Option Activity Alert: LINTA, MWW, CVS, AEP

LINTA – Liberty Media Interactive – A large stock and options combination play on the broadcasting and entertainment company appears to be the work of an investor hoping to see LINTA’s shares stagnate ahead of July expiration. Shares in the owner of QVC and Starz Entertainment are currently up 0.10% to stand at $15.80 as of 12:15pm in New York. The options player sold a sizable 15,000-lot July $15 strike straddle, taking in $1.40 per contract on the sale of the in-the-money calls, and pocketing $0.60 each on the sale of the put options. In conjunction with the short straddle, the trader purchased some 417,000 shares of the underlying at $15.80 each. The long stock position may be a way for the investor to guard against continued upward movement in the LINTA’s shares through expiration. Gross premium of $2.00 per contract, or $3 million, represents the maximum gain on the short straddle. The trader keeps the full premium if shares in Liberty drop to $15.00 and both the calls and the puts expire worthless at expiration in July. The investor will lose $0.80 per share on the long stock position, assuming he holds onto all legs of the trade, if the best-case scenario on the options leg of the transaction (shares trading at $15.00 each) is realized at expiration. The erosion of time value on the short options will work in his favor, as will declines in options implied volatility on LINTA.

MWW – Monster Worldwide, Inc. – Options traders employed bullish strategies on Monster Worldwide this morning with shares in the name rising as much as 1.7% to $15.55 as of 10:40am in New York. Call options on the global online resource that connects job seekers with hirers are in high demand thus far in the session. It looks like plain-vanilla call buying is the most popular tactic with Monster-bulls populating the front month. Investors are positioning for a near-term rebound in MWW’s shares, which have been moving lower for most of 2011. Year-to-date, the stock declined as much as 45.0% from a two-year high of $25.90 on January 7, to a 2011-low of $14.24 on March 15. Shares in Monster Worldwide have rallied up 9.2% off the March 15 low, but options players on the field this morning are looking for a more substantial comeback in the price of the underlying ahead of April expiration. Investors scooped up more than 1,700 calls at the April $16 strike for an average premium of $0.55 apiece. Trading traffic is heaviest, however, at the higher April $17 strike where more than 4,900 call options have changed hands on previously existing open interest of just 520 contracts. The vast majority of these calls were purchased for an average premium of $0.24 a-pop. Call buyers are poised to profit should shares in MWW surge 10.9% over the current price of $15.55 to surpass the average breakeven price of $17.24 ahead of expiration next month. The spike in demand for Monster’s options helped lift the stock’s overall reading of options implied volatility 22.3% to 60.18% in the first half of the session.

CVS – CVS Caremark Corp. – Fresh positioning in November contract call and put options on the provider of pharmacy benefit management services caught our eye today. It looks like one strategist expects shares in CVS Caremark Corp. to rise ahead of November expiration. The stock is currently trading 0.15% lower on the session to stand at $33.56 as of 12:40pm in New York. The options trader populating the November contract appears to have sold around 8,000 puts at the November $30 strike for an average premium of $1.44 each, in order to purchase roughly the same number of calls up at the November $35 strike at an average premium of $1.95 apiece. Net premium paid to initiate the bullish risk reversal amounts to $0.51 per contract. Thus, the trader stands prepared to make money in the event that shares in CVS rally at least 5.8% to surpass the breakeven price of $35.51 by expiration day in November. CVS’s shares last closed above $35.51 on January 27, 2011.

AEP – American Electric Power Co., Inc. – Shares in the public utility holding company rose nearly 1.1% this morning to $35.07 after the company affirmed its forecast for earnings of $3.00 to $3.20 a share for the full year ending December 31, 2011. American Electric Power Co. popped up on our scanners at the start of the session due to near-term bullish activity in April contract call options. Investors bought more than 4,100 now in-the-money calls at the April $35 strike for an average premium of $0.35 apiece. Call buyers start making money in the event that AEP’s shares rise another 0.80% to trade above the average breakeven price of $35.35 by expiration day in April. Approximately 4,200 calls have changed hands at the April $35 strike as of 11:15am on open interest of 1,953 contracts. Open interest patterns at that strike suggest most of the open positions are long calls picked up by traders in the past couple of weeks for an average premium of $0.18 each. Investors today are paying roughly twice as much to play out bullish forecasts on AEP as traders who purchased the calls when shares were just starting to recover off of a March 17, six-month low of $33.47.

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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