Option Activity Alert: McDonald’s, Juniper Networks, Advanced Energy Industries

MCD – McDonald’s Corp. – Investors are feasting on McDonald’s Corp. put options today, which may mean that some strategists are bracing for the price of the underlying shares to slide lower ahead of expiration day in January 2011. Shares of the world’s largest restaurant chain are down 0.45% at $78.95 as of 12:50 pm in New York trading. More than 15,860 put options have changed hands at the January 2011 $75 strike versus previously existing put open interest of 5,294 contracts. The majority of the puts, some 11,895 contracts, were purchased for an average premium of $1.17 apiece. Put buyers may be enacting outright bearish bets on the stock or building up downside protection to hedge a long position in MCD shares. Investors buying the puts outright are prepared to make money should shares of the Big Mac maker plunge 6.5% lower to breach the average breakeven point to the downside at $73.83 by expiration day in January. Yesterday, MCD’s shares came within $0.10 of its all-time high of $79.90 after reporting a better-than-expected 6.5% rise in comparable-store sales in the previous month. Options implied volatility on the fast food chain is running 5.8% higher this afternoon to stand at 55.94% as of 1:00 pm.

AEIS – Advanced Energy Industries, Inc. – The maker of solar power control technologies popped up on our ‘hot by options volume’ market scanner in the first half of the trading session after one options strategist initiated a large buy-write strategy in the January 2011 contract. Shares in Advanced Energy Industries are currently down 0.30% to arrive at $12.55 as of 12:00 pm. It looks like the investor purchased approximately 365,000 shares of the underlying stock at a price of $12.56 this morning and sold 6,600 in-the-money calls at the January 2011 $12.5 strike for a premium of $1.00 each at a delta of approximately 0.55. Selling the calls effectively reduces the price paid for the underlying shares to around $11.56 each and provides an effective exit strategy on the long position in AEIS shares. If the shares are called from him at $12.50, the investor enjoys gains of 8.13% on the “rise” in shares from $11.56 to $12.50. Alternatively, the covered call seller may expect the Jan. 2011 $12.5 strike contracts to expire worthless. In this case the trader may decide to hold onto the shares, perhaps because he expects the price of the underlying stock to rally higher later on in 2011.

JNPR – Juniper Networks, Inc. – Near-term bullish options traders expecting shares in Juniper Networks to reach new highs for the year ahead of November expiration are scooping up calls this morning. Shares of the networking and telecommunications equipment company are currently up 0.90% to stand at $34.50 as of 11:10 am in New York, but earlier increased as much as 2.2% to hit an intraday- and new 52-week high of $34.94. Investors picked up 3,000 calls at the November $35 strike for an average premium of $0.57 each. Call buyers at this strike make money if Juniper’s shares rally another 1.80% over today’s high of $34.94 to surpass the average breakeven price of $35.57 by expiration day. Optimism spread to the higher November $36 striker where some 2,300 call options were purchased at an average premium of $0.31 apiece. Finally, uber-bulls bought roughly 1,400 calls at the November $37 strike for an average premium of $0.15 a-pop. Investors holding these contracts are poised to profit should shares in Juniper Networks surge 6.325% to trade above the effective breakeven point at $37.15 by November expiration. Increased demand for call options on JNPR helped lift the stock’s overall reading of options implied volatility 5.7% to 33.37% by 11:15 am.

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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