Stock Options Watch: GPS, TWX, FST

GPS – Gap, Inc. – Apparel retailer, Gap, Inc., popped up on our scanners this morning after a sizable trade was initiated in the August expiry put options. Nearly 5,000 of the Aug $46 strike puts changed hands close to the start of the session versus open interest of 778 contracts. Volume in the Aug $46 puts is more than twice the stock’s average daily options volume of around 2,100 contracts. Shares in GPS, up roughly 40% since the start of 2013, are off 0.30% on the day to stand at $46.33, hovering just below a multi-year high of $46.56 reached last week. Options changing hands on the retailer this morning suggest one trader is bracing for near-term weakness in the price of the underlying. It looks like the strategist purchased around 4,000 Aug $46 puts at a premium of $0.86 per contract. The trade starts making money if shares in Gap decline 2.6% from the current price of $46.33 to breach the effective breakeven point on the downside at $45.14 by August expiration next week. The long put position may be an outright bearish bet on the stock or a protective stance to hedge a long position in the shares. Gap, Inc. is scheduled to report second-quarter earnings on August 22nd, the week following expiration of the Aug 16 ’13 options.

TWX – Time Warner Inc. – Options changing hands on media and entertainment company, Time Warner, today look for shares in the name to potentially come off the multi-year highs highs hit earlier in the session. Shares in TWX earlier rose 0.70% to $64.72 ahead of the company’s second-quarter earnings release prior to the opening bell on Wednesday. Shares in Time Warner are up nearly 60% since this time last year. A sizable trade in front month puts suggests at least one strategist is bracing for the price of the underlying to slip after earnings. The Aug $62.5 strike puts are the most actively traded options on TWX as measured by volume, with nearly 2,400 puts traded against open interest of 220 contracts. It looks like one options player purchased the $62.5 puts at a premium of $0.57 each during the first 10 minutes of the trading session. The long put position may be profitable at August expiration should the price of Time Warner shares dip 4.3% from the current level to trade below the breakeven price of $61.93.

FST – Forest Oil Corp. – Shares in Forest Oil Corp. kicked off the trading week in negative territory, declining as much as 3.7% at the start of the session to $4.95. Put activity on the oil and gas company this morning indicates some traders are preparing for the price of the underlying to extend losses in the near term. Overall options volume in excess of 10,300 contracts as of midday is well above Forest Oil Corp.’s average daily volume of around 2,400 contracts ahead of the company’s second-quarter earnings report after the close on Tuesday. The most actively traded contracts by volume on FST today are the Aug $5.0 strike puts, with roughly 5,300 lots in play against open interest of 984 contracts. Time and sales data suggests most of the $5.0 puts were purchased this morning for an average premium of $0.25 apiece. Put buyers stand ready to profit at expiration next week in the event that Forest Oil shares slide 6.3% from the current price of $5.07 to settle below the effective breakeven point at $4.75. Shares in FST last traded below $4.75 in mid-July. The stock touched a record low of $3.77 at the end of June.

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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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