HAS – Hasbro, Inc. – Bullish options traders flocked to the maker of toys and games for the second day in a row today as shares in the name picked up as much as 2.15% to trade at an intraday high of $46.97. Plain-vanilla call buying on Hasbro caught our eye yesterday, while a more complex bullish scenario played out in July contract calls during the current session. It looks like one investor initiated a delta neutral transaction involving the sale of stock and purchase of out-of-the-money calls to position for a sharp rise in HAS shares by expiration. The trader appears to have sold 112,000 shares of the underlying stock at $46.77 each, marked against the purchase of 4,000 calls at the July $52.5 strike for a premium of $1.40 apiece, on a 0.30 delta. The risk profile of this combination of short stock and long calls is such that the investor benefits from declines in HAS shares because of the sale of stock. Further, the trader realizes substantially greater profits if shares shoot up toward the $52.50-level and beyond because of the growth in delta on the calls given such a move in the price of the underlying. The large size of the call position in relation to the short stock means the acceleration in value on those calls will be more than adequate to mitigate losses on the short stance in shares if the stock rallies. Hasbro reports fourth quarter earnings on February 7, 2011, before the market opens for trading.
ALK – Alaska Air Group, Inc. – The provider of passenger air service as well as mail and freight services appeared on our ‘hot by options volume’ market scanner today due to bearish activity in February contract call options. Shares in Alaska Air Group fell 1.7% this afternoon to $61.87 by 2:45pm in New York trading. It looks like one trader enacted a credit call spread, selling roughly 1,500 calls at the February $65 strike for an average premium of $1.77 each, and buying about the same number of calls at the higher February $70 strike at an average premium of $0.67 apiece. The trader receives a net credit of $1.10 per contract on the spread and keeps the full amount of premium as long as Alaska Air’s shares fail to rally above $65.00 ahead of February expiration. Initiating the sale of the call spread indicates that the bearish investor expects the February $65 strike calls to expire worthless at expiration next month. The parameters of the transaction imply that the trader could start to lose money if the stock rallies 6.8% to trade above the average breakeven price of $66.10. The long stance in the higher strike call options caps maximum potential losses faced by the bearish player to $3.90 per contract. Shares in ALK would need to increase 13.1% over the current price of $61.87 to trade above $70.00 in order for the trader to absorb maximum possible losses on the position.
LYV – Live Nation Entertainment, Inc. – A three-legged options transaction on the producer of live music concerts indicates one bullish investor expects shares in Live Nation Entertainment to rally significantly ahead of July expiration. Live Nation’s shares are up 0.20% this afternoon to stand at $11.28 as of 1:45pm in New York. The firm is slated to report earnings for the fourth quarter after the market closes on February 24, 2011. The optimistic options trader picked up 2,000 calls at the July $12.5 strike for a premium of $1.00 each, sold the same number of calls at the higher July $15 strike at a premium of $0.25 per contract, and sold 2,000 puts at the July $10 strike at a premium of $0.80 apiece. The investor responsible for the option combination play pockets a net credit of $0.05 per contract on the transaction, and keeps the credit as long as LYV shares exceed $10.00 through expiration day. Additional profits start to accumulate if the concert producer’s shares rally 10.8% over the current price of $11.28 to surpass the effective breakeven price of $12.50 by expiration day in July. Maximum potential profits of $2.55 per contract, which includes the $0.05 credit on the trade, pad the investor’s wallet in the event that Live Nation Entertainment’s shares surge 33.0% to exceed $15.00 before the July contracts expire. Shares in LYV last traded above $15.00 back in the early days of May 2010.