Option Activity Alert: DNKN, AXP, LXK, CBG

DNKN – Dunkin’ Brands Group, Inc. – Options activity on the franchisor of Dunkin’ Donuts and Baskin-Robbins quick service restaurants spiked one day before analysts are expected to initiate coverage on the company. Shares in DNKN rallied as much as 6.1% to $27.95 this morning, but cooled to $26.95 in early-afternoon trade as investors await analyst opinion on the stock. The Canton, Massachusetts-based company’s shares are currently a far-cry from the $31.94-high achieved days after the IPO, but some traders are looking to the options market to speculate on a move in that direction. More than 3,000 options have changed hands on the stock thus far in the session, which is substantial next to overall open interest of 5,439 contracts. Demand is decidedly skewed in favor of calls on Dunkin’ Brands, with roughly 7 call options trading on the stock for each single put option in play this afternoon. The wave of activity lifted options implied volatility on DNKN 9.1% to 59.18% by 1:10 pm on the East Coast.

Bullish players itching for a near-term rally in the price of the underlying snapped up calls in the front month. It looks like traders purchased at least 1,000 calls at the September $30 strike for an average premium of $0.36 a-pop. Call buyers profit if shares in the provider of frozen treats and breakfast sandwiches surge 12.65% over the current price of $26.95 to surpass the average breakeven point to the upside at $30.36 by September expiration day. Like-minded optimists hungry for a Dunkin’ rally picked up around 185 calls out at the October $30 strike for a premium of $1.00 per contract. Positive analyst coverage of the America runs on Dunkin’ donut-maker could potentially spur a sprint to buy up shares in the stock to the delight of call holders. Of course, if it turns out analysts don’t quite have a sweet tooth for ice cream and Dunkaccinos tomorrow morning, buyers of the call options may wind up waving goodbye to premium tied up in the trade.

AXP – American Express Co. – Big prints in American Express Co. call options this morning suggest some bullish players are gearing up for a substantial rally in the credit card issuer’s shares in the next couple of weeks. The stock gained 0.40% to stand at $49.90 by 12:00 pm ET. Investors exchanged more than 9,000 calls at the September $52.5 strike against previously existing open interest of 2,011 contracts. It looks like the majority of the call options were purchased for an average premium of $0.25 per contract. Call buyers make money if shares in American Express surge 5.7% to surpass the average breakeven price of $52.75 by expiration day in two weeks. Shares in AXP last traded above $52.75 on July 22 before the stock tumbled along with the rest of the market. The price of the underlying dipped 20.0% to bottom-out at a six-month low of $42.03 on August 9. Shares in American Express have rebounded sharply in the past few weeks, and call buyers today may profit handsomely if the stock continues to recover in the next two weeks to September expiration.

LXK – Lexmark International, Inc. – Put players converged on the provider of printing products this morning, perhaps to position for potential bearish movement in the price of the underlying shares in the months ahead. Lexmark’s shares are fighting to stay positive this afternoon, and currently trade 0.10% higher on the day at $32.00 as of 12:20 pm in New York. Lexmark’s shares have suffered over the past 10 months, dropping as much as 45.0% from a 52-week high of $48.07 in October 2010, down to a 52-week low of $26.63 in June. The stock has gained roughly 20.0% since June, but put buyers in the October contract this morning do not seem convinced the recovery will hold. Investors traded more than 6,900 puts at the October $32 strike, trumping paltry previously existing open interest of just 288 contracts. Traders appear to have purchased the vast majority of the put options at an average premium of $1.75 a-pop. Put buyers profit if shares in Lexmark International decline 5.5% from the current price of $32.00 to breach the average breakeven point at $30.25 by October expiration day. The October contract put options expire the Friday before Lexmark reports third-quarter earnings.

CBG – CB Richard Ellis Group, Inc. – Shares in the commercial real estate services firm have been crushed during the past several months, plunging 55.0% from a 52-week high of $29.88 in April, down to a six-month low of $13.42 last Friday. The stock is off its lows of last week, and activity in September contract call options this morning suggests traders may be positioning for a near-term rebound in the price of the underlying. Shares in CB Richard Ellis Group are down 1.6% this afternoon to arrive at $14.92 as of 1:45 pm ET. It looks like one or more investors picked up some 2,700 calls at the September $15 strike at a premium of $0.83 per contract. More than 3,800 call options changed hands at that strike against open interest of 629 positions. Call buyers stand ready to profit should CBG’s shares jump 6.1% in the next two weeks to exceed the average breakeven price of $15.83 at expiration. Options implied volatility on the stock edged 8.5% higher this afternoon to 62.35%.

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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