Stock Options Watch: YHOO, FWLT, MDR

YHOO – Yahoo!, Inc. – Near-term bullish positions established on Yahoo yesterday are working for some options players on Friday, with shares in the name rallying as much as 4.5% this morning to $22.28, the highest level since July 2008. On Thursday, we noted upside call buying at the Mar. 08 ’13 $22 strike. More than 3,000 of the $22 strike weekly calls changed hands yesterday, with much of the volume purchased at an average premium of $0.11 per contract. Continued gains in the price of the underlying shares since then has pushed the value of those contracts up sharply overnight, with premium on the $22 strike calls nearly quadrupling to $0.40 as of 11:20 a.m. ET. Trading traffic in Yahoo weeklies this morning suggests some strategists are looking for short-term bullish positions to pay off next week as well. Volume in the Mar. 08 ’13 $22.5 strike calls is approaching 4,300 contracts versus open interest of 117 lots, and much of the volume appears to have been purchased in the early going for an average premium of $0.14 apiece. Buyers of the $22.5 strike call options may profit if shares in Yahoo continue to hit fresh multi-year highs next week.

MDR – McDermott International, Inc. – Shares in the provider of off-shore drilling platforms are down 13.75% at $10.97 this afternoon, wiping out all gains realized year-to-date, following the company’s fourth-quarter earnings report after the closing bell on Thursday. The company swung to a fourth-quarter profit, but projected 2013 revenue below average analyst expectations. A sizable position initiated in MDR puts ahead of the earnings report has benefited one strategist, with the value of the bearish options soaring overnight. It looks like the trader purchased 3,000 puts at the Mar. $12 strike yesterday afternoon for a premium of $0.30 per contract. The subsequent double-digit percentage drop in the price of the underlying lifted premium on the $12 strike put options to as high as $1.15 each this morning. The put buyer may have taken profits off the table earlier in the session given 3,200 of the $12 strike puts were traded this morning. It looks like most of the put options were sold during the first hour of the trading day for an average premium of $0.80 per contract.

FWLT – Foster Wheeler AG – Options on the engineering, construction and project management contractor and power equipment supplier are active today after the company reported lower-than-expected fourth-quarter earnings and revenue ahead of the opening bell. Shares in Foster Wheeler are down 16% at $20.20 as of 11:50 a.m. ET. Options traders bracing for further declines in the price of the underlying snapped up Mar. $20 strike puts, purchasing upwards of 1,000 lots at an average premium of $0.79 apiece. These contracts make money if shares in FWLT decline 4.9% from the current level of $20.20 to breach the average breakeven point on the downside at $19.21 by March expiration. Meanwhile, options players positioning to benefit from a rebound in the stock during the next couple of months appear to be putting premium to work in the April expiry calls. It looks like traders picked up a couple hundred calls at the April $23 strike, paying an average premium of $0.18 per contract. Call buyers may profit at April expiration in the event that Foster Wheeler shares surge 15% to top $23.18.

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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