Option Activity Alert: EBAY, NTAP, GT, BONT

EBAY – eBay, Inc. – At least one bullish options strategist is positioning for a rally in eBay’s shares ahead of the company’s first-quarter earnings report after the final bell on Wednesday. Shares in the operator of online marketplaces increased as much as 3.1% during the first half of the session to secure an intraday high of $32.94. It looks like one or more investors initiated debit call spreads, buying around 2,000 calls at the June $34 strike for an average premium of $1.04 per contract, and selling roughly 2,000 calls up at the June $36 strike at an average premium of $0.44 apiece. The average net cost of buying the spread amounts to $0.60 per contract. Thus, investors employing call spreads start making money in the event that eBay’s shares rally another 5.0% over today’s high of $32.94 to surpass the average breakeven price of $34.60 by expiration day in June. Maximum potential profits of $1.40 per contract are available on the position if the price of the underlying stock jumps 9.3% to exceed $36.00 at expiration. EBAY’s shares secured a 52-week high of $35.35 back on February 17, 2011.

NTAP – NetApp, Inc. – The provider of enterprise storage and data management software and hardware products and services appeared on our scanners today after sizable prints popped up in long-dated call and put options. Shares in NetApp are currently up 2.1% at $52.10 just after 11:45am. The stock was upgraded to ‘Outperform’ from ‘Sector Perform’ with a 12-month target share price of $64.00 at Pacific Crest this morning. Activity in NetApp LEAPS indicates one options player expects the price of the underlying to improve going forward. It looks like the trader initiated a bullish risk reversal, selling approximately 5,500 puts at the January 2013 $45 strike at an average premium of $5.74 each, in order to purchase around the same number of calls up at the January 2013 $55 strike for an average premium of $8.09 apiece. Net premium paid to initiate the transaction amounts to $2.35 per contract. The investor responsible for the bullish play is poised to profit should shares in the Sunnyvale, CA-based company jump 10.1% over the current price of $52.10 to surpass the average breakeven point to the upside at $57.35 by expiration day in January 2013. Shares in NetApp last exceeded $57.35 back in mid-February. Scant open interest levels at each of the strikes mentioned indicate the spread is an opening position. Options implied volatility on the stock rose 5.6% to 31.87% by 12:00pm.

GT – Goodyear Tire & Rubber Co., Inc. – Investors initiated bullish positions in Goodyear Tire & Rubber Co. call options this morning, with shares in the tire manufacturer rallying as much as 2.0% to an intraday- and new 52-week high of $16.28. Options players may be positioning for shares in the name to move following the company’s first-quarter earnings report ahead of the opening bell on Friday. Nearly all of the activity in Goodyear’s options today involved out-of-the-money calls in the front month. More than 12,800 calls changed hands at the May $17 strike on previously existing open interest of just 950 contracts. The majority of the calls appear to have been purchased for an average premium of $0.40 a-pop. Call buyers profit if shares in the rubber company surge 6.9% over today’s high of $16.28 to surpass the average breakeven price of $17.40 by expiration day in May. Goodyear’s shares last traded above $17.40 back in October 2009. The sharp rise in demand for call options on the stock helped lift GT’s overall reading of options implied volatility 12.9% to 45.99% by 11:40am in New York.

BONT – Bon-Ton Stores, Inc. – Shares in the department store operator dropped 3.0% during the first half of the trading session to touch an intraday low of $13.29. Despite the dip in the price of the underlying, it looks like one options trader may be taking a bullish stance on the stock in the October contract. More than 6,400 call options changed hands at the October $15 strike on paltry previously existing open interest of just 5 contracts. Nearly all of the calls traded on the offer, suggesting the contracts were purchased at a premium of $1.70 apiece. The investor responsible for the transaction stands ready to accrue profits should shares in Bon-Ton Stores soar 25.7% higher during the next six months to surpass the effective breakeven price of $16.70 by expiration day in October. Bon-Ton’s shares closed above $16.70 as recently as March 9, 2011. The department store operator is scheduled to report first-quarter earnings before the market opens on May 19, 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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