Option Activity Alert: Intel, Discover, Big Lots

INTC – Intel Corp. – One big options player sold a sizeable strangle on the chip giant this afternoon to position for Intel’s shares to trade within a narrow range through December expiration. Intel’s shares hustled up 2.25% during the session to trade at $20.50 by 2:55 pm in New York. For the first time, Intel Corp. is entering the contract manufacturing business by manufacturing another company’s chips at its most advanced factories. According to the New York Times, Intel plans to start making chips for Achronix Semiconductor next year. Achronix, a small firm in Silicon Valley, makes a specialized type of microprocessor that is utilized to speed computing tasks such as shuttling network traffic and encrypting data. Intel was raised to ‘outperform’ from ‘neutral’ with a 12-month target share price of $24.90 at Macquarie Research today. But, one options trader expecting the price of Intel’s shares to stagnate in the near-term sold 25,000 puts at the December $20 strike for a premium of $0.54 each, and sold the same number of calls at the higher December $21 strike for a premium of $0.36 apiece. Gross premium pocketed by this investor amounts to $0.90 per contract. The investor keeps the full amount of premium as long as INTC’s shares trade within the confines of the strike prices described through December expiration day. Substantial moves in the price of Intel’s shares may result in losses for the strangle seller. Losses start to accumulate if shares rally above the upper breakeven price of $21.90, or should shares fall below the lower breakeven point at $19.10 by expiration day next month. The investor may be able to close out the short strangle at a profit ahead of expiration if premiums on the put and call options sum to less than $0.90 per contract.

DFS – Discover Financial Services – Shares of the electronic payment services firm increased as much as 2.4% during the session to touch an intraday high of $18.08 after announcing it has come to an agreement with Moneris Solutions, an electronic payments processor, to expand acceptance of its cards in Canada. The credit card issuer’s shares are currently up 1.35% to stand at $17.89 as of 3:20 pm. One options trader was well positioned to benefit from today’s rally and appears to have taken profits off the table today. It looks like the investor originally purchased 2,000 calls at the November $17 strike for an average premium of $0.85 each back on October 5, 2010, when DFS shares were trading around $16.83. Today the trader was able to sell all 2,000 lots at that strike for a richer premium of $1.22 per contract to pocket net profits of $0.37 apiece. Next, the investor extended bullish sentiment on the Discover Financial Services by picking up a fresh batch of 2,000 calls at the higher November $18 strike for premium of $0.56 a-pop. Other bullish players coveted approximately 1,500 November $18 strike calls at an average premium of $0.56 each. Call buyers stand ready make money should Discover’s shares increase another 3.745% over the current price of $17.89 to trade above the average breakeven point at $18.56 by expiration day in a few weeks.

BIG – Big Lots, Inc. – It looks like some options traders initiating short strangles today expect shares in Big Lots to remain range-bound through December expiration. Big Lots’ shares are currently down 0.75% to stand at $31.13 as of 12:35 pm in New York. The retailer of discounted goods ranging from food products to furniture appeared on our ‘hot by options volume’ market scanner after traders sold approximately 1,400 puts at the December $30 strike for an average premium of $1.10 each, and sold roughly the same number of calls at the December $35 strike at an average premium of $0.35 apiece. Gross premium enjoyed by strangle sellers amounts to an average of $1.45 per contract. Investors keep the full premium received on the transaction as long as the price of the underlying shares trades within the boundaries of the strike prices described through expiration day in December. The short stance in both call and put options expose stranglers to losses in the event that shares rally above the upper breakeven price of $36.45, or if shares slip beneath the lower breakeven point at $28.55, ahead of expiration next month. Other options traders populating Big Lots, Inc. today picked up approximately 1,000 in-the-money calls at the December $30 strike for an average premium of $2.23 per contract. Call buyers make money if BIG’s shares jump 3.5% over the current price of $31.13 to surpass the average breakeven point at $32.23 by expiration day. Big Lots is slated to report third-quarter earnings ahead of the opening bell on December 2, 2010.

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.

Visit: Interactive Brokers

Be the first to comment

Leave a Reply

Your email address will not be published.


*