Option Activity Alert: Tyson Foods, Goldcorp, CVS Caremark

TSN – Tyson Foods, Inc. – Shares of the meat maker fell 7.80% to $15.00 by 12:25 pm in New York trading after the U.S. Department of Agriculture cut its corn crop estimate. The food products company uses corn to feed its animals. One bearish trader rushed to the January 2011 contract within the first 5 minutes of the session in order to scoop up put options on the meat manufacturer. The trader purchased 10,000 puts outright at the January 2011 $15 strike for an average premium of $1.00 each when Tyson’s shares were trading around $15.69. The erosion in the price of the underlying shares and increase in options implied volatility on the stock since the put transaction lifted the asking price on those put options 66.7% to $1.25 each as of 12:30 pm ET. The put player is poised to profit should Tyson’s shares fall another 6.7% to breach the effective breakeven price of $14.00 by expiration day next year. TSN’s overall reading of options implied volatility is currently up 10.7% to stand at 37.85%.

GG – Goldcorp, Inc. – The price of gold rallied and the dollar dipped lower after the U.S. Labor Department said non-farm payrolls declined by 95,000, far more than the expected decline of 5,000 jobs, in the month of September. Shares in Goldcorp, the world’s second-largest gold producer by market value, increased 1.80% in the first half of the trading session to touch an intraday high of $44.47. One gold bull purchased a call spread on the stock in order to prepare for shares to climb higher ahead of expiration in January 2011. The investor picked up 5,000 in-the-money calls at the January 2011 $42 strike for an average premium of $4.38 each, and sold the same number of calls at the higher January 2011 $45 strike at an average premium of $2.78 apiece. Net premium paid to initiate the transaction amounts to $1.60 per contract, thus positioning the trader to profit if shares exceed the average breakeven price of $43.60 through expiration. The call spreader stands ready to accumulate maximum potential profits of $1.40 per contract in the event that, at expiration, Goldcorp’s shares are trading above $45.00.

CVS – CVS Caremark Corp. – Shares of the largest U.S. provider of prescription drugs fell 3.10% to $30.99 in early afternoon trading. One pessimistic options trader was well positioned to benefit from the pullback today and opted to take profits off the table. It looks like the investor sold 5,000 calls at the October $32 strike at a premium of $0.53 apiece on Monday when shares of the underlying stock were trading at a volume-weighted average price of $31.60. Subsequent erosion in the value of shares dragged premium on the October $32 strike calls down significantly this week. It looks like the investor was able to buy back the puts at $0.18 per contract today to pocket net profits of $0.35 per contract. Closing out the short position today rather than allowing the contracts to expire worthless next week could be a sign he is taking what he can get today perhaps because he sees shares recovering ahead of expiration.

About Andrew Wilkinson 1023 Articles

Affiliation: Interactive Brokers

Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.

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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1 Comment on Option Activity Alert: Tyson Foods, Goldcorp, CVS Caremark

  1. With reference to your Option Activity Alert (above) dated 10/8/10 related to CVS, you state that “the investor sold 5,000 calls at the October $32 strike at a premium of $0.53……” and then “It looks like the investor was able to buy back the puts at $0.18 per contract today to pocket net profits of $0.35 per contract.”

    My question is: Did he sell calls or puts at $0.53?

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