Option Activity Alert: BIDU, PCS, JACK, CVC

BIDU – Baidu, Inc. – Frenzied options trading ensued at Baudi today on reports the owner of China’s most-used search engine signed an agreement with Facebook Inc. to set up a social networking website in China. BIDU’s shares rallied nearly 5.0% at the start of the session to touch an intraday- and new all-time high of $148.92. Investors are favoring call options on the stock, trading more than 2.8 calls for each single put option in play today. Options expiring this Friday are the most heavily populated in early-afternoon trade, with two-way trading traffic evident at most strikes. Volume is heaviest at the April $150 strike, with more than 15,740 calls having changed hands there as of 12:40pm on previously existing open interest of 5,441 contracts. Call volume is substantial at the in-the-money April $145 and April $155 strikes today, as well. Investors have traded upwards of 11,100 calls at each of those strikes this afternoon. Options expiring in May are active, and provide traders the opportunity to take positions on the stock in advance of the company’s first-quarter earnings report on April 27, 2011. Medium-term optimists scooped up call options at sky-high strikes in anticipation of continued bullish movement in Baidu’s shares through June expiration. Investors picked up more than 1,100 calls as high as the June $190 strike for an average premium of $0.95 a-pop. Call buyers at this strike make money if shares in BIDU spike 28.2% higher in the next couple of months to top the average breakeven price of $190.95 by expiration day in June. Options implied volatility on the Beijing-based company increased 11.2% to 47.03% as of 1:00pm in New York, with overall options volume on the stock exceeding 99,930 contracts.

PCS – MetroPCS Communications, Inc. – The wireless communications provider popped up on our scanners in the first hour of the trading week after one strategist booked profits on a previously established bullish position in May contract call options. The same player also extended bullish sentiment on MetroPCS, positioning for the price of the underlying to continue to rise ahead of expiration next month. Shares in PCS increased 2.0% in the first half of the session to touch an intraday- and nearly 2-year high of $17.00. It looks like the trader originally purchased at least 4,500 calls at the May $15 strike for a premium of $1.05 each one month ago, on March 11, when shares in PCS were hovering around $14.87. The sharp rally in the price of PCS shares in the past four weeks lifted premium on the now deep in-the-money calls, allowing the investor to sell the calls today for a premium of $2.00 apiece. Net profits on the sale of the call options amounts to $0.95 per contract. Next, the trader extended optimism on the wireless communications company, buying a minimum of 4,500 calls up at the May $17 strike for an average premium of $0.78 a-pop. The investor starts making money on the fresh bullish stance if shares in MetroPCS rally another 4.6% to surpass the average breakeven price of $17.78 by expiration in May. The company is scheduled to report first-quarter earnings ahead of the open on May 3, 2011.

JACK – Jack in the Box, Inc. – Contrarian strategists picked up call options on the operator of fast-food restaurant chains Jack in the Box and Qdoba Mexican Grill this morning despite the 4.25% decline in the price of JACK’s shares to $21.23. The San Diego, CA-based company was cut to ‘Underperform’ from “Neutral’ with a $20.00 share price target, down from $21.00, at Credit Suisse. Options traders hungry for a rally in the price of the underlying by expiration next month traded 980 calls at the May $22.5 strike on paltry previously existing open interest of just 9 contracts. Nearly all of the calls appear to have been purchased for at a premium of $0.50 apiece. Call buyers profit if JACK’s shares surge 8.3% over the current price of $21.23 to exceed the effective breakeven price of $23.00 by May expiration day. Optimism spread to the June $22.5 strike where like-minded investors purchased some 320 calls at an average premium of $0.80 per contract. Two-way trading traffic generated volume of roughly 1,000 put options at the June $20 strike in the first half of the trading session. The rise in demand for Jack in the Box options helped lift the stock’s overall reading of options implied volatility 22.3% to 37.35% by 11:45am in New York. JACK is slated to release second-quarter results after the final bell on May 12, 2011.

CVC – Cablevision Systems Corp. – Shares in the provider of cable television and other telecommunications services increased more than 1.4% in the first half of the session to $33.75, but one options player appears to be positioning for the price of the underlying to pull back ahead of June expiration. Cablevision Systems Corp. is scheduled to report first-quarter earnings ahead of the opening bell on May 5, 2011. The bearish strategist initiated a debit put spread, buying 2,500 puts at the June $33 strike for a premium of $1.65 each, and selling the same number of puts at the lower June $29 strike at a premium of $0.40 apiece. Net premium paid to initiate the spread amounts to $1.25 per contract. The investor starts making money on the position in the event that Cablevision’s shares decline 5.9% from the current price of $33.75 to breach the effective breakeven point on the spread at $31.75 by expiration day in June. Maximum potential profits of $2.75 per contract are available to the trader should shares in CVC plunge 14.1% in the next few months to trade below $29.00 at 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.

Visit: Interactive Brokers

Be the first to comment

Leave a Reply

Your email address will not be published.


*