Option Activity Alert: BMC Software, Target, Buckle

BMC – BMC Software, Inc. – Shares of the software company rallied as much as 9.55% in the first half of the trading session to touch a 10-year high of $43.44 on reports the firm may put itself up for sale. The surge in the price of the underlying stock and speculation BMC Software could be up for grabs spurred options traders to action right out of the gate this morning. A number of investors expecting BMC’s shares to climb higher initiated debit call spreads on the stock. One such optimist picked up 2,500 calls at the January 2011 $45 strike at a premium of $2.85 each, and sold the same number of calls at the higher January 2011 $55 strike for a premium of $0.55 apiece. Net premium paid to establish the spread amounts to $2.30 per contract. The investor stands ready to amass profits should the software company’s shares increase 8.9% over today’s high of $43.44 to surpass the effective breakeven point on the spread at $47.30 by January expiration. Maximum potential profits of $7.70 per contract are available should shares surge 26.6% and trade above $55.00 ahead of expiration day next year. The overall reading of options implied volatility on BMC Software is up 11.0% at 41.14% just before 1:00 pm in New York trading.

TGT – Target Corp. – Shares of the retailer fell 0.90% to an intraday low of $53.59 at the start of the trading session after the firm’s reported 1.3% rise in same-store sales for the month of September disappointed analysts expecting an increase of 1.9% in revenue last month at Target stores open for more than one year. TGT’s shares have recovered as of 11:45 am ET to stand 0.10% higher on the day at $54.15. It looks like disappointing data from the company prompted one options strategist to initiate a ratio put spread in the November contract. The bearish transaction may also represent a hedge ahead of Target’s third-quarter earnings release before the opening bell on November 17, 2010. The investor picked up 2,500 in-the-money puts at the November $55 strike for a premium of $2.18 each, and sold 5,000 puts at the lower November $52.5 strike at a premium of $1.09 apiece. The transaction nets out to zero and position the investor to accumulate maximum potential profits of $2.50 per contract if Target’s shares fall 3.05% to settle at $52.50 at expiration day in November. If TGT’s earnings miss estimates entirely and cause shares to drop sharply, the trader will amass losses on the spread beneath the effective breakeven price of $50.00.

BKE – Buckle, Inc. – Options traders are scooping up call options on the casual-clothing retailer today after the firm reported same-store sales increased 3% in September. Analysts had been expecting Buckle to post a 4.4% decline in same-store sales for the previous month. The positive surprise sent the retailer’s shares up as much as 10.5% to an intraday high of $29.50 in morning trading. Shares are currently up 8.30% to stand at $28.91 as of 1:05 pm ET. The most popular options on the stock today are the near-term October $30 strike calls. The majority of the 1,130 calls exchanged at that strike were purchased for an average premium of $0.40 each. Investors long the calls make money if Buckle’s shares surge 5.15% and trade above $30.40 by October expiration. BKE’s overall reading of options implied volatility is down 8.1% at 42.45% in early afternoon trading.

About Andrew Wilkinson 1023 Articles

Affiliation: Interactive Brokers

Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.

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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