Stock Options Watch: MPEL, MTOR, RATE

MPEL – Melco Crown Entertainment Ltd. – Shares in casino resort operator, Melco Crown Entertainment, are on the rise today, up as much as much as 4.0% during morning trading to a one-month high of $24.79 after the stock was upgraded to ‘Buy’ from ‘Neutral’ at UBS. Trades initiated in MPEL options straight out of the gate this morning indicate one or more strategists are positioning for the price of the underlying to continue higher this week. The most actively traded contracts by volume on the stock today are the Aug 02 ’13 $24 strike calls, with volume in excess of 1,600 lots versus open interest of 201 contracts. Time and sales suggests most of the calls were purchased within seconds of the opening bell for an average premium of $0.37 apiece. The amount of premium required to purchase the $24 strike calls has more than doubled since the start of the session, with the last traded price on the contracts at $0.90 apiece as of 11:45 a.m. ET. The weekly calls expire prior to Melco Crown Entertainment’s second-quarter earnings report scheduled for next Wednesday. Shares in MPEL are up more than 140% since this time last year.

MTOR – Meritor, Inc. – Heavy put trading on truck parts maker, Meritor, Inc., on Tuesday suggests at least one options player is bracing for shares in the name to potentially drop sharply after the company’s third-quarter earnings report ahead of the open tomorrow. Shares in Meritor are up 1.5% on the session at $7.51 as of midday in New York. Bursts of activity in the August and September expiry puts just before 10:45 a.m. ET pushed overall volume in MTOR options up above 5,800 contracts today, a substantial jump in volume as compared to the stock’s average daily level of around 450 contracts. The most actively traded options by volume are the Aug $6.0 strike puts, with some 3,650 lots in play versus open interest of 1,010 contracts. It looks like one trader purchased most of the puts at an average premium of $0.14 apiece. The bearish stance makes money at expiration if shares in Meritor plunge 22% from the current price of $7.51 to breach the breakeven point on the downside at $5.86. Shares in MTOR last traded below $5.86 back on April 30th. The Aug $7.0 strike put options are also active today, with roughly 800 contracts traded as of the time of this writing. Most of the $7.0 puts appear to have been purchased at a premium of $0.35 each. Finally, bearish positioning spread to the Sep $6.0 strike puts, with roughly 1,100 lots purchased at a premium of $0.25 per contract.

RATE – Bankrate, Inc. – Shares in consumer banking and personal finance website operator, Bankrate, are soaring, rallying as much as 25% to touch a new 52-week high of $19.75 after the company posted better than expected second-quarter earnings after the close on Monday. A review of trading in RATE options yesterday suggests at least one trader was preparing for a big move in the price of the underlying after earnings. The trader appears to have purchased a roughly 100-lot Aug $15 strike straddle at a premium of $2.00 per contract just after 10:00 a.m. ET on Monday. The sharp rally in shares today has depressed premium on the puts, but sent premium on the call options sharply to the upside. The buyer of the Aug $15 strike calls and puts ahead of the earnings release could close out the position today at a substantial profit, with the cost of the $15 strike straddle having doubled overnight to $4.10 each as of 12:20 p.m. ET. Bankrate was raised to ‘Buy’ from ‘Neutral’ at Bank of America Merrill Lynch today.

About Caitlin Duffy 373 Articles

Affiliation: Interactive Brokers

Caitlin Duffy joined Interactive Brokers in 2009. In her role as Equity Options Analyst, Caitlin provides daily market commentary; highlighting various options trades, trading patterns and strategies of interest. Through Interactive Broker's webinar program, Ms. Duffy presents a number of educational, options-related events describing the theoretical pricing of options, the option Greeks as well as options strategies.

Interactive Brokers: Interactive Brokers offers direct market access to around 80 electronic global markets from a single account. Successful traders and investors understand that superior technology and lower trading costs can result in greater returns. For 32 years we have been building direct access trading technology that delivers real advantages to professionals worldwide. With consolidated equity capital of US $4.4 billion, IB and its affiliates exceed 1,000,000 trades per day. In addition, our prudent and conservative risk policies make Interactive Brokers a safe haven for your money. Discover some of the reasons why IB, the largest independent US broker/dealer, is the professional traders' and investors' choice.

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