Option Activity Alert: BBBB, CREE, HBI, FRX

BBBB – Blackboard, Inc. – Shares in the provider of enterprise software applications and services to the education industry jumped 34.8% to an intraday and new all-time high of $50.10 on news the company received unsolicited buyout offers. Blackboard has reportedly hired Barclays Capital as its financial advisor as it evaluates takeover bids. Buyers of May $40 strike call options on Monday saw premium on the then out-of-the-money contracts explode during the current session. It looks like investors paid an average premium of $0.40 apiece for roughly 1,200 calls at the May $40 strike yesterday afternoon. The huge run up in the price of the underlying shares, which were halted for a brief period earlier today, lifted the asking price on the calls up to $10.50 per contract as of 2:50pm in New York. Traders populating Blackboard options during the current session focused in on the May $50 strike calls. Approximately 2,500 calls changed hands at that strike today. Two-way trading traffic in the calls suggests that slightly more of the options were sold than purchased, for an average premium of $1.73 each. Blackboard is scheduled to report first-quarter earnings after the market closes on May 4, 2011.

CREE – Cree, Inc. – Bull call spreads were purchased on the maker of light emitting diode (LED) products straight out of the gate this morning ahead of Cree’s third-quarter earnings report after the final bell. Shares in the Durham, NC-based company are currently down 1.5% to stand at $40.46 as of 11:25am in New York. The stock is hovering just above its 52-week low of $40.25 set on Monday, which is less than half of Cree’s 52-week high of $82.85 recorded nearly one year ago on April 20, 2010. Traders initiating debit call spreads may be speculating on a rally in the price of the underlying in the event that Cree’s results beat expectations. Alternatively, strategists could be hedging short positions in the stock, reducing the cost of protection by establishing call spreads rather than simply buying calls outright. It looks like some 5,000 calls were picked up at the June $45 strike for an average premium of $1.80 each, while roughly the same number of calls sold for an average premium of $0.68 apiece up at the June $50 strike. The average net cost of putting on the spread amounts to $1.12 per contract. Investors taking bullish rather than protective positions on the stock are hoping to see the price of the underlying jump ahead of June expiration. These call-spreaders start making money if Cree’s shares surge 14.0% over the current price of $40.46 to surpass the average breakeven point at $46.12 at expiration. Maximum potential profits of $3.88 per contract are available to traders should shares soar 23.6% in the next couple of months to trade above $50.00 by expiration day in June. CREE’s shares last closed above $50.00 back on March 3, 2011.

HBI – Hanesbrands, Inc. – Investors itching for a near-term rally in Hanesbrands shares got their hands on May contract call options this morning with the price of the underlying stock trading 1.2% higher on the session at $28.68 as of 11:45am. The rise in demand for call options on the stock, coupled with the consumer goods company’s impending first-quarter earnings report ahead of the opening bell tomorrow, helped lift HBI’s overall reading of options implied volatility 22.3% to 39.06% in the first half of the session. More than 2,300 calls changed hands at the May $30 strike on open interest of 676 contracts before lunchtime on the East Coast. It looks like the majority of these calls were purchased for an average premium of $0.75 a-pop. Bulls long the calls stand prepared to profit should shares in the manufacturer of t-shirts and socks surge 7.2% over the current price of $28.68 to exceed the average breakeven point on the upside at $30.75 by expiration day next month.

FRX – Forest Laboratories, Inc. – It looks like at least one options player is positioning for shares in Forest Laboratories to rally sharply by expiration in January 2012. Shares in the maker of Lexapro and other widely-used drug treatments are up 1.9% at $33.85 in early-afternoon trade, after having rallied as much as 2.6% to an intraday high of $34.07. FRX posted better-than-expected fourth-quarter profits of $1.12 a share ahead of the opening bell this morning, which beat the average analyst estimate of $1.07 a share. Long-term bullish sentiment on the pharmaceuticals firm found a home in January 2012 call and put options. Investors sold around 4,000 puts at the January 2012 $30 strike in order to buy the same number of January 2012 $37.5 strike calls, all for an average net cost of just $0.05 per contract. The bullish risk reversal is profitable for traders if the price of the underlying stock jumps 10.9% over the current price of $33.85 to surpass the average breakeven price of $37.55 by expiration day next year. The 52-week high for FRX shares currently stands at $34.59. The drug manufacturer’s shares last traded above $37.55 back in August 2008. Options implied volatility on the stock is down 19.5% post-earnings to stand at 20.65% as of 12:15pm.

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.

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