Options Activity Alert: LNKD, XRT, FOSL

LNKD – LinkedIn Corp. – Activity in far out-of-the-money put options on the social networking site for professionals suggests some traders fear the price of the underlying could drop substantially from current levels. Shares in LNKD closed last week at $117.31, up nearly 80.0% year-to-date at the highest closing price since the IPO, following the release of better-than-expect first-quarter earnings. However, near-term bearish positions initiated this morning look for declines in the near term, while longer-term put purchases paint a far gloomier picture for the shares during the next few months. LinkedIn’s shares are off their lows of the session, but remain firmly in the red, down 4.7% at $106.24 as of 12:25 p.m. in New York. Weekly put buyers snapped up puts at the May $100 and $95 strikes, shelling out an average premium of $1.24 and $0.75, respectively, for more than 500 contracts at each strike. Traders may profit at the end of the week if shares in LinkedIn continue to sink. Meanwhile, the purchase of more than 1,650 puts at the July $70 strike for an average premium of $1.22 apiece look for shares to plunge more than 35.0% this summer. Traders long the $70 strike puts make money if shares in LNKD settle below the effective breakeven price of $68.78 at July expiration.

XRT – SPDR S&P Retail ETF – Retail stocks may continue to sell off, by the looks of massive stakes taken in XRT put options this morning. Shares in the equal-weighted retail ETF are down 1.5% at $59.45 this afternoon as stocks across the board sink. The two largest trades in XRT options today are in the May $56 put, with a total of 55,000 contracts purchased in two blocks at a premium of $0.35 apiece. The put trades could represent hedges to protect long exposure to the retail sector, or may be outright bearish bets that the pullback in the XRT is likely to continue through May expiration. Profits, or downside protection, is available on the position should shares in the ETF drop 6.4% to breach the effective breakeven price of $55.65. The XRT currently trades 11.35% higher than it did at the start of 2012, but had been up as much as 18.0% for the year as of last Monday.

FOSL – Fossil, Inc. – A ratio put spread initiated on watchmaker, Fossil, Inc., yesterday ahead of the Company’s first-quarter earnings report had the right idea, but underestimated the magnitude of the downside move in the stock. Fossil shares are down 37.25% to stand at $78.91 as of 1:05 pm ET after the Company lowered its full-year earnings forecast due to softness in Europe. Bearish players expecting the selloff to continue picked up out-of-the-money puts in the front month. Contracts that were worth just pennies ahead of the report were today purchased at far heftier premiums. Traders positioning for shares to fall another 8.0 to 13.0% in the near term paid an average premium of $1.79 apiece for the May $75 strike put, and shelled out $1.26 per contract to get long the May $70 strike put. The May $105/$120 one-by-two ratio put spread purchased at a premium of $2.00 per contract yesterday looked for maximum profits in the event of a roughly 18.0% decline in the shares to $105.00, however, shares in FOSL plunged straight through $105 and are now trading well below the effective lower breakeven share price of $92.00 implied by the ratio spread. As of today, the position appears to be a losing proposition even though the directional bet turned out to be spot on.

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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