Stock Options Watch: CA, GME, DGX

By Jun 7, 2013, 12:58 PM Author's Blog  

CA – CA, Inc. – Shares in the provider of IT management solutions rallied to the highest level since 2005 this morning, gaining as much as 6.6% in the early going to hit $29.83. An analyst at RBC Capital Markets raised his target price on the sector perform rated stock to $30.00 from $26.00 today. Options on CA Technologies are far more active than usual today, with volume in excess of 11,000 contracts versus average daily volume of around 500 contracts. June and July expiry calls also attracted heavier than usual trading traffic on Thursday, with much of the volume changing hands within minutes of the closing bell. Buyers of front month calls yesterday afternoon are seeing big overnight gains in the value of their positions today. The most-traded contracts by volume on CA yesterday were the Jun $28 strike calls. It looks like one or more traders may have purchased roughly 7,000 of the $28 calls for an average premium of $0.45 apiece. These contracts are currently trading at $1.35 each as of 11:15 a.m. ET, down from an earlier high of $2.00 in premium apiece. A burst of activity near the close of trading on Thursday occurred in the July expiry calls as well, with around 1,400 lots purchased at the $28 strike for an average premium of $0.80 each, and 500 calls picked up at each of the $29 and $30 strikes at average premiums of $0.40 and $0.20 apiece, respectively. The $28, $29 and $30 strike calls today are trading at $1.70, $1.10 and $0.65 per contract as of the time of this writing. Buyers of the bullish options yesterday have in some cases seen a three-fold increase in the value of their contracts overnight. Finally, traders positioning for shares in CA to extends gains snapped up calls on the stock straight out of the gate on Friday. Much of the volume is concentrated in the July expiry options, with calls purchased across the several in and out of the money striking prices.

GME – GameStop Corp. – Video game retailer, GameStop Corp., is in rally mode on Friday, with shares up as much as 8.2% during the first half of the session to $37.47 after Xbox maker, Microsoft, said it would not charge a fee for the transfer of used games for its newly unveiled console, Xbox One. The sharp move in the stock appears to have spurred some protective and/or outright bearish positioning in GME options today. One sizable trade on Friday morning was the purchase of a 1,000-lot Jun 14 ’13 $34/$37 put spread purchased for a net premium of $0.90 per contract. The strategy may be a hedge to protect a long position in the underlying shares, or an outright bearish bet the stock will reverse course by expiration next week. The spread starts making money if shares in GME decline 2.7% from the current level of $37.11 to breach the breakeven point on the downside at $36.10, with maximum potential profits of $2.10 per contract available given a more than 8.0% pullback to $34.00 by expiration. Out in the July expiry options, it looks like the Jul $31/$38 put spread was purchased roughly 2,000 times this morning for an average premium of $2.45 per contract. The trade realizes maximum potential profits of $4.55 per contract should shares in GameStop plunge 16.5% to $31.00 during the next six weeks to July expiration.

DGX – Quest Diagnostics, Inc. – Far out of the money calls changing hands on Quest Diagnostics on Friday morning suggests at least one trader may be positioning for the price of the underlying to rally to fresh all-time highs during the next couple of months. Shares in the provider of diagnostic testing products and services are up 0.80% at $62.58 as of 11:50 a.m. in New York. The company yesterday presented at the Jefferies 2013 Global Healthcare Conference in New York City and reaffirmed full-year 2013 adjusted earnings guidance of $4.35 to $4.55 a share. The buyer of around 1,180 calls at the Aug $70 strike for a premium of $0.45 per contract earlier in the session is prepared to profit at expiration should shares in DGX jump more than 12% over the current price to exceed the breakeven point at $70.45.

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