Option Activity Alert: Coca-Cola, Kinetic Concepts, Applied Micro Circuits

KO – Coca-Cola Co. – Bulls are dominating options trading activity on the world’s largest soft drink maker this afternoon with shares of the Atlanta-based company rallying as much as 0.78% to secure a new 52-week high of $60.47. Coke reported third-quarter earnings before the opening bell this morning and said it expects to repurchase about $2 billion worth of its shares, up from $1.5 billion, by the end of the year. The firm’s U.S. sales improved for the second consecutive quarter, net income increased 8.4% and beverage volume in emerging markets grew significantly in the quarter. Bullish players sold near-term puts and picked up call options on Coca-Cola. Investors sold approximately 1,700 puts at the November $57.5 strike for premium of $0.24 per contract, and shed 1,200 puts at the November $60 strike for an average premium of $0.88 each. Traders hoping to see shares extend gains through expiration day next month picked up 1,700 in-the-money calls at the November $60 strike for premium of $1.03 each. Trading traffic was heaviest in calls at the higher November $62.5 strike where roughly 9,600 contracts were purchased for an average premium of $0.27 a-pop. Investors holding these contracts make money if Coca Cola’s shares increase another 3.80% over today’s high of $60.47 to surpass the average breakeven price of $62.77 by November expiration.

KCI – Kinetic Concepts, Inc. – Shares of the global medical technology company fell more than 9.50% today to an intraday low of $34.47 on news a U.S. District Court overturned a jury verdict from March that said London-based rival Smith & Nephew infringed on patents held by Kinetic Concepts. Both companies design negative pressure wound treatment products intended to expedite the healing process, but yesterday’s court decision invalidates Kinetic’s claims that its patents were infringed by Smith & Nephew. Long-term bearish options traders populating KCI today are suggesting the hemorrhaging in the firm’s shares may not yet be over. At least one investor anticipating continued share price erosion purchased 4,200 puts at the January 2012 $30 strike for a premium of $4.10 per contract. The trader is prepared to make money should Kinetic’s shares plunge 24.9% from today’s low of $34.47 to breach the effective breakeven price of $25.90 ahead of expiration day in January of 2012. Options implied volatility on the stock is up 22.2% as of 3:00 p.m. to stand at 38.43%. More than 8,950 option contracts changed hands on Kinetic Concepts thus far in the session, which is greater than the 7,636 lots of previously existing open interest on the stock.

AMCC – Applied Micro Circuits Corp. – Shares of the semiconductor company are down 3.25% this afternoon to stand at $9.30 just after 1:15 p.m. in New York. Investors expecting the price of the underlying shares to continue to decline ahead of November expiration picked up in-the-money put options on the stock at the start of the trading session. Pessimistic players purchased approximately 2,500 in-the-money puts at the November $10 strike for an average premium of $1.24 per contract. Put buyers are poised to profit should Applied Micro Circuits’ shares tumble 5.80% from the current price of $9.30 to breach the average breakeven point to the downside at $8.76 by expiration day next month. AMCC’s shares have traded above $8.76 since mid-April, 2010. Demand for put options helped the stock’s overall reading of options implied volatility rise 9.7% to 59.17% this afternoon. Earlier in the session implied volatility surged to 69.11%, the highest reading on AMCC in at least one year. The semiconductor maker announces second-quarter results after the closing bell on October 28.

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.

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