Today’s tickers: CROX, SHLD, TLM & DPZ
CROX – Crocs, Inc. – Lower-than-expected third- and fourth-quarter sales guidance from the maker of plastic clogs trounced shares in Crocs, Inc. today, roughly two weeks before the company’s official third-quarter earnings release on November 3. Shares in CROX plunged 39.15% to as low as $16.21 this morning. Options on Crocs are changing hands at a fairly rapid clip, with trading in calls outpacing that in puts by more than 3-to-1. Trading in CROX calls appears somewhat mixed. It looks like some strategists are buying call options to get ahead of any potential rebound in the price of the underlying should selling pressure ease up ahead of October expiration. The most active option is the Oct. $18 strike call, where more than 3,200 contracts changed hands by 11:25 am EDT against zero open positions. Investors paid or received an average premium of $0.43 per contract depending on whether they were buying- or selling-to-open the position. Buyers of the contracts profit at expiration in the event that shares in CROX rally 11.0% over the current price of $16.60 to surpass the average breakeven point at $18.43. Meanwhile, sellers of the calls walk away with the full $0.43 credit received as long as the shoemaker’s shares fail to rally above $18.00 at expiration.
The sharp drop in the price of the underlying may be just what some bearish strategists were hoping to see. Open interest indicates there are 770 existing positions open in the Nov. $27 strike put. Examining changes in the open interest level at that strike suggests 500 of the puts were likely purchased by one trader at a premium of $2.20 each this past Friday. Shares in Crocs ended the previous week at $26.97. The subsequent nosedive in the price of the underlying now sees the price tag on those puts 380.0% higher at $10.60 as of 11:30 am in New York. Premium on the put options may continue to climb if shares in CROX extend losses through November expiration. Options implied volatility on the stock jumped 28.4% to 87.9% in the first half of the session.
SHLD – Sears Holdings Corp. – A sizable bearish put spread on Sears Holdings Corp. may signal caution by at least one investor ahead of the specialty retailer’s third-quarter earnings report in less than one month. Shares in Sears rallied 3.4% to $75.00 by 12:30 pm in New York, perhaps after department store retail sales figures showed a 3.6% increase year-over-year in the second week of October. The pessimistic put activity indicates one options market participant picked up 8,200 puts at the Nov. $67.5 strike for a premium of $3.05 each, and sold the same number of puts at the lower Nov. $60 strike for a premium of $1.11 apiece. Net premium paid to initiate the spread amounts to $1.94 per contract, thus positioning the trader to profit should shares in SHLD drop 12.6% to breach the effective breakeven point on the downside at $65.56 at expiration next month. The investor could walk away with maximum potential profits of up to $5.56 per contract in the event that Sears’ shares plunge 20.0% to trade below $60.00 at expiration in November.
TLM – Talisman Energy, Inc. – The Canadian oil and gas producer popped up on our scanners this morning following a burst of bullish activity in the January 2012 contract call options. Shares in Talisman are up 2.0% at $13.29 just before midday on the East Coast. One trader is likely responsible for some if not all of the trading traffic in the Jan. 2012 contract. Talisman reports third-quarter earnings ahead of the opening bell on November 2. It looks like much of the activity in TLM calls took place within the first 15 minutes of the trading session. The investor engaging the contracts picked up roughly 730 in-the-money calls at the Jan. 2012 $12 strike for an average premium of $1.85 apiece. Another 1,500 in-the-money calls were purchased up at the Jan. 2012 $13 strike at an average premium of $1.32 a-pop. These positions may be profitable at January expiration in the event that TLM’s shares exceed the effective breakeven prices of $13.85 and $14.32, respectively. Trading traffic is heaviest up at the Jan. 2012 $14 strike where upwards of 4,300 calls changed hands against open interest of 261 contracts. The largest single block, some 3,261 contracts, traded to the middle of the market at $0.89 each, while 1,000 calls appear to have been purchased at that premium. The investor or investors holding these calls may see the value of their options increase substantially should shares in Talisman Energy continue to rebound in the next couple of months to expiration at the start of 2012.
DPZ – Domino’s Pizza, Inc. – Shares in Domino’s Pizza surged 7.4% to a fresh multi-year high of $29.91 today on the heels of better-than-expected third-quarter earnings announced ahead of the opening bell. The rip-roaring rally in Domino’s lifted shares 85.0% year-to-date, but activity in December contract calls suggests one strategist sees scant room left for shares to run for the remainder of the calendar year. More than 4,100 calls changed hands at the Dec. $31 strike against paltry previously existing open interest of just 11 contracts. It looks like most of the calls were sold by one investor at a premium of $0.89 each. The trader keeps the full amount of premium as long as DPZ’s shares fail to exceed $31.00 at expiration day in December. The calls may have been written against a long position in the stock, or may have been sold outright. Options implied volatility on Domino’s Pizza dropped 27.3% to 36.24% following earnings.
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Caitlin Duffy |
