Stock Options Watch: SFD, ELLI, GILD

SFD – Smithfield Foods, Inc. – Put options changing hands on pork processor, Smithfield Foods, Inc., this morning look for shares in the name to potentially pull back to the lowest level year-to-date by May expiration. Shares in SFD are up 0.60% on the session to stand at $25.39 as of 11:20 a.m. ET, reversing a portion of Monday’s near 3% decline. The stock is up roughly 25% since this time last year. Overall options volume in excess of 3,750 contracts in play on Smithfield thus far today is substantial versus the stock’s average daily volume or around 635 contracts. Most of the volume is in the May $22 strike puts, with some 3,600 lots trading against open interest of 1,179 lots. Time and sales data indicates one trader purchased the bulk of the put options at a premium of $0.20 apiece. The bearish stance may pay off at expiration next month in the event that Smithfield’s shares drop 14% from the current level to breach the effective breakeven point on the downside at $21.80.

ELLI – Ellie Mae, Inc. – Options on mortgage management software systems and technology provider, Ellie Mae, Inc., are more active than usual today, with volume rising to roughly five times the stock’s average daily volume. Trading traffic in the May expiry put options indicates some traders may be positioning for the price of the underlying to slide following the company’s first-quarter earnings report after the close on April 30th. Shares in ELLI, up 105% since this time last year, gained 0.20% this morning to trade at $24.00 by 11:40 a.m. ET. Options traders bracing for shares in the name to falter exchanged roughly 1,000 puts at the May $20 strike, buying most of these contracts for an average premium of $0.39 apiece. Put buyers profit at expiration if ELLI shares slide 18% from the current level to settle below the breakeven price of $19.61. Shares in Ellie Mae last traded below $19.61 at the end of February.

GILD – Gilead Sciences, Inc. – Far out-of-the-money put options trading on Gilead Sciences this morning protect against a severe pullback in the price of the underlying to the lowest levels of the year through June expiration. Shares in GILD, up around 125% since this time last year, gained 2.2% today to trade at $51.80. Traders snapped up around 1,890 of the June $37 puts for a premium of $0.15 each, and purchased 2,797 of the June $35 strike puts at a premium of $0.11 apiece at around 10:10 a.m. ET this morning. Put buyers may be securing disaster insurance to protect long positions in the underlying stock, or establishing outright bearish bets that profit from double-digit percentage declines in the share price. The $37 puts make money if shares in GILD drop nearly 30% from the current price to trade below the breakeven point at $36.85, while the $35 strike puts look for a more than 32% dip in the share price to $34.89 by June expiration. Gilead Sciences reports first-quarter earnings on May 2nd after the closing bell.

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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