Option Activity Alert: BZH, HBC

BZH – Beazer Homes USA, Inc. – A three-legged options combination play initiated on the homebuilder that designs, sells and builds single-family and multi-family homes in the U.S. indicates one strategist sees shares improving ahead of August expiration. Shares in Beazer Homes USA rose 1.5% this afternoon to $5.99 in the final hour of the session. The homebuilding company will reveal its performance for the first quarter before the market opens for trading on February 4, 2011. The investor responsible for the bullish spread sold 5,000 puts at the August $4.0 strike for a premium of $0.25 each, purchased 5,000 calls at the August $6.0 strike for a premium of $1.05 a-pop, and sold the same number of calls at the higher August $7.0 strike at a premium of $0.60 apiece. The net cost of putting on the trade amounts to $0.20 per contract. Thus, the trader stands ready to make money should shares in BZH rally 3.5% over the current price of $5.99 to surpass the effective breakeven point to the upside at $6.20 by expiration day. Maximum potential profits of $0.80 per contract are available to the trader if the homebuilder’s shares surge 16.9% to trade above $7.00 by the time the contracts expire in August. Selling the upper-strike calls as well as the out-of-the-money put options greatly reduced the cost of taking a bullish stance on the stock. The sale of the August $4.0 strike put options suggests this trader is more than willing to bear the risk of having 500,000 shares of the underlying stock put to him at $4.00 each should the puts land in-the-money at expiration.

HBC – HSBC Holdings PLC – Some investors trading options on the financial services firm are positioning for the price of the underlying to appreciate in the next couple of months, while others appear to be taking profits off the table today. Shares in London-based HSBC Holdings increased as much as 4.9% during the current session to hit an intraday high of $56.25. Traders hoping HBC’s shares rally to a new 52-week high picked up 2,000 call options at the March $57.5 strike for an average premium of $1.44 per contract. Call buyers at this strike profit if shares surge 4.8% over today’s high of $56.25 to surpass the average breakeven price of $58.94 by March expiration. Bulls also purchased around 1,400 in-the-money call options at the February $55 strike for an average premium of $2.19 each. HSBC Holdings reports earnings for the third quarter before the opening bell on February 28, 2011. The February contract calls will have expired ahead of the earnings announcement, but the March expiry call options will still have plenty of plenty of life left in them at that point. Finally, it looks like one bullish player reeled in profits by buying-to-close a previously established short stance in March contract put options. The investor appears to have sold some 6,000 puts at the March $47 strike for a premium of $0.50 each back on January 4, 2011. Today, the trader bought back the options for $0.225 apiece to pocket net profits of $0.275 per contract. The overall reading of options implied volatility on HSBC Holdings is up 6.6% to stand at 23.75% as of 2:45pm.

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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