Options Activity Alert: SWY, THC, LNCR

SWY – Safeway, Inc. – Options trades initiated on grocery store chain operator, Safeway, Inc., this morning suggests predictions regarding the performance of the stock over the near- and longer-term are mixed. Shares in the second-largest U.S. grocer are up 2.1% at $18.02 just after midday, rising in sympathy with Kroger Co., which reported better-than-expected first-quarter earnings, announced board approval of a $1 billion stock buyback program, and raised its full year earnings forecast. Safeway’s shares have been hard-hit in 2012; touching down at $17.53 yesterday, the lowest year-to-date price for the stock. However, the purchase of some 1,000 calls at the July $19 strike for a premium of $0.30 apiece may mean some traders are keeping an eye on the stock’s upside potential. Call buyers may be prepping for SWY shares to rebound should the company report better-than-expected second-quarter earnings on July 19th. Traders long the calls profit if shares in SWY rally another 7.1% to top $19.30 at expiration next month. Meanwhile, activity in longer-dated December expiry puts points to possible weakening in the price of the underlying in the second half of the year. It looks like one trader purchased a block of 2,000 puts at the Dec. $16 strike for a premium of $1.15 apiece. The options may represent an outright bearish bet that the stock has further to fall, or could be a hedge to protect the value of a long position in the underlying shares. The long puts make money, or yield downside protection, come expiration day should shares in SWY plunge 17.6% from the current price to breach the effective breakeven point on the downside at $14.85.

THC – Tenet Healthcare Corp. – A large block of call options purchased on health care services provider, Tenet Healthcare Corp., this morning suggests one strategist may be positioning for shares in the name to extend recent gains. Shares in THC received a boost earlier in the week on positive comments from Citigroup analysts regarding U.S. hospital stocks prior to a Supreme Court decision on the healthcare reform law. THC, which was raised to ‘Buy’ from ‘Sell’ with an increased share price target of $6.00 from $4.00 at Citi on Monday, extended gains today. The stock is currently up 1.5% to stand at $4.68 as of 11:20 a.m. in New York. The single largest trade in Tenet Healthcare options today was the purchase of a block of 14,259 calls at the July $5.0 strike for a premium of $0.30 apiece. Volume in the position is greater than the overall number of open contracts on THC given open interest of 13,707 contracts on the stock. The strategist initiating the trade stands prepared to profit in the event the price of the underlying shares rally another 13.25% to surpass the effective breakeven price of $5.30 by July expiration.

LNCR – Lincare Holdings Inc. – Shares in the provider of health care products and services are moving higher again today on heavy volume. The stock is up 3.0% just before midday in New York to arrive at $25.65 and have gained more than 15.0% since the end of last week. Traders positioning for shares in Lincare to continue to climb snapped up around 1,300 in-the-money calls at the July $25 strike for an average premium of $1.22 apiece. Call buyers profit at expiration as long as shares in the name increase another 2.2% to surpass the average breakeven price of $26.22.

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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