Option Activity Alert: UAL, KSS, ANN, KO

UAL – United Continental Holdings, Inc. – The world’s largest carrier jumped up on our ‘most active by options volume’ market scanner earlier today after one bullish options player purchased a large call spread in the December contract. Shares in United Continental rose 0.90% this afternoon to trade at $27.42 as of 3:00 pm. The investor purchased approximately 11,200 calls at the December $29 strike for a premium of $0.72 each, and sold the same number of calls at the higher December $31 strike at a premium of $0.32 each. Paying a net $0.40 per contract for the spread, the investor is prepared to profit should shares in UAL surge 7.2% over the current price of $27.42 to surpass the effective breakeven point to the upside at $29.40 by expiration day. The trader is poised to accumulate maximum potential profits of $1.60 per contract, roughly $1.792 million, if the airline operator’s shares jump 13.05% and trade above $31.00 by expiration in December.

KSS – Kohl’s Corp. – Massive prints in Kohl’s Corp. call and put options caught our eye this afternoon. Shares of the department store operator that sells nationally recognized as well as privately branded goods increased as much as 4.165% in the second half of the session to touch an intraday high of $52.76. It looks like the investor responsible for the mammoth transaction sold 50,000 puts at the December $50 strike for a premium of $0.85 each, and purchased the same number of calls up at the December $57.5 strike at a premium of $0.30 apiece. The risk reversal was tied to the sale of 2.15 million shares of the underlying stock at a price of $52.12 on a 0.43 delta. The investor receives a net credit of $0.55 per contract on the risk reversal.

ANN – Ann Taylor Stores Corp. – Bullish options traders tried call options on for size at the retailer of women’s apparel, shoes and accessories today ahead of the firm’s third quarter earnings report, which is scheduled for release ahead of the opening bell on Friday. Shares in Ann Taylor are currently up 6.55% at $24.11 as of 3:15 pm. Almost all of the options action on the women’s clothing company today centered at the November $25 strike where 5,400 calls were purchased at a premium of $0.30 a-pop. Volume in November $25 strike calls is more than 10.3 times greater than the 521 contracts representing previously existing open interest at that strike. Call buyers make money if the price of the underlying stock jumps 4.9% over the current price of $24.11 to exceed the effective breakeven point at $25.30 by expiration on Friday. Chico’s FAS Inc., another women’s apparel retailer, reported better-than-expected third quarter earnings this morning and helped lift ANN’s shares during the current session.

KO – Coca-Cola Co. – One options strategist populating Coca-Cola Co. this afternoon foresees the beverage maker’s shares trading within a specific range through May 2011 expiration. The investor appears to have sold a sizeable straddle on Coke today with shares currently trading higher by 0.85% at $62.60 as of 1:55 pm in New York. The straddle player sold 5,170 in-the-money calls at the May 2011 $62.5 strike for a premium of $2.80 each and shed 5,170 puts at the same strike at a premium of $3.43 a-pop. Gross premium enjoyed by the straddle-seller amounts to $6.23 per contract for a total of $3,220,910. The investor keeps the full amount of premium received on the sale if the soda maker’s shares settle at $62.50 at expiration. Profits erode should shares shift in either direction away from the central strike price going forward. Short stances in both call and put options expose the trader to losses in the event that shares rally above the upper breakeven price of $68.73, or if shares slip beneath the lower breakeven point at $56.27, ahead of May expiration. Shares in Coca-Cola have not exceeded $63.32, the highest recorded price in its shares in nearly three years, since January of 2008, and have traded above $56.27 since September 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.

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