Option Activity Alert: LVS, FRX, FCX, SD

LVS – Las Vegas Sands Corp. – A number of options players hit the like button on Las Vegas Sands call options today ahead of the casino operator’s first-quarter earnings report after the final bell on Tuesday. Shares in the LVS increased as much as 2.6% this morning to secure an intraday high of $48.25, but currently stand just 0.60% higher on the session at $47.29 as of 12:50pm in New York. A number of pre-earnings speculators targeted the weeklies to position for the price of the underlying to extend gains ahead of expiration on Friday. Investors purchased around 2,250 calls at the May ’06 $48 strike for an average premium of $1.45 a-pop. Call buyers at this strike profit in the event that the stock rallies 4.6% over the current price to surpass the average breakeven point on the upside at $49.45 by expiration. Bulls paid an average premium of $0.77 per contract to pick up roughly 1,600 calls at the higher May ‘06 $50 strike price. Meanwhile, investors populating the May ’06 $52.5 strike sold 1,300 calls to receive an average premium of $0.28 each. Call selling at this strike may represent a near-term ceiling on shares in LVS for some investors. Traders keep the premium pocketed on the transaction as long as the price of the underlying stock fails to exceed $52.50 at expiration. Low-delta call buying occurred up at the May ’06 $55 strike where some 250 calls were picked up for an average premium of $0.09 per contract. More than 61,900 option contracts have changed hands on Las Vegas Sands as of 1:00pm. Options implied volatility on the stock is up 6.2% to arrive at 46.57% in early afternoon trade, one day ahead of earnings.

FRX – Forest Laboratories, Inc. – The maker of branded and generic drugs popped up on our scanners this morning due to heavier than usual trading in its options, as well as a sharp rise in the stock’s reading of options implied volatility. Shares in Forest Laboratories jumped 6.0% to an intraday- and new 2-year high of $35.15 today. Reports out this morning credit Seeking Alpha contributor Bret Jensen for inciting the FRX-rally with comments speculating that Forest Labs may be a likely takeover target. Options implied volatility on the stock is up 40.4% to stand at 31.18% as of 12:00pm in New York. Investors are trading around 5.7 call options on the drug maker for each single put option in play today. Trading traffic is heaviest at the June $38 strike price, where more than 3,200 calls changed hands on zero lots of open interest. The vast majority of these calls were purchased for an average premium of $0.38 apiece. Call buyers outnumbered sellers at the June $36 and $37 strikes, as well. Investors long the June $38 strike calls start making money if shares in FRX rally another 9.2% over the current price of $35.15 to surpass the average breakeven point at $38.38 by expiration day next month. In- and out-of-the-money call buying took place in May contract calls, as well. But, not all investors are convinced that shares in Forest Labs will spike in the near-term. Traders that, at the very least, do not expect FRX to receive a takeover bid ahead of May expiration sold roughly 1,000 calls at the May $36 strike to pocket average premium of $0.51 apiece. Call sellers keep the full amount of premium as long as shares settle below $36.00, rendering the calls worthless at expiration.

FCX – Freeport-McMoRan Copper & Gold, Inc. – Option traders are initiating near-term bullish positions on Freeport-McMoRan this morning, with shares in the mining company trading 0.75% higher on the day at $55.44 as of 11:25am in New York. Weekly options are popular with investors expecting the price of the underlying stock to continue to trend higher ahead of expiration on Friday. Traders picked up around 1,700 now in-the-money calls at the May ’06 $55 strike for an average premium of $0.93 apiece. Volume is heaviest up at the May ’06 $57.5 strike where more than 13,100 call options changed hands on open interest of 8,003 contracts, in the first half of the trading session. It looks like traders purchased the majority of these calls for an average premium of $0.29 a-pop. Call buyers at this strike profit if Freeport-McMoRan’s shares rally another 4.2% over the current price of $55.44 to surpass the average breakeven point at $57.79 by expiration day at the end of this week. Bullish players traded upwards of 2,800 calls at the May ’06 $60 strike on open interest of just 232 contracts, buying roughly 2,100 of the calls at an average premium of $0.10 each. Investors are establishing similar bullish positions in May call options expiring on the 20th of this month. Demand for options on the international mining company helped lift the overall reading of options implied volatility on the stock 7.1% to 36.27% as of 11:40am.

SD – SandRidge Energy, Inc. – A sizable put spread initiated on SandRidge Energy this morning suggests at least one options player sees the potential for a pullback in the price of the underlying stock ahead of June expiration. The investor responsible for the transaction may be taking an outright bearish stance on the stock ahead of SD’s first-quarter earnings report after the close on Thursday, or may be utilizing the puts to hedge a long position in the underlying. Shares in SandRidge increased as much as 2.5% during the first half of the session to secure an intraday high of $12.67. It looks like the options player picked up 7,000 puts at the June $11 strike for a premium of $0.355 per contract, and sold the same number of puts at the lower June $10 strike at a premium of $0.16 apiece. Net premium paid to initiate the transaction amounts to $0.195 per contract. The investor stands prepared to profit, or secure downside protection, if the price of SandRidge’s shares drops 14.7% from the current price of $12.67 to breach the effective breakeven point on the spread at $10.805 by expiration day in June. Maximum potential profits of $0.805 per contract pad the investor’s wallet in the event that shares in SandRidge plunge 21.1% in the next couple of months to trade below $10.00 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.

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