Stock Options Watch: HIG, NUAN, XLU

HIG – Hartford Financial Services Group, Inc. – Shares in insurer, Hartford Financial Services Group, Inc., are trading at their highest level since May of 2011 today after the company posted better than expected first-quarter earnings after the close on Monday. The stock is up 3.5% at $28.17 as of 11:20 a.m. ET this morning and some options players appear to be positioning for the price of the underlying to extend gains in the near term. The most actively traded contracts on HIG as measured by volume today are the May $29 strike calls, with upwards of 7,000 lots in play versus open interest of 2,184 contracts. It looks like most of the volume was purchased during the first 30 minutes of the trading session for an average premium of $0.38 each. Traders long the $29 calls stand ready to profit at expiration in the event that HIG’s shares rally another 4.3% over the current price of $28.17 to surpass the average breakeven point at $29.38. Hartford’s shares are up roughly 80% off a 52-week low of $15.56 set back in August of 2012.

NUAN – Nuance Communications, Inc. – Investors in speech recognition software maker, Nuance Communications, Inc., are taking it on the chin today as shares in the name tumble on the lower than expected second-quarter earnings and revenue reported by the company ahead of the opening bell. Shares in NUAN dropped as much as 19% to a one-month low of $18.86 this morning. Double-digit percentage declines in the price of the underlying appears to have spurred some contrarian trading in Nuance options. Strategists positioning for shares in the audio software provider to rebound during the next couple of months snapped up around 1,700 calls at the Jun $20 strike for an average premium of $0.90 each in the early going today. The bullish bet may pay off at June expiration if shares in Nuance manage to rally 11% off the $18.86 low to surpass the average breakeven point at $20.90. Shares in NUAN are down more than 20% since this time last year.

XLU – Utilities Select Sector SPDR ETF – Shares in the XLU touched yet another fresh 52-week high on Tuesday, advancing 0.20% to $41.40 during the first half of the trading session. However, options activity on the Utilities Select Sector SPDR ETF today suggests traders are bracing for a pullback in the price of the underlying in the near future. Volume in XLU options today is greatest at the Jun $41 strike where around 17,000 puts changed hands by midday in New York. Time and sales data indicates the bulk of the volume was purchased at an average premium of $0.74 each. Buyers of the $41 puts make money as long as shares in the ETF drop 2.75% from the current price to trade below the average breakeven point on the downside at $40.26 by June expiration. A sizable bearish bet, the purchase of a block of 50,000 put options at the Jun $40 strike for a premium of $0.51 per contract, was initiated on the XLU last week as well. The Jun $40 calls are active again today, with some 4,500 contracts purchased at a premium of $0.38 apiece this morning.

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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