Option Activity Alert: PRGO, BPL, CLH, CHS

PRGO – Perrigo Co. – Shares in global healthcare supplier Perrigo Company may rise substantially in the next few weeks, according to one options player initiating a debit call spread on the stock this morning. The manufacturer of OTC and generic prescription pharmaceuticals as well as nutritional and medical diagnostic products reports fourth-quarter earnings ahead of the open on August 16. Shares in Perrigo are currently up 0.55% to stand at $86.24 as of 12:45 pm in New York. It looks like the bullish strategist picked up 1,500 in-the-money calls at the August $85 strike for a premium of $2.58 each, and sold the same number of calls up at the August $95 strike at a premium of $0.23 apiece. Net premium paid to initiate the spread amounts to $2.35 per contract, thus positioning the trader to profit should shares in PRGO rally 1.3% to surpass the effective breakeven price of $87.35 at August expiration. The call-spreader could walk away with maximum potential profits of $7.65 per contract in the event that Perrigo’s shares surge 10.2% to a new all-time high of $95.00 by expiration day. PRGO’s shares hit their current record-high of $94.61 on July 21.

BPL – Buckeye Partners, L.P. – Put options on Houston, TX-based pipeline operator, Buckeye Partners, are in demand this afternoon, with shares in the name trading slightly lower by 0.45% to arrive at $63.46 just before 1:00 pm on the East Coast. The provider of transportation, terminalling and storage of petroleum products is scheduled to report second-quarter results before the market opens on Friday. Investors expecting shares in Buckeye pull back purchased nearly 1,500 puts at the September $60 strike for an average premium of $1.27 per contract. It looks like most of the volume was generated by one investor buying 1,300 of the contracts at $1.25 a-pop. The trader may be hedging a long position in the underlying, or could be taking an outright bearish stance on the stock. Profits are available to the investor should shares in BPL drop 7.4% in the next few months to breach the effective breakeven price of $58.75 at September expiration. Buckeye’s shares have exceeded $58.75 since mid-March.

CLH – Clean Harbors, Inc. – Pre-earnings report call buyers positioning for shares in Clean Harbors to rally following the release of the company’s second-quarter results this morning hit the jackpot. The provider of environmental, energy and industrial services around the globe posted far better-than-expected profits of $0.55 a share in the quarter, sending its shares up as much as 14.9% to a new all-time high of $59.35. It looks like some traders speculating on a post-earnings pop in the price of the underlying purchased around 200 call options at the August $52.5 strike during the past three trading sessions for an average premium of $1.80 apiece. The huge move in CLH’s shares today lifted premium on the Aug. $52.5 strike call up to $6.30 apiece. Call volume at the strike is running at 129 contracts against open interest of 234 contracts as of 12:15 pm ET, suggesting some or all of the positions are still being held by their owners. Meanwhile, investors expecting shares in Clean Harbors to continue to rally in the near term purchased around 210 fresh calls up at the August $60 strike for an average premium of $0.95 each. Call buyers profit if shares in CLH rally another 2.7% over today’s high of $59.35 to surpass the average breakeven price of $60.95 at expiration. Options implied volatility on Clean Harbors fell post earnings to stand 17.4% lower on the session at 30.50% in early-afternoon trade.

CHS – Chico’s FAS, Inc. – Bearish bets initiated on specialty retailer Chico’s at the tail-end of June seem to be paying off for some patient strategists who held short calls while the value of Chico’s shares marched higher for the next four weeks until the stock finally reversed course at the end of July. Shares in the retailer of apparel and accessories peaked at a 52-week high of $16.50 on July 21. The stock has since fallen around 14.0%, providing call sellers the opportunity to close out positions at favorable prices. Investors short Chico’s calls may have decided to take the money and run given the 2.0% rebound in CHS to $14.50 this morning. The retailer reports second-quarter earnings ahead of the opening bell on August 17. Open interest patterns in the August $15 strike call suggest traders sold around 2,000 calls for an average premium of $1.03 apiece on June 24. With theta and the eventual pullback in the price of the underlying on their side, it looks as though call sellers were able to buy back some 1,950 calls at the August $15 strike today for an average premium of $0.42 apiece. Net profits on the transaction amount to an average premium of $0.61 per contract. Similar short interest in the August $16 strike call has, on paper, resulted in substantial gains for traders who sold approximately 2,400 calls for an average premium of $0.74 each in the first week of July. The August $16 strike call currently touts an asking price of $0.20 per contract. It’s certainly worth noting that buyers of the Aug. $15 strike call this morning are not necessarily closing out short interest. Investors could be initiating fresh bullish positions on the specialty retailer ahead of earnings. In either case, the trade is a sign of optimism on CHS whether strategists are closing out bearish positions or establishing outright bullish ones. The change in open interest tomorrow should indicate which scenario is being played out today.

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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