Stock Options Watch: STZ, PETM, XRT

STZ – Constellation Brands, Inc. – A large stock and options combination play on wine, beer and spirits producer, Constellation Brands, Inc., appears to be a synthetic put on the name that benefits from bearish movement in the price of the underlying in the near term.Shares in STZ, up roughly 80% since mid-June 2012, are currently down 1.1% on Monday afternoon to stand at $35.24 as of 12:05 p.m. in New York trading. The hefty transaction in STZ options today pushed overall options volume to a level well above the stock’s average daily options volume of around 13,100 contracts. The largest transaction in STZ options appears to be the purchase of a 20,000-lot Feb. $37.5/$42.5 call spread for an average net premium outlay of $0.75 per contract, tied to the sale of STZ shares at $34.80 on a 25.5 delta.The synthetic put position is a bearish strategy that prepares the trader to profit from declines in the price of Constellation Brands’ shares through February expiration.

PETM – PetSmart, Inc. – Shares in the specialty retailer of products and services for pets and their owners are in negative territory on the first trading session of the week, down 1.0% at $67.50 as of 11:30 a.m. ET on Monday. A sizable bearish options strategy initiated on PetSmart today suggests one trader is bracing for shares to potentially extend declines during the next few months. It looks like the strategist purchased a 2,000-lot April $60/$65 put spread for a net premium of $1.80 per contract. The bearish position starts making money if shares in PETM decline 6.4% from the current price of $67.50 to breach the effective breakeven point at $63.20. Maximum potential profits of $3.20 per contract are available on the trade in the event that shares drop more than 11% to settle below $60.00 at April expiration. PetSmart’s shares last traded below $60.00 in May 2012.

XRT – SPDR S&P Retail ETF – The XRT, an ETF that seeks to replicate the total return performance of the S&P Retail Select Industry Index, popped up on our ‘most active by options volume’ market scanner this morning after a large spread was initiated in the March expiry put options. The bearish strategy protects against a more than 7% adverse move in the price of the underlying during the next couple of months. Shares in the XRT, up nearly 20% since this time last year, today trade 0.30% lower on the session at $62.85 as of 11:45 a.m. ET. The single-largest trade in XRT options this morning appears to be a 10,000-lot Mar. $58/$62 debit put spread, purchased for a net premium of $0.97 per contract not long after the opening bell. The bearish strategist makes money if shares in the XRT decline 2.9% from the current price of $62.85 to trade below the breakeven point at $61.03. Maximum potential profits of $3.03 per contract are available on the trade should shares drop 7.7% to $58.00 during the next nine weeks to March expiration. A move down to $58.00 would return the price of the underlying fund down to the lowest level since August 2012.

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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