Option Activity Alert: AMTD, XRT, BTU, NG

AMTD – TD Ameritrade Holding Corp. – Put options on TD Ameritrade are popular on the final trading session of the week, with shares in the financial services company trading 0.85% lower on the day at $18.76. Investors may be scooping up puts on the largest U.S. online trading firm following comments from the company’s chief executive regarding concerns that the slower pace of client trading activity in the context of a more uncertain economic climate may endure through the summer months. In-the-money put options in the August contract, which expire after TD Ameritrade reports third-quarter earnings on July 19, are drawing the most trading traffic today. It looks like investors purchased around 2,175 puts at the August $21 strike for an average premium of $2.77 each. Bears traded more than 3,400 puts at the lower August $20 strike on previously existing open interest of just 381 contracts. Roughly 3,000 of the lower-strike puts were picked up for an average premium of $1.82 a-pop. Investors long the August $20 strike puts make money in the event that AMTD’s shares fall another 3.1% to breach the average breakeven point on the downside at $18.18 by expiration day in August. Greater demand for TD Ameritrade put options helped raise the stock’s overall reading of options implied volatility 12.4% to 31.77% as of 1:00pm in New York.

XRT – SPDR S&P Retail ETF – A large ratio put spread initiated on the retail ETF suggests one big options strategist is positioning for substantial, albeit limited, bearish movement in the price of the underlying fund through July expiration. Shares in the XRT, an exchange-traded fund designed to mimic the performance of the S&P Retail Select Industry Index, dropped 2.4% to an intraday low of $49.15 today. The trader responsible for the sizable bearish spread picked up 14,000 puts at the July $49 strike for a premium of $1.22 each, and sold 28,000 puts at the lower July $45 strike at a premium of $0.30 apiece. Net premium paid to put on the trade amounts to $0.62 per contract, thus positioning the investor to profit should shares in the ETF fall another 1.6% off today’s low of $49.15 to breach the effective breakeven price of $48.38 at expiration. Maximum potential profits of $3.38 per contract are available to the ratio put-spreader in the event that shares fall 8.4% to settle at $45.00 at expiration next month. Shares in the XRT last traded around $45.00 back in mid-November 2010. The sale of twice as many of the lower-strike put options could result in losses to the trader if it turns out the position is not quite bearish enough. Shares in the XRT would need to plummet 15.3% over the next several weeks to July expiration before the investor starts to lose money beneath the lower-breakeven share price of $41.62. Options implied volatility on the retail SPDR is elevated this afternoon, standing 8.7% higher on the session at 22.19% as of 12:45pm.

BTU – Peabody Energy Corp. – Shares in the coal producer are close to re-entering positive territory this morning with the stock hovering just 0.05% below Thursday’s close at $56.27 as of 11:45am in New York. Earlier in the session, with Peabody Energy’s shares trading up 0.90% at an intraday high of $56.81, a flurry of call activity caught our eye. Investors positioning for a near-term rally scooped up some 1,500 calls at the June $57.5 strike for an average premium of $0.65 each. Bullish sentiment spread to the higher June $60 strike where some 1,600 calls were picked up at an average premium of $0.19 apiece. Call buyers paid an average of $0.10 per contract for roughly 560 calls at the June $62.5 strike, as well. Investors long the calls may turn a profit as long as shares in the coal company improve substantially by expiration day next week. Options players populating the July contract honed in on the $60 strike calls, buying around 1,200 contracts at an average premium of $1.20 a-pop. Traders holding the July $60 strike calls profit if BTU’s shares surge 8.8% to trade above $61.20 by expiration day next month. Another 740 call options were coveted up at the July $62.5 strike for an average premium of $0.54 each. The June and July contract call options expire ahead of the coal producer’s second-quarter earnings report on July 19. The rise in demand for BTU call options helped lift the stock’s overall reading of options implied volatility 12.2% to 39.16% as of noon on the East Coast.

NG – Novagold Resources, Inc. – Big prints in put options on the gold mining company launched Novagold Resources to the top of our ‘most active by options volume’ market scanner this morning. It looks like one investor is rolling a large put spread out to the December contract to extend bearish sentiment on the stock through to the end of 2011. Shares in the Vancouver, BC-based precious metals company fell 2.0% at the start of the session to touch an intraday low of $9.48. Sizable put spreads were purchased on NG on the first two Wednesdays in May when the price of the underlying was still trading above $11.00. A 22,000-lot September $9.0/$11 put spread was initiated at a net cost of $0.75 per contract on May 4, while a 25,000-lot put spread at the same strikes was purchased for a net premium of $0.95 per contract a week later on May 11. Shares in Novagold Resources have declined 21.0% since the first spread was initiated last month. This morning an investor sold a 24,000-lot September $9.0/$11 put spread sold for a net premium of $1.10 per contract in order to buy the same-sized December $7.0/$9.0 put spread at a net premium of $0.75 a-pop. If the trader is in fact rolling part of the original position out to the December contract, it seems the transition results in profits on the one hand, and a more bearish stance on NG on the other. The fresh put position out in the December expiry prepares the options player to profit should the price of Novagold’s shares drop another 13.0% off of today’s low of $9.48 to breach the effective breakeven price of $8.25 at expiration. Maximum potential profits of $1.25 per contract are available on the spread should shares plunge 26.2% to trade below $7.00 at expiration in December. The gold mining company’s shares last traded below $7.00 back in August 2010. Novagold Resources is scheduled to report second-quarter earnings on July 12.

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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