Option Activity Alert: CSC, SGY, JPM, UNH

CSC – Computer Sciences Corp. – Bearish traders snapped up put options on the provider of information technology services straight out of the gate this morning, a sign the already hard-hit stock may have further to fall before the current calendar year concludes. Shares in Computer Sciences Corp. opened sharply lower, one day after the company reduced its fiscal 2012 profit estimate and reported a second-quarter net loss of $2.88 billion. Excluding some items the company earned $0.94 a share in the quarter, more than the $0.68 a share anticipated by analysts, on average. CSC’s shares closed Wednesday’s session down 15.0%, and extended losses on Thursday, falling 8.0% this morning to an intraday low of $25.67. The stock was cut to ‘Underweight’ from ‘Neutral’ at JPMorgan today. Investors positioning for the stock to continue to decline picked up deep out-of-the-money November and December expiry puts that look for the price of the underlying to suffer additional double-digit declines in the near future. Bears populating the front month picked up more than 700 puts at the Nov. $25 strike for an average premium of $0.58 each, and purchased some 400 put options at the lower Nov. $22.5 strike at an average premium of $0.15 a-pop. Options volume on the stock is heaviest, however, in the December expiry. One trader appears to have purchased a block of 5,000 put options at the Dec. $20 strike for a premium of $0.30 each. The put player may profit at expiration next month in the event that CSC shares plunge 23.25% off today’s low of $25.67 to breach the effective breakeven price of $19.70. Finally, Dec. $22.5 strike puts were popular this morning, as well, with some 1,300 of the options having been purchased for an average premium of $0.59 apiece. Computer Sciences Corp. shares are down a staggering 55.0% off the February 8, 2010, 52-week high of $56.51. Options implied volatility on CSC is up better than 40.0% to stand at 69.2% as of 11:50 AM in New York.

SGY – Stone Energy Corp. – The independent oil and natural gas company popped up on our ‘hot by options volume’ market scanner today due to heavier-than-usual activity in its calls. Shares in Stone Energy Corp. are up more than 5.1% this afternoon to stand at $26.25 as of 12:50 PM ET, and it looks like some traders are gearing up for the good times to continue. Stone Energy’s shares increased more than 12.0% over the past week on the heels of better-than-expected third-quarter earnings reported by the company last Wednesday. But, the stock has been explosive over the past month, having gained nearly 80.0% since touching down at an October 4, 52-week low of $14.64. Investors positioning for shares in SGY to extend gains snapped up more than 1,000 calls at the Nov. $26 strike for an average premium of $1.05 apiece. Near-term bulls may profit if shares in the energy company rally another 3.0% over the current price of $26.25 to surpass the average breakeven price of $27.05 by expiration next week. Longer-term optimists anticipating big upside moves in the stock purchased around 680 calls at the Mar. 2012 $31 strike for an average premium of $1.85 each, and picked up another 700 calls at the higher Mar. 2012 $32 strike at an average premium of $1.51 a-pop. Buyers of the calls stand ready to profit in the event that Stone’s shares jump roughly 25.0% and 28.0%%, to surpass the effective breakeven prices of $32.85 and $33.51, respectively, by expiration day in March. SGY’s shares last traded above $33.51 in August.

JPM – JPMorgan Chase & Co. – Shares in JPM opened higher on Thursday, but pulled back into negative territory as the session progressed, to stand 0.50% lower at $32.39 in early-afternoon trade. A large position initiated in longer-dated call options on the stock this morning suggests one strategist is prepared to see shares in JPMorgan Chase & Co. post double-digit gains by expiration in February 2012. The bullish player appears to have purchased a block of 7,700 calls at the Feb. 2012 $37 strike at a premium of $1.31 per contract. The trader profits at expiration if shares in the banking institution surge 18.3% over the current price to surpass the effective breakeven point on the upside at $38.31. JPM’s shares last traded above $38.31 in August.

UNH – UnitedHealth Group, Inc. – The health care provider received a vote of confidence from one options strategist who appears to be betting that shares in UnitedHealth will exceed $44.00 through December expiration. Shares in UNH today rose 1.0% to $46.01 just before 12:00 PM ET. It looks like the put player sold 5,000 lots at the Dec. $44 strike to pocket premium of $1.13 per contract. The investor walks away with the full amount of premium, a total of $565,000, as long as shares in UNH settle above $44.00 at expiration day next month. The stock had been as low as $41.32 as recently as October 4. The outright sale of the puts implies the trader may have 500,000 shares of the underlying put to him at an effective price of $42.87 should the put options land in-the-money at expiration.

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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