Stock Options Watch: LEN, ZLC, M

LEN – Lennar Corporation – Shares in single-family home builder, Lennar Corp, slipped 2.4% on Wednesday morning to $31.39, the lowest level since August 21st of last year, but options changing hands on the stock today indicate one or more traders are positioning for shares to rebound somewhat during the next five weeks. It looks like options players are buying the Sep $32/$36 call spread, roughly 4,500 times as of the time of this writing, and paying an average net premium of $1.03 per spread. The bullish strategy makes money at expiration next month if shares in LEN rally 5.2% over today’s low of $31.39 to exceed the average breakeven point at $33.03, with maximum potential profits of $2.97 per contract available in the event of a more than 14.5% rally in the price of the underlying to $36.00. Shares in the homebuilder last traded above $36.00 in mid-July.

ZLC – Zale Corporation – Options in play on the operator of specialty retail jewelry stores today suggests some traders are looking for shares in Zale Corp to extend gains in the near term. Shares in ZLC, up nearly 170% since March, increased more than 10% today to touch a new four-year high of $10.29. The Aug and Sep $10 strike call options are the most actively traded by volume today, with roughly 800 of the Aug $10 calls purchased for an average premium of $0.18 each, and around 500 of the Sep $10 calls picked up at an average premium of $0.86 apiece. Traders long the Sep $10 calls may profit at expiration next month if shares in Zale rally 5.5% over today’s high of $10.29 to top the average breakeven price of $10.86. Zale Corp is scheduled to report fourth-quarter earnings ahead of the open on August 28th.

M – Macy’s, Inc. – An options strategy initiated in November expiry calls and puts today appears to prepare one trader to profit should shares in the retailer rebound during the next few months. Shares in Macy’s are down more than 4.0% today to stand at $46.48 as of 12:10 p.m. ET after the company this morning released second-quarter earnings that missed analyst estimates. The department store operator also lowered its forecast for full year earnings to $3.90 a share from a previously estimated maximum of $3.95 a share. One trade in Macy’s options during the first 30 minutes of the session may have been established to benefit from a recovery in the price of the underlying. It looks like one trader sold 3,000 of the Nov $44 puts at a premium of $1.43 each in order to offset the cost of buying 3,000 of the Nov $49 calls for a premium of $1.31 apiece. The strategy results in a net credit of $0.12 per contract, which the trader keeps as long as shares in Macy’s exceed $44.00 at expiration. Additional gains are available on the upside should shares in the name rally more than 5.0% over the current price of $46.48 to trade above $49.00. It is unclear whether the options trade was tied to a transaction in the underlying shares.

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.

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