Option Activity Alert: U.S. Bancorp, Volterra, Kroger

USB – U.S. Bancorp – The financial services holding company reported better-than-expected third-quarter net income of $0.45 a share this morning versus the average estimate of $0.43 in profits per share. Despite the positive earnings report shares of the fifth-largest U.S. commercial bank by deposits turned negative by 11:40 a.m. after having risen modestly earlier in the session. USB’s shares are currently down 0.20% to stand at $22.76. One options strategist anticipating continued erosion in the value of U.S. Bancorp’s shares purchased a put spread in the January 2011 contract. The trader picked up approximately 5,000 puts at the December $22 strike for an average premium of $0.74 each, and sold the same number of puts at the December $19 strike at an average premium of $0.18 apiece. Net premium paid to establish the bearish spread amounts to $0.56 per contract. Thus, the put player is poised to profit should USB’s shares fall 5.80% from the current price of $22.76 to breach the average breakeven point to the downside at $21.44 by December expiration. Maximum potential profits of $2.44 per contract are available to the investor should the financial services firm’s shares plunge 16.5% lower to trade under $19.00 by expiration day. Options implied volatility on U.S. Bancorp is down 11.4% at 27.19% following the release of third-quarter earnings this morning.

VLTR – Volterra Semiconductor Corp. – Shares of the maker of semiconductors for computing, storage, networking and consumer markets fell 3.40% to $18.98 in early afternoon trading. One bearish investor expecting the price of the underlying shares to head lower by November expiration established a put spread this morning. The trader purchased approximately 3,650 in-the-money puts at the November $20 strike for an average premium of $1.72 each, and sold about the same number of puts at the lower November $17.5 strike for a premium of $0.47 apiece. The net cost of the transaction amounts to $1.25 per contract. Profits are available to the put player if Volterra’s shares slip beneath the average breakeven price of $18.75 ahead of expiration day next month. Maximum potential profits of $1.25 per contract are available to the investor should shares of the semiconductor company plunge 7.80% to trade below $17.50 by November expiration. The spread may represent a hedge by an investor holding VLTR stock ahead of the firm’s earnings report or an outright bearish bet on the near-term performance of the stock. Volterra is scheduled to reveal its performance for the third quarter after the closing bell on October 25, 2010.

KR – Kroger Co. – Options investors are augmenting near-term bullish positions on the operator of retail food and drug stores today with the price of the underlying shares rising as much as 1.45% to an intraday high of $21.73 as of 11:55 a.m. in New York. Kroger popped up on our scanners in the first half of the session after bullish players sold 5,000 puts at the November $21 strike for an average premium of $0.25 apiece. Put sellers keep the full $0.25 premium per contract received today as long as Kroger’s shares exceed $21.00 through November expiration. Analyzing put open interest at the November $21 strike reveals that like-minded bulls shed roughly 5,000 puts at that strike on Monday for an average premium of $0.15 each. Adding to short interest in put options indicates these traders expect shares to exceed $21.00 through expiration next month. Investors are also indicating that the premium of $0.15 to $0.25 per contract pocketed on the sale is sufficient compensation for bearing the risk that the puts land in-the-money at expiration, and the shares are put to them at an average price of between $20.85 and $20.75 each.

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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