Option Activity Alert: AMLN, XLNX, DF, NTGR

AMLN – Amylin Pharmaceuticals, Inc. – Shares in the biopharmaceutical company plunged 18.1% to an intraday low of $8.95 on Tuesday on news the company ended its diabetes partnership with drug maker, Eli Lilly & Co. Options activity on Amylin Pharmaceuticals, however, suggests some strategists see the selloff as overdone, with a number of investors stepping up today to position for the price of the underlying to rebound. Near-term bulls snapped up more than 1,650 calls at the Nov. $11 strike for a premium of $0.22 apiece. Buyers of the call options profit at expiration if shares in AMLN surge 21.4% over the current traded price of $9.24 (as of 11:50 am in New York), to surpass the average breakeven price of $11.22. Optimism for an AMLN-recovery story spread to the Dec. $10 strike, where more than 5,600 call options changed hands against open interest of 270 contracts. It looks like one investor purchased the majority of these calls for an average premium of $0.85 a-pop. The strategist profits at expiration next month in the event that Amylin’s shares increase 17.4% to trade above $10.85. Longer-dated contracts are the most active in terms of volume on the drug maker so far today. One trader appears to have purchased a 5,000-lot April 2012 $10/$15 call spread for a net premium of $1.30 per contract. The call-spreader may reel in profits of up to $3.70 per contract on the position if AMLN’s shares jump 62.3% to exceed $15.00 by April expiration day. Meanwhile, the sale of 9,000 puts for a premium of $0.63 per contract at the April 2012 $6.0 strike suggests at least one investor expects the price of the underlying to exceed that level through expiration next year. The trader walks away with the premium in hand as long as the put options expire worthless at April expiration day. We note that while much of the activity in Amylin options is likely bullish, the stock was not exclusively populated with bullish players. Some of the volume generated in April 2012 contract calls looks to have been sold by traders betting against the likelihood of steep double-digit gains the shares. Additionally, light put buying the front month indicates other investors are prepared to see the stock pull back further ahead of November expiration. Options implied volatility on AMLN is up 46.7% at 85.0% just after midday on the East Coast.

XLNX – Xilinx, Inc. – Renewed takeover chatter, as reported by theflyonthewall.com, spurred trading in Xilinx call options this morning, and helped shares in the chipmaker earlier rise 2.0% to an intraday high of $33.64. The stock gave up earlier gains, and presently trades 0.10% lower on the day at $32.94 as of 12:20 pm in New York. Trading traffic in XLNX call options is heaviest in the front month, where the Nov. $34 strike call changed hands more than 5,600 times against open interest of 583 contracts. It looks like most of these calls were purchased for an average premium of $0.43 each. Buyers of the call options may profit at expiration next Friday in the event that Xilinx’s shares increase 4.5% over the current price of $32.94 to exceed the average breakeven point on the upside at $34.43. Investors exchanged some 2,800 calls at the higher Nov. $35 strike against open interest of 336 positions, but trading at this strike was initiated by both buyers and sellers for an average premium of $0.18 apiece. Sellers of the call options keep the full amount of premium received as long as XLNX shares fail to rally above $35.00 at expiration day, while buyers of the contracts lose the premium paid under this scenario. Finally, Dec. $36 and $37 strike call options attracted greater-than-normal volume in the first half of the session. Trading in the Dec. contract calls was mixed, as well.

DF – Dean Foods Co. – The food and beverage provider’s shares are up 3.85% at $10.55 in early-afternoon trade, ahead of the company’s third-quarter earnings report before the opening bell on Wednesday. Heightened activity in December contract calls this morning suggests one player is positioning for the price of the underlying to continue to climb ahead of expiration next month. Dean Foods Co. was raised to ‘Overweight’ from ‘Equal Weight’ with a share price target of $13.00, up from $11.00, at Stephens today. It looks like one investor was responsible for much of the volume printed in Dean Foods calls in the first half of the session. The trader appears to have purchased 3,325 calls at the Dec. $11 strike for an average premium of $0.52 per contract. Profits may be available to the investor on the position in the event that the dairy processor’s shares surge 9.2% to trade above the average breakeven price of $11.52 by December expiration. Shares in the Dallas, Texas-based company last traded above $11.52 back in July.

NTGR – Netgear, Inc. – The maker of networking products popped up on our ‘hot by options volume’ market scanner this morning due to greater-than-usual activity in Netgear calls. Shares in NTGR surged 8.8% to an intraday high of $38.35 today, and it looks like a number of options players are prepared to profit should the stock continue its run higher in the near term. Investors traded 399 calls at the Nov. $39 strike against zero open positions, and appear to have purchased most of the contracts for an average premium of $0.68 apiece. Traders long the calls may profit at expiration if Netgear’s shares rally another 3.5% over today’s high of $38.35 to surpass the average breakeven point at $39.68. Bulls purchased another 191 calls at the higher Nov. $40 strike, and picked up 111 calls at the Nov. $41 strike, for average premiums of $0.43 and $0.28 each, respectively. Netgear is scheduled to participate in the Goldman Sachs Small Cap Technology 1 on 1 Conference on Thursday in San Francisco, California.

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.

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