this afternoon indicates one bullish strategist expects shares in Computer Sciences Corp. to rally significantly come summer. Shares in CSC are currently trading 0.40% higher on the session at $51.05 as of 1:10pm. It looks like the trader initiated a delta neutral position, selling 125,000 shares of the underlying stock at a price of $50.65 a share, and buying 5,000 calls up at the June $57.5 strike for a premium of $1.15 a-pop, on a 0.25 delta. The parameters of this transaction are quite attractive; Profit-making opportunities are available on the short stance in stock if shares decline, however substantially greater profits are attainable should CSC shares rally sharply ahead of expiration day, which this investor foresees as a likely scenario going forward. As shares trend higher, delta on the long calls will grow much faster and outpace losses on the short stock position. Sufficient appreciation in Computer Sciences’ shares within the next eight months may find this options trader rolling in dough by the time the calls expire in August. CSC’s shares are up 28.9% since August 31, 2010, but have some distance to go before reaching their January 6, 2010, 52-week high, of $57.95.

ANF – Abercrombie & Fitch Co. – A three-legged options transaction on the retailer of clothing and accessories indicates one bearish player is bracing for the price of the underlying shares to slide lower ahead of August expiration. Shares in Abercrombie & Fitch Co. are currently down 0.85% in early afternoon trade to arrive at $55.74 by 12:35pm. The retailer was rated new ‘neutral’ with a 12-month share price target of $60.00 at Wedbush yesterday. The options trader responsible for establishing the three-legged spread may be hedging a long position in the underlying shares, or could perhaps be taking an outright bearish position on the stock. It looks like the investor sold 2,000 calls at the August $70 strike for a premium of $2.30 each, purchased the same number of August $50 strike put options at a premium of $5.00 apiece, and sold 2,000 puts at the lower August $35 strike for premium of $1.07 a-pop. The net cost of putting on the trade amounts to $1.63 per contract. Thus, the trader is positioned to make money should Abercrombie’s shares fall 13.2% from the current price of $55.74 to breach the effective breakeven point to the downside at $48.37 by expiration day in August. Maximum potential profits of $13.37 per contract are attainable in the event that ANF shares collapse 36.9% lower to trade below $35.00 in the next eight months to expiration. Selling the deep out-of-the-money call options significantly reduces the cost of downside protection or a directional bet on ANF, but is certainly not without its risks. If the investor holds no position in the underlying stock, he could start to lose money if shares fly higher by roughly 26% to surpass $70.00 by August expiration. Options implied volatility in the name is up 8.3% at 48.85% just after 12:50pm in New York.

GT – Goodyear Tire & Rubber Co. – Activity in long-dated call options on the tire maker suggests one investor sees Goodyear’s shares rising substantially in the next 12 months. Shares in the name are currently up 1.2% to stand at $12.47 just before 11:30am in New York, and have surged 31.1% since touching down at $9.51 on November 30, 2010. The bullish options trader initiated a ratio call spread, buying 1,500 contracts at the January 2012 $15 strike for a premium of $1.30 each, and selling 3,000 calls at the higher January 2012 $17.5 strike at a premium of $0.70 apiece. The spread yields a net credit of $0.10 per contract and positions the investor to add to profits if shares in Goodyear surge 20.3% over the current price of $12.47 to exceed $15.00 before the options expire next January. Maximum potential profits of $2.60 per contract are available to the investor should the tire manufacturer’s shares jump 40.3% in the next 12 months to settle at $17.50 at expiration. GT’s shares last traded above $15.00 back on April 28, 2010, and reached a 52-week high of $16.39 just under one year ago on January 11, 2010. The $0.10 net credit received on the ratio spread provides the trader with limited protection from losses in the event that Goodyear’s shares rise more aggressively than expected. But, the sale of twice as many higher-strike calls exposes the investor to losses should shares in the name soar 61.2% over the current price to surpass the upper breakeven point at $20.10 by expiration day in January 2012. The tire maker’s shares have not exceeded $20.10 since August of 2008.

OCR – Omnicare, Inc. – The geriatric pharmaceutical services firm popped up on our scanners today after one option trader purchased a put spread in the March contract. Shares in Omnicare are up 0.75% to trade at $25.69 as of 12:55pm. The put player may be utilizing the debit spread to lock in recent gains in the price of the underlying stock. Omnicare’s shares are up roughly 16.0% since December 1, 2010. The investor appears to have purchased 1,500 puts at the March $25 strike for an average premium of $1.34 each, and sold the same number of puts at the lower March $21 strike at an average premium of $0.29 apiece. Net premium paid by the trader to initiate the spread amounts to $1.05 per contract. Thus, the investor makes money, or realizes downside protection should he hold a long position in the underlying stock, if shares in Omnicare drop 6.8% from their current level to breach the average breakeven price of $23.95 by March expiration day. The trader could walk away with maximum potential profits of $2.95 per contract if OCR shares plummet 18.25% to trade below $21.00 by expiration in March. Omnicare’s shares have traded above $21.00 since September 9, 2010. The pharmaceutical services company is scheduled to report fourth-quarter earnings before the market opens on February 24, 2011.