Option Activity Alert: TLB, PFCB

TLB – Talbots, Inc. – Bearish traders donning Talbots put options this afternoon appear to be positioning for shares of the women’s apparel, shoes and accessories manufacturer to continue falling in the next couple of months. The clothing maker’s shares are down 5.05% in the final minutes of the trading day to stand at $8.08. TLB was cut to ‘hold’ from ‘buy’ with a $10.00 share price target at Jefferies on Monday. Talbots’ February $7.0 strike put options are the most active today, with more than 6,000 contracts having changed hands at that strike ahead of the closing bell, versus previously existing open interest of 644 lots. Nearly all of the put options were purchased at that strike for an average premium of $0.19 each. Put buyers make money if TLB’s shares drop another 15.7% to trade below the average breakeven point at $6.81 by February expiration day. Longer-term bearish traders tried on May $7.0 strike put options for size, buying some 1,300 contracts for an average premium of $0.59 apiece. Talbots’ overall reading of options implied volatility ended the session 13.2% higher on the day at 52.01%.

PFCB – P.F. Chang’s China Bistro, Inc. – Put options are flying out of the kitchen at P.F. Chang’s this afternoon with shares of the Asian-inspired restaurant chain operator slipping 2.50% lower to $47.44 in the final 30 minutes of the session. Investor appetite for bearish put contracts follows reports out on Monday from the National Restaurant Association noting that, for the first time in three months, restaurant operators reported net declines in same-store sales and customer traffic levels in the month of November. Approximately 5,500 puts changed hands at the February $45 strike today versus paltry previously existing open interest of just 111 contracts at that strike. Volume in February $45 strike puts represents roughly 53% of the 10,415 lots of overall previously existing open interest on the restaurant operator. It looks like investors satisfied bearish outlook on the stock by buying the majority of the put options for an average premium of $1.65 a-pop. Put buyers make money if shares in P.F. Chang’s China Bistro drop 8.6% to breach the average breakeven point on the downside at $43.35 by expiration day in February. The restaurant operator is slated to report fourth-quarter results before the market opens on February 16, 2011. Demand for P.F. Chang’s puts helped lift the stock’s overall reading of options implied volatility 7.2% to 37.89% before the final bell. A couple of weeks ago, the company announced its co-CEO Bert Vivian, will retire at the end of 2011.

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.

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