Option Activity Alert: TIVO, PCX, JDSU, ACN

TIVO – TiVo, Inc. – A sizable speculative bullish position was initiated in TiVo options today, though shares in the provider of digital video recording services fell as much as 5.85% at the start of the session to hit an intraday low of $8.53. The large four-legged transaction may be the work of an investor positioning for shares in the name to spike higher should the firm prevail in its legal battle regarding DVR technology against EchoStar and Dish Network. Results of the case are expected in the next couple of months. It looks like three of the four legs of the transaction were sold in order to offset the cost of getting long in-the-money calls expiring in August. The optimistic options player sold 10,000 puts at the August $7.0 strike for a premium of $1.01 each, shed 10,000 calls up at the August $15 strike at a premium of $0.52 apiece, and sold 10,000 calls at the May $20 strike for a premium of $0.06 per contract. The short legs of the trade were marked against the purchase of 10,000 in-the-money calls at the August $8.0 strike for a premium of $2.53 a-pop. Net premium paid to initiate the spread amounts to $0.94 per contract, and prepares the trader to profit should shares in TiVo rally 4.8% over today’s low point of $8.53 to surpass the breakeven price of $8.94 by August expiration. The investor could walk away with hefty maximum potential profits of $6.06 per contract in the event that TIVO’s shares jump 75.85% to trade above $15.00 in the time remaining to expiration. One observation worth mentioning is that the August contract call and put options represent fresh positioning given the tiny levels of previously existing open interest at each strike. But, the fourth leg of the trade, the May $20 strike calls, have more than 41,000 open positions. The trader could be rolling the calls out to the August contract, or closing out a previously established position, rather than initiating an opening sale to provide additional financing for the bullish stance in the August contract. If the legal proceedings do not result in a decision that favors TiVo, Inc., shares in the firm could take a big hit. The short stance in August $7.0 strike calls could result in the investor having 1 million shares of the underlying put to him if the puts land in-the-money and are exercised ahead of expiration day in August.

PCX – Patriot Coal Corp. – Signs of bullish sentiment on Patriot Coal Corp. popped up in April contract call options within the first 30 minutes of the trading day this morning. It looks like one trader initiated a call spread on PCX to prepare for a hefty move higher in the price of the underlying by expiration day next month. Rising global demand for coal has helped shares in PCX rise sharply over the past 6 months, and this options player is positioned for the stock to potentially reach a new 52-week high in the near future. Shares in the coal mining company increased as much as 0.81% during the session to secure an intraday high of $24.79. The Patriot Coal-call strategist picked up approximately 5,000 calls at the April $26 strike for an average premium of $1.09 each, and sold the same number of calls at the higher April $30 strike at an average premium of $0.29 apiece. Net premium paid to initiate the bullish play amounts to $0.80 per contract. The trader is poised to profit should shares in the coal company rise another 8.1% over today’s high of $24.79 to exceed the average breakeven price of $26.80 by expiration day in April. Maximum potential profits of $3.20 per contract pad the investor’s wallet in the event that PCX shares surge 21.0% to trade above $30.00 ahead of expiration next month. Shares in the coal mining firm traded up as high as $29.20 on February 2, 2011, in the past 52-weeks, but have not breached $30.00 since September 2008.

JDSU – JDS Uniphase Corp. – Bears scooped up put options on the telecommunications equipment provider today, suggesting the price of the underlying may decline ahead of April expiration. The stock jumped 74.3% in the span or about two weeks, rallying up from $16.70 on January 31, 2011, to as high as $29.12 on Valentine’s Day. Shares in JDSU have slipped somewhat since then, surrendering more substantial ground in the most recent two weeks, and falling in sympathy with competitor Ciena Corp. yesterday after the firm’s revenue forecast missed estimates. JDS Uniphase’s shares rebounded this afternoon to stand 1.00% higher on the session at $25.74. But, April contract put action indicates bearish sentiment on the stock is alive and well. It looks like traders purchased some 3,000 puts at the April $24 strike for an average premium of $1.48 each. Pessimism spread to the lower April $23 strike where another 2,200 puts were picked up at an average premium of $1.18 a-pop. Lower-strike put buyers profit if shares in JDSU plunge 15.2% from the current price of $25.74 to breach the average breakeven point on the downside at $21.82 by expiration day next month.

ACN – Accenture PLC – Shares in the management consulting and technology services provider slipped 0.80% in the first half of the trading session to touch an intraday low of $51.97, but it looks like one options player is positioning for a sharp rally in the price of Accenture’s shares to a new all-time high by May expiration. Analysts at Credit Suisse upped their share price target on ACN to $67.00 from $55.00. The bullish investor initiated a call spread, buying around 1,250 calls at the May $55 strike for an average premium of $1.10 each, and selling the same number of calls up at the May $57.5 strike at an average premium of $0.44 apiece. The average net cost of putting on the spread amounts to $0.66 per contract. Thus, the trader starts to make money if Accenture’s shares rally 7.1% off today’s low of $51.97 to surpass the average breakeven price of $55.66 by May expiration. Maximum potential profits of $1.84 per contract are available to the call-spreader if shares in ACN surge 10.6% in the next few months to trade above $57.50 by expiration day. Shares in Accenture recently secured a new all-time high of $54.55 on February 17, 2011. The investor responsible for the call spread starts to realize gains on the spread if shares best that high by at least 2.0% within the time remaining to expiration.

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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