Option Activity Alert: Coach, CenterPoint Energy, Jones Apparel

COH – Coach, Inc. – The luxury retailer of handbags and accessories popped up on our scanners this morning after one investor dabbled in near-term put options. Coach’s shares are currently up 0.50% to stand at $44.64 as of 12:55 p.m., but earlier rallied more than 1.20% to touch an intraday high of $44.96. The near-term pessimistic play observed in the November contract today may be the work of an investor securing downside protection on a long position in the underlying shares, or could represent an outright bearish bet on the stock ahead of earnings. Coach is scheduled to report results for the first quarter ahead of the opening bell on October 26, 2010. The investor established a ratio put spread, buying 2,000 lots at the November $44 strike for a premium of $1.48 each, and selling 4,000 puts at the lower November $42 strike at an average premium of $0.765 apiece. The put player pockets a net credit of $0.05 per contract on the spread, and keeps the full amount if Coach’s shares exceed $44.00 through expiration day. Additional profits start to accumulate should shares slip below $44.00. Maximum potential profits of $2.10 per contract, including the net credit received, are available to the investor if COH’s shares plunge 5.90% from the current price of $44.64 to settle at $42.00 at expiration. The sale of twice as many lower strike put options expose the trader to losses in the event that shares fall 10.6% to trade below the effective lower breakeven point at $39.90 by expiration day.

CNP – CenterPoint Energy, Inc. – It looks like one investor has scooped up a large chunk of out-of-the-money call options on CenterPoint Energy this afternoon in order to establish a relatively cheap bullish stance on the stock ahead of the firm’s third-quarter earnings report on the morning of October 28, 2010. Shares of the public utilities holding company are currently down 0.55% to stand at $16.30 as of 2:20 p.m. in New York. CenterPoint appeared on our ‘hot by options volume’ market scanner after one trader purchased 5,000 calls at the December $17.5 strike for a premium of $0.15 per contract. The investor is poised to profit should the price of the underlying stock surge 8.3% to surpass the effective breakeven price of $17.65 by December expiration day. Shares in CenterPoint must blow straight past the current 52-week high of $16.56, which was set yesterday, in order to come close to the breakeven point on the calls.

JNY – Jones Apparel Group, Inc. – The purchase of a three-legged bullish options combination spread on the manufacturer and marketer of a wide range of well-known brands of women’s clothing, accessories and footwear, suggests one strategist expects the price of the underlying stock to rally. Jones Apparel Group is scheduled to report third-quarter earnings ahead of the opening bell on October 27, 2010. Shares of the firm that represents brands such as Barneys New York and Anne Klein are up 0.85% to stand at $19.16 just after 11:00 a.m. in New York. Jones Apparel Group popped up on our ‘hot by options volume’ market scanner in the first 30 minutes of the session after one trader sold 2,000 puts at the February 2011 $16 strike for a premium of $0.89 each, purchased 2,000 in-the-money calls at the higher February 2011 $19 strike at a premium of $2.29 apiece, and sold the same number of calls at the February 2011 $22.5 strike for premium of $0.85 a-pop. The net cost of the transaction amounts to $0.55 per contract and positions the investor to make money should JNY’s shares exceed the effective breakeven price of $19.55 by expiration day. Maximum potential profits of $2.95 per contract are available to the investor if the value of the underlying stock jumps 17.4% over the current price of $19.16 to trade above $22.50 by February expiration. A similar three-legged bullish transaction took place on JNY back on September 15, 2010. That trader sold the Feb. 2011 $15 puts instead of the $16 strike contracts in order to buy the same Feb. 2011 $19/$22.5 strike call spread, 2000 times, at a net cost of $0.35 per contract. Expiration for these options is a long way off, but the trades still position investors to benefit from upward movement in JNY shares if the earnings report next week beats expectations.

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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