Option Activity Alert: JNPR, WFT, SCHW, XLF

JNPR – Juniper Networks, Inc. – Shares in the provider of high-performance network infrastructure rallied as much as 5.2% at the start of the session to a one-month high of $21.50. The stock gained nearly 30.0% off its October 4 low of $16.67, but even so continues to trade at a more than 50.0% discount to its March 8 year-to-date high of $45.01. Juniper’s morning rally has lost some steam this afternoon, with the stock trading higher by 1.6% at $20.75 as of 12:25 pm EDT.

The company releases third-quarter earnings after the final bell on Tuesday, and one doubting Thomas is betting the report will do little to rocket-launch the shares to the upside. It looks like the investor sold a block of 13,000 calls at the Oct. $24 strike to pocket premium of $0.13 per contract. The trader keeps the full amount of premium as long as JNPR’s shares fail to rally above $24.00 at expiration next week. The transaction was not tied to stock, but the investor could already hold a large long position in the underlying. If no stock is held, potential losses the investor may ultimately be forced to swallow are unlimited. But, shares in JNPR would need to surge 16.3% over the current price of $20.75 in order for the trader to start losing money above the effective breakeven share price of $24.13 at October expiration. Shares in Juniper Networks have languished beneath $24.00 since July 28.

WFT – Weatherford International Ltd. – The energy sector is up big and is presently outpacing rallies enjoyed by all sectors of the S&P 500 Index today. Shares in Weatherford International Ltd., a provider of equipment and services to the oil and natural gas industry, are up 2.75% at $14.31 as of 11:40 am EDT. Big prints in October contract calls on WFT suggest some strategists expect the stock to extend gains through expiration next week. Investors exchanged more than 21,000 calls at the Oct. $15 strike against open interest of 4,605 contracts. It looks like the majority of the calls were purchased for an average premium of $0.22 a-pop. Call buyers profit if shares in Weatherford increase another 6.35% over the current price of $14.31 to surpass the average breakeven point on the upside at $15.22 by expiration. The purchase of 6,000 of the calls at a premium of $0.21 each was the largest single block initiated thus far in the session. The energy sector and related stocks were hit hard in recent months on fears of slowing growth in China, worries over a possible double-dip recession and the European sovereign debt and banking crises. The XLE, an ETF that tracks the performance of the Energy Select Sector of the S&P 500 Index, dropped more than 30.0% in the span of roughly 13 weeks to touch a new 52-week low of $54.26 on October 4. The sector joined in on the recent broad market rebound, as did Weatherford International, which saw its shares surge 33.0% over an October 4 low of $10.85. WFT reports third-quarter earnings on October 25, days after the Oct. contract calls expire.

SCHW – Charles Schwab Corp. – The financial services firm popped up on our ‘hot by options volume’ market scanner this morning due to heavy put activity in the November contract. Trading traffic in Schwab puts may be the work of investors preparing for the price of the underlying to pull back following the company’s third-quarter earnings report on October 17. Shares in Charles Schwab Corp. are down 1.1% at $12.51 in early-afternoon trade, with the financials lagging on an otherwise positive day for U.S. equities.

Volume in SCHW options is heaviest at the Nov. $11 strike, where more than 6,300 puts changed hands against open interest of just 83 contracts. It looks like most of the put options were likely purchased by one or more investors for an average premium of $0.25 apiece. Buyers of the options make money at expiration next month if shares in Schwab plunge 14.1% to breach the effective breakeven point on the downside at $10.75. Schwab’s shares last traded below $10.75 back on October 4, before the market kicked into rally mode. Options implied volatility on the stock is on the rise, up 5.5% at 44.4% as of 12:10 pm in New York.

XLF – Financial Select Sector SPDR ETF – The financials ETF jumped to the top of our ‘most active by options volume’ market scanner minutes into the final trading session of the week after massive trades were initiated in November contract puts. Financials, feeling a bit hung in the aftermath of JPMorgan’s earnings release, are lagging behind on an otherwise up-day for the market. Shares in the XLF, an exchange-traded fund that tracks the performance of the Financial Select Sector of the S&P 500 Index, are positive for now, up 0.08% at $12.46, as of 12:40 pm in New York. More than 500,000 option contracts have changed hands on the ETF thus far in the session, with the two largest prints drawing attention to the November $10 and $12 strike puts.

The transaction is somewhat difficult to read, but may be a massive put spread, purchased 108,000 times for an average premium of $0.36 per contract. Volume at both strikes exceeds open interest, indicating an opening position. If it’s the case that the transaction is a debit put spread, the strategist responsible for the position is prepared for financials to potentially hit fresh 52-week lows by November expiration. The parameters of such a spread imply maximum possible gains of $1.64 per contract in the event of a 20.0% drop in the fund’s shares to $10.00. The protective play or perhaps outright bearish stance may be a prudent one should earnings from the likes of BAC, WFC and GS prove disappointing. Any sign that optimism over European leaders’ recent attempts to tackle the debt and banking crises was premature, may also be expected to knock financials off their feet once again.

About Caitlin Duffy 373 Articles

Affiliation: Interactive Brokers

Caitlin Duffy joined Interactive Brokers in 2009. In her role as Equity Options Analyst, Caitlin provides daily market commentary; highlighting various options trades, trading patterns and strategies of interest. Through Interactive Broker's webinar program, Ms. Duffy presents a number of educational, options-related events describing the theoretical pricing of options, the option Greeks as well as options strategies.

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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