Option Activity Alert: BCS, XRT, FRX, HANS

BCS – Barclays PLC – More than 160,000 option contracts, nearly all of which are in-the-money put options, changed hands on Barclays by 12:20 pm in New York. Overall previously existing open interest represented by 102,738 contracts on the financial services firm pale in comparison to volume generated in the first half of the current trading session. It looks like the majority of the in-the-money puts exchanged on Barclays today were sold by investors expecting shares in the name to rise ahead of March 2011 expiration. Shares of the London-based bank are currently down 0.25% to stand at $16.27 just before 12:30 pm, but earlier rallied 1.95% to touch an intraday high of $16.63. Investors exchanged more than 40,000 puts at the March 2011 $17 strike, selling roughly 28,000 of the put options for an average premium of $1.75 each. Another 42,200 puts changed hands at the higher March 2011 $18 strike, with roughly 28,500 of those put contracts trading to the bid at an average premium of $2.33 apiece. Investors traded 40,500 puts at the March 2011 $19 strike, selling roughly 30,000 of the contracts for an average premium of $3.02 a-pop. Finally, it appears investors sold approximately 25,800 lots of the more than 34,000 puts exchanged at the March 2011 $20 strike for an average premium of $3.79 each. In-the-money put sellers are hoping to see shares in Barclays rally. But, it seems investors selling the deep in-the-money contracts are more than willing to have shares of the underlying stock put to them should the puts land in-the-money at expiration. Bulls selling the puts keep the premium received if shares in Barclays rise sufficiently and the put contracts expire worthless by expiration in March.

XRT – SPDR S&P Retail ETF – Put players flocked to the retail SPDR to initiate bearish positions on the fund right out of the gate this morning. Shares of the XRT, an exchange-traded fund designed to replicate the performance of the S&P Retail Select Industry Index, fell as much as 2.04% to touch down at an intraday low of $46.48. A sizeable ratio put spread drew our attention to the front month where one investor purchased 5,300 in-the-money puts at the December $47 strike for a premium of $1.45 each, and sold 10,600 puts at the lower December $45 strike at a premium of $0.69 apiece. The net cost to establish the ratio spread amounts to $0.07 per contract. Thus, the investor responsible for the trade is prepared to make money – or realize downside protection on a long position in the underlying shares – should the price of the underlying fund trade below the effective breakeven price of $46.93 through expiration day next month. Maximum available profits of $1.93 per contract are available to the trader if shares of the XRT slide 3.2% from the current intraday low of $46.48 to settle at $45.00 at expiration. The parameters of the transaction suggest that while the investor is wary of limited downside potential in shares of the XRT, he does not expect an all out collapse in the price of the underlying in the near-term. This is because the put-spreader faces losses should shares of the retail fund plunge 7.3% to trade below the lower breakeven price of $43.07 by expiration. Finally, pessimists picked up some 4,600 puts at the January 2011 $46 strike for an average premium of $1.70 apiece. Put buyers at this strike make money if shares of the fund fall 4.7% to breach the average breakeven price of $44.30 by expiration day in January. Options implied volatility on the XRT is higher by 6.8% to arrive at 28.38% just before 12:00 pm in New York trading.

FRX – Forest Laboratories, Inc. – Call options on the manufacturer of branded drug products are more active than usual this morning on takeover speculation, as cited by theflyonthewall.com. Shares in Forest Labs rallied as much as 2.45% earlier in the session to hit an intraday high of $32.63, but currently stand 0.55% high on the day at $32.03 as of 11:35 am in New York. December contract in- and out-of-the-money calls were scooped up by investors positioning for shares to continue higher ahead of expiration day next month. The surge in demand for calls on Forest Labs as well as takeover speculation lifted the stocks overall reading of options implied volatility 16.1% to 28.60% in the first half of the trading day. Investors picked up nearly 1,000 in-the-money calls at the December $32 strike for an average premium of $0.83 apiece, and purchased nearly 1,500 calls at the higher December $33 strike at an average premium of $0.47 each. Trading traffic is heaviest up at the December $34 strike where more than 3,950 calls changed hands versus previously existing open interest of just 733 contracts. It looks like approximately 3,050 of the December $34 strike calls were purchased by bullish players for an average premium of $0.31 per contract. Call buyers at this strike are poised to profit should FRX shares surge 7.1% over the current price of $32.03 to surpass the average breakeven point to the upside at $34.31 ahead of December expiration day.

HANS – Hansen Natural Corp. – Beverage maker Hansen Natural Corp., popped up on our scanners this morning after one bullish strategist dabbled in March 2011 contract call options. It looks like the investor extended bullish sentiment on the stock by booking profits on a previously established long call position, and ultimately rolling those calls up to a higher strike price in the same expiry. Shares in Hansen Natural Corp., which makes Monster Energy drinks, declined 1.70% to $53.46 by 12:45 pm. The investor appears to have originally purchased at least 3,220 calls at the March 2011 $55 strike for a premium of $2.90 each back on October 22, 2010, when HANS shares were trading around $52.05. Today, the trader sold 3,220 March 2011 $65 strike calls for a premium of $3.20 each to pocket net profits of $0.30 per contract. Next, the investor purchased a new batch of 3,220 calls up at the March 2011 $60 strike for a premium of $1.65 apiece. The new bullish stance on Hansen Natural positions the trader to make money should shares in HANS surge 15.3% over the current price of $53.46 to exceed the effective breakeven point on the upside at $61.65 by expiration day in March. Hansen’s overall reading of options implied volatility stands 4.9% higher this afternoon at 32.18%.

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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