Today’s tickers: HK, TSLA & DOW
HK – Halcon Resources Corp. – Shares in independent energy company, Halcon Resources Corp., began the trading session in negative territory, but a sudden burst of call buying on the stock just after 9:50 a.m. ET may have sparked the sharp reversal observed in the price of the underlying this morning. Halcon’s shares are currently up 3.0% on the session at $7.75 as of 11:00 a.m. in New York. The most actively traded options on Halcon Resources today are the Jan. 2015 $10 strike calls, with upwards of 9,600 lots in play versus open interest of 292 contracts. It looks like most of the calls were purchased at a premium of $1.45 apiece. The long-term bullish bets on Halcon pay off at expiration in 2015 as long as shares in the name rally nearly 50% to top the average breakeven point at $11.45. The Jan. 2015 expiry options saw heavy trading traffic last week as well, after more than 22,000 calls changed hands at the $12 striking price. The buyer or buyers of these contracts benefit from continued gains in the price of the underlying stock during the next year and a half. Halcon was rated new ‘Outperform’ with a target price range of $9.00 to $11.00 at Wells Fargo this week.
TSLA – Tesla Motors, Inc. – Bearish options are changing hands on Model S producer, Tesla, on Wednesday as shares in the electric car maker reverse some of the strong gains realized earlier in the week. Shares are currently down 7.4% on the session at $41.06 as of 11:45 a.m. ET after yesterday rallying to fresh all-time highs. The stock continues to trade up 8% since this time last week despite the pullback today. Tesla CEO and billionaire entrepreneur, Elon Musk, yesterday announced a new financing plan for the Model S and earlier this week said demand for the vehicle is stronger than anticipated. Shares in TSLA moved up as much as 23% on Monday in anticipation of Musk’s Tuesday evening announcement. Options on the stock are more active than usual, with overall volume in excess of 26,000 contracts at midday versus average daily volume of 19,300 contracts. Sizable prints in June expiry put options suggests one strategist may be bracing for further declines in the price of Tesla’s shares during the next couple of months. It looks like the trader purchased a 4,500-lot Jun. $30/$35 put spread at a net premium of $1.40 each. The strategy makes money if shares in TSLA drop 18% to trade below the breakeven point at $33.60, with maximum potential profits of $3.60 per contract available given a more than 25% pullback in the price of the underlying to $30.00 by June expiration. We note that open interest in the $30 strike puts is substantial, indicating the strategist could be rolling an existing put position up to the $35 striking price. If this is the case, profits to the downside are not capped beneath the $30.00 level.
DOW – Dow Chemical Co. – U.S. stocks are trading down on Wednesday on weaker than expected employment data and a decline in the ISM index of U.S. non-manufacturing businesses versus the prior month. Shares in chemical company, Dow Chemical, followed the market lower earlier in the session, but have since rebounded to trade up 0.25% on the day at $31.03 as of 11:30 a.m. ET. Put options exchanged on Dow within the first 10 minutes of the opening bell this morning suggests at least one strategist is placing a floor under the price of the stock over the medium term. It looks like the options player sold around 2,000 puts at the Sep. $28 strike to pocket premium of $1.12 per contract. The put seller keeps the full amount of premium received on the trade as long as shares in Dow Chemical Co. settle above $28.00 at September expiration. Shares in DOW last traded below $28.00 in mid-November of last year. Shares would need to decline more than 13% from the current price of $31.03 to the lowest level since December of 2011 before the options start losing money beneath a breakeven price of $26.88. Dow Chemical is scheduled to report first-quarter earnings three weeks from now.
Caitlin Duffy
Equity Options Analyst
