Option Activity Alert: VZ, NDAQ, MTL, HSNI

VZ – Verizon Communications, Inc. – Bulls are dominating activity in options on Verizon today with the price of the underlying stock rising as much as 1.15% to secure yet another new 52-week high of $36.85 this afternoon. Investors scooped up call options across several expiries during the session thus far, trading more than 2.9 calls on the stock for each single put option in play today. Traders expecting Verizon to continue to hit new highs ahead of January expiration day bought more than 1,600 calls at the January $37 strike for an average premium of $0.30 each. Another 1,150 calls were picked up at the higher January $38 strike at an average premium of $0.13 apiece. Investors holding these contracts are prepared to make money should Verizon’s shares increase another 3.5% to surpass the average breakeven price to the upside at $38.13 by January expiration. Traders long the closer-to-the-money January $37 strike calls are hoping to see shares rise 1.2% to trade above $37.30 by expiration day this month. Bullish sentiment on Verizon Communications spread to the February $37 strike where another 1,200 call options were purchased for an average premium of $0.62 apiece. These calls, which expire on February 18, 2011, will have plenty of life left in them when Verizon reports fourth-quarter results before the market opens on January 25, 2011. Call buying was also detected at the April $36 strike where some 2,500 in-the-money calls options were coveted for an average premium of $1.45 a-pop. Investors buying the longer-dated contracts are poised to profit should shares in VZ exceed the average breakeven price of $37.45 ahead of expiration day in April. Options implied volatility moved 6.4% higher by 1:45pm to stand at 19.23%.

NDAQ – NASDAQ OMX Group, Inc. – The global exchange group popped up on our ‘hot by options volume’ market scanner this morning after one strategist initiated a ratio put spread in the March contract. Shares in NASDAQ OMX Group are currently up 0.33% to stand at $24.19 as of 11:45am in New York trading. The put player may be utilizing the spread to hedge a long position in the underlying stock, or placing an outright bearish stance on NDAQ because he expects shares to decline in the next couple of months. The trader picked up 1,950 puts at the March $24 strike for a premium of $1.20 each, and sold 3,900 puts at the lower March $21 strike at a premium of $0.30 apiece. Net premium paid to establish the spread amounts to $0.60 per contract. Thus, the investor is prepared to make money, or realize downside protection, if shares in NDAQ fall 3.3% from the current price of $24.19 to breach the effective breakeven point to the downside at $23.40 ahead of March expiration. Maximum potential profits of $2.40 per contract are available to the options trader should NDAQ’s shares plunge 13.2% to settle at $21.00 at expiration day. The ratio of twice as many short put options exposes the investor to losses in the event that shares plummet more than 23.1% to breach the lower breakeven price of $18.60 by expiration in March.

MTL – Mechel OAO – The Russian mining, steel and power company attracted bullish options traders to the playing field today with the value of its shares rallying as much as 5.3% to a new two-year high of $32.47 in the first half of the trading session. Investors exchanged more than 3,500 call options at the January 2011 $32.50 strike, versus previously existing open interest of 894 contracts, by 12:40pm in New York. It looks like the majority of the calls were purchased for an average premium of $1.01 apiece by investors expecting Mechel’s shares to continue to appreciate in the next few weeks. Call buyers are poised to profit should shares in MTL increase another 3.2% over today’s high of $32.47 to surpass the average breakeven point to the upside at $33.51 by January expiration day. Bullish players also purchased roughly 800 calls at the higher January 2011 $34 strike at an average premium of $0.51 each. Investors holding these contracts make money in the event that Mechel’s shares jump 6.3% to trade above the average breakeven price of $34.51 by expiration. The overall reading of options implied volatility on the stock is higher by 3.9% to stand at 42.72% just before 12:50pm.

HSNI – HSN, Inc. – The retailer and interactive lifestyle network that offers an array of products through television home shopping programming received a medium-term bullish bet by one strategist positioning for HSNI shares to rally sharply ahead of March expiration. Shares in HSN, Inc. are currently down 1.75% at $30.92 as of 1:55pm. It looks like the investor sold 100,000 shares of the underlying stock at $30.32 each and purchased 4,000 March $35 strike calls at a premium of $0.85 apiece on a 0.25 delta. The delta neutral transaction positions the investor to bank serious profits if the price of the underlying stock rallies substantially in the next several months to expiration. HSNI is slated to report fourth-quarter earnings before the opening bell on March 2, 1011. The long calls provide the investor the option to purchase 400,000 shares of the underlying at $35.00 each should the contracts land in-the-money at expiration. Premium on those calls, should shares rise sufficiently, will accelerate to the upside at a much faster clip than the accumulation of losses on the short stock position given the much larger size of the call options. HSN, Inc. reached a 52-week high of $34.66 back on April 26, 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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