Option Activity Alert: SPLS, MRVL, FRX, ERIC

SPLS – Staples, Inc. – Call options on the office supplies retailer are flying off the shelves ahead of the firm’s fourth-quarter earnings report, which is slated for release before the opening bell tolls on Wednesday. Shares in the name are up 1.35% to stand at $21.22 as of 12:00pm in New York. Bullish players are out in numbers, buying up call options in the March and April contracts, to position for shares to extend gains in the near term. Meanwhile, there is a bit of put buying in the front month this morning, with some 1,200 March $21 puts picked up by pessimistic traders for an average premium of $0.55 each. The largest bullish bet on Staples was the purchase of 9,000 calls at the March $22 strike at a premium of $0.40 each. The transaction appears to be tied to the sale of 270,000 shares of the underlying at $21.11 each. The strategy is likely a delta neutral play, with a delta of 0.30 indicated by the size of the stock and option combination employed. The trader could make out on the short stock leg of the trade if shares in SPLS drop post-earnings, however, the parameters of the transaction indicate substantially higher potential gains if shares fly higher in the time remaining to March expiration. A total of 11,395 calls changed hands at the March $22 strike in early-afternoon trade versus previously existing open interest of just 1,520 contracts. Like-minded optimists looked to the April $22 strike to buy roughly 2,000 calls for an average premium of $0.55 per contract. Call buyers at the April $22 strike start making money in the event that Staples’ shares surge 6.3% to surpass the average breakeven price of $22.55 by April expiration. Options implied volatility on the office supplies firm is up 4.8% at 30.82% as of 12:15pm.

MRVL – Marvell Technology Group, Ltd. – A bear put spread purchased on Marvell Technology Group Ltd. ahead of its earnings report later this week, suggests one trader expects shares in the semiconductor company to continue to decline. Shares in the name are currently down 2.95% to stand at $18.36 just after 11:30am. MRVL will report earnings for the fourth quarter after the market closes this Thursday. The pessimistic player picked up 3,500 puts at the April $18 strike for a premium of $0.76 each, and sold the same number of puts at the lower April $16 strike at a premium of $0.22 apiece. Net premium paid to initiate the spread amounts to $0.54 per contract. Thus, the trader stands ready to make money should Marvell’s shares fall another 4.9% to breach the effective breakeven price of $17.46 ahead of April expiration day. Maximum potential profits of $1.46 per contract are available to the investor should shares in Marvell Technology drop 12.85% from the current price of $18.36 to trade below $16.00 at expiration. The overall reading of options implied volatility on the semiconductor manufacturer ticked up 4.0% to 39.32% in the first half of the session.

FRX – Forest Laboratories, Inc. – The drug maker popped up on our ‘hot by options volume’ market scanner at the start of the trading week after one strategist initiated a sizable spread in January 2012 contract call and put options. Shares in Forest Laboratories are currently up 1.8% to stand at $32.46 as of 11:00am in New York. Last week FRX said it is buying specialty pharmaceutical company Clinical Data Inc. in a $1.2 billion deal that gives the firm access to CLDA’s recently FDA-approved antidepressant, Viibryd. It looks like the long-term options player populating Forest Labs today is positioning for bullish movement in the price of the underlying stock through the start of 2012. The trader appears to have sold some 4,595 puts at the January 2012 $25 strike for a premium of $0.70 each, in order to partially finance the purchase of the same number of January 2012 $40 strike calls at a premium of $0.80 apiece. The net cost of the transaction amounts to $0.10 per contract. From an expiration-based view, the trader is prepared to make money if shares in the branded drug manufacturer jump 23.5% over the current price of $32.46 to exceed the effective breakeven price of $40.10 by expiration day next year. Forest Laboratories’ shares last traded above $40.10 in April 2008.

ERIC – Ericsson Telephone Company – The maker of mobile communications equipment received bullish bets in its options this morning, with shares in Ericsson trading as much as 4.0% higher during the session to secure an intraday- and new 2-year high of $12.93. Investors itching for the price of the underlying to extend gains during the next five months purchased more than 5,600 call options up at the July $15 strike for an average premium of $0.25 a-pop. More than 7,250 calls changed hands at that strike thus far in the session on open interest of 3,185 contracts. Call buyers profit if Ericsson’s shares jump 17.9% over today’s high of $12.93 to exceed the average breakeven price of $15.25 by July expiration. Investors purchasing the calls today appear to be adding to long call open interest at that strike. Judging by open interest patterns, it looks like traders picked up roughly 2,300 July $15 strike calls for an average premium of $0.20 each back on February 15, 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.

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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