BBY – Best Buy, Inc. – A bull call spread initiated on the world’s largest electronic retailer this morning suggests one option strategist is positioning for shares in Best Buy to potentially post double-digit percentage gains by January 2013 expiration. Shares in the retailer are up 5.9% at $18.33 this morning on news Best Buy agreed to permit its founder, Richard Schulze, to perform due diligence on the company required to further the process of possibly taking over the retailer with a group of private equity firms. The sizable spread was constructed through the purchase of 6,750 calls at the Jan. ’13 $19 strike call and the sale of the same number of calls up at the Jan. ’13 $23 strike, all for a net premium outlay of around $1.28 per contract. The spread makes money if shares in BBY rally another 11% to surpass the average breakeven price of $20.28, with maximum possible profits of $2.72 per contract available should the stock soar 25.5% to $23.00 by expiration next year. Options on Best Buy are more active than usual today, with volume in excess of 56,200 contracts running at approximately 156% of the stock’s average daily volume of 35,942 contracts.
KNXA – Kenexa Corp. – Shares in Kenexa Corp. are up nearly 42% this afternoon at $45.85 on news IBM agreed to buy the maker of human resources software for $1.3 billion in cash. It looks like the sharp move in the share price has some options traders sitting on substantial paper profits. Call open interest in Kenexa is largest at the Sep. $35 strike where 399 positions were initiated during the past few weeks. A 100-lot block was purchased at a premium of $1.00 back on August 9th and around 35 of the calls were picked up this past Friday at an average premium of $0.85 apiece. Call buyers paying up to $1.00 per contract for the $35 calls prior to IBM’s purchase of the company are now holding contracts trading with a bid/ask spread of $10.80/$11.00 each as of 11:50 a.m. ET. Overall options volume of 1,422 contracts in play on the stock thus far in the session is well above KNXA’s average daily volume and exceeds overall open interest in the name of 1,243 contracts.
NOK – Nokia Corp. – The sale of a large block of 15,000 put options on mobile phone maker, Nokia Corp., suggests one strategist does not see shares in the name losing more than half of their current value during the next eight months. The stock is up better than 9% this afternoon at $3.36 as of 12:20 p.m. ET on the heels of a more than 105% move to the upside off a more than 15-year low of $1.63 reached back in July. Despite triple-digit percentage gains in recent weeks, the stock is down 35% year-to-date, is well off the $40.00-plus share price attained back in 2007 and trades at just a fraction of the $60.00-plus price of the stock in 2000. The options player selling 15,000 puts at the April $1.5 strike for a premium of $0.14 apiece keeps the full amount of premium received on the transaction as long as shares in Nokia Corp. exceed $1.50 through expiration next year. However, if Nokia shares nosedive ahead of April expiration, the put seller may wind up having 1.5 million shares of the underlying put to him or her at an effective price of $1.36 a share.